Section 7.3
The Home
Buying Process
Buying a home will
probably be the most
expensive purchase
you ever make.
You will need to
determine your home
ownership needs, find
and evaluate a
property to purchase,
price the property,
obtain financing, and
close the transaction.
 Consider the benefits
and drawbacks of
buying a home.
 Consider the types of
homes that are
available.
 Consider how much
you are able to spend.
Benefits

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
Stability and permanence
Decorating freedom
Financial benefits
$ Value of home usually
rises
Once paid off, you don’t
have to make any more
payments.
Drawbacks
Saving $ for down payment
is hard
 Property value may decline
 Limited mobility
 Home maintenance can be
expensive

What are two benefits
and two disadvantages
of owning a residence?
Single
Family
Dwellings
Multiunit
Dwellings
Condominium
Cooperative
Housing
Prefabricated
Homes
Mobile
Homes
Sits on a
separate lot
not attached
to any other
building
Duplexes and
townhouses
Groups of
apartments or
townhouses
that people own
and not rent
Pay monthly
fee which
covers rent
and
operating
expenses
Houses made
and partially
assembled at a
factory.
Cheaper than
building a
home on site.
Rarely
“mobile”.
Assembled at
factories and
moved to
home site.
What are 6 types of
housing you may own?
SIZE AND QUALITY
PRICE AND DOWN PAYMENT

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How much can you spend?
Look at your income
Look at your expenses
Do you have anything
saved for a down payment?
Talk to a loan officer at a
bank to get approved for a
loan.


How big do you need your
home?
What quality are you
willing to settle for?
TRADING UP

Be willing to buy small and
“trade up” as you make
more money and become
more financially stable.
 Select a location
 Hire a real estate agent

Conduct a home inspection: you may
be able to get the house cheaper
Determine the
Price of the Home
Negotiate the
Purchase Price
How long has the home
been on the market?
Offer what you are willing
to pay
What have similar homes
sold for?
Seller may accept or reject
Do the owners need to sell
in a hurry?
Seller may make counter
offer
How well does the home
meet your needs?
Seller and buyer may
agree on price
Buyer may pay seller a
portion of price called
earnest money.
Earnest money
shows the offer is
serious. Money sits in
an escrow account
where the $ is held
and then applied to
the down payment.
What questions should you ask
yourself when determining how
much to offer for a house?
What is an escrow account?
What is a counteroffer?

Determine the amount of
down payment. Usually 20%
of the purchase price.

If you do not have the 20%
you will have to obtain PRIVATE
MORTGAGE INSURANCE (PMI).

When the buyer has paid
between 20-25% of the
purchase price, the PMI
insurance can be dropped.
PMI is a policy that
protects the lender in case
the buyer cannot make
payments or cannot make
them on time. You can
usually elect to pay the
cost of the insurance up
front or spread it over
payments.
What are two benefits
and two disadvantages
of owning a residence?

A mortgage is a long-term loan
extended to someone who buys
property. The buyer will borrow
money and will need to pay the
lender payments (including
interest).

Mortgages are usually 15, 20, or 30
years.

If you fail to make the payments
the lender can foreclose or take
possession of your home.
What is a mortgage?

To take out a mortgage, you
need to meet certain criteria.

Most lenders charge between
$100 and $300 to apply for a
mortgage.

The monthly payments on a
mortgage are set at a level that
allows amortization of the
loan. Amortization is the
reduction of a loan balance
through payments made over
time.
Fixed-Rate
Mortgage
Mortgage with a fixed interest rate and a fixed schedule of
payments. Payments are always the same throughout the life of
the loan.
AdjustableRate Mortgage
Interest rate changes throughout the life of the loan according to
economic factors. Your payment may go up or down.
Home Equity
Loans
Refinancing
A loan based on the difference between the value of the home and
the amount the borrower owes on the mortgage. (a 2nd mortgage)
Obtaining a new mortgage to replace the existing one. If interest
rates fall (from 8 to 4%) you may be eligible to refinance to get
lower mortgage payments.
What are 4 types of
mortgages?

The final step is closing, which is a meeting of
the buyer, seller, and the lender of the funds
(or a representative such as a lawyer).

At closing, documents are signed, last minute
details are settled, and money is paid.

The buyer and seller must also pay closing
costs.
Item
Buyer
Seller
Title search fee
$50-$100
$300-$900
Title insurance
$300-$900
$50-$1000
Attorney’s fee
$50-$1000
$100-$500
Property survey
----
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Appraisal fee
$100-$350
----
Recording fees
$30-$65
$35-$65
Credit report
$35-$75
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Termite inspection
$100-$250
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Lender’s origination fee
1-5% of the loan
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Real estate agent’s
commission
-----
5-7% of purchase price
Insurance, taxes, and
interest
Varies
----
What are closing costs?

Prepare your home for selling:
The better it looks, the faster it
will sell.

Determine your selling price.
An appraisal (an estimate done
by a professional) will tell you
what the house is worth.

Choose a real estate agent.
They will attract buyers and
show your home but are paid
commission on your sale.

Sell it yourself.
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On your index card is the future occupation
that you want to have.
I have given you the average starting salary
for that occupation.
GENERALLY, you can afford a house 2 ½
times your average salary.
Search the internet for a house within your
price range in the area you want to live.
Print out your house and calculate how much
your down payment would need to be (20%).