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Evaluating Housing Alternatives Evaluating Housing Alternatives Section 34.1Section 34.1
Understanding Business and Personal Law
Evaluating Housing Evaluating Housing Alternatives Alternatives
Section 34.1Section 34.1
Buying a Home
Section 34.1Section 34.1Evaluating Housing Alternatives Evaluating Housing Alternatives
Section 34.2Section 34.2The Home Buying Process The Home Buying Process
3434ChapterChapter Buying a HomeBuying a Home
Understanding Business and Personal Law
Evaluating Housing Evaluating Housing Alternatives Alternatives
Section 34.1Section 34.1
Buying a Home
What You’ll Learn
How to compare the advantages and How to compare the advantages and disadvantages of buying a home (p. 730)disadvantages of buying a home (p. 730)
How to determine the amount of down How to determine the amount of down payment you will need and the payment you will need and the approximate amount you can borrow to approximate amount you can borrow to buy a home (p. 730)buy a home (p. 730)
Understanding Business and Personal Law
Evaluating Housing Evaluating Housing Alternatives Alternatives
Section 34.1Section 34.1
Buying a Home
What You’ll Learn
How to describe various types of How to describe various types of home ownership (p. 733)home ownership (p. 733)
Understanding Business and Personal Law
Evaluating Housing Evaluating Housing Alternatives Alternatives
Section 34.1Section 34.1
Buying a Home
Why It’s Important
Being able to evaluate housing alternatives Being able to evaluate housing alternatives will help you to decide whether to purchase a will help you to decide whether to purchase a home.home.
Understanding Business and Personal Law
Evaluating Housing Evaluating Housing Alternatives Alternatives
Section 34.1Section 34.1
Buying a Home
Legal Terms
mortgage (p. 730)mortgage (p. 730)equity (p. 730)equity (p. 730)debt ratio (p. 731)debt ratio (p. 731)cooperative (p. 735)cooperative (p. 735)condominium (p. 735)condominium (p. 735)
Understanding Business and Personal Law
Evaluating Housing Evaluating Housing Alternatives Alternatives
Section 34.1Section 34.1
Buying a Home
Deciding to Buy a Home Section OutlineSection Outline
Advantages to Home BuyingDisadvantages to Home BuyingHow Much Can You Afford?
Understanding Business and Personal Law
Evaluating Housing Evaluating Housing Alternatives Alternatives
Section 34.1Section 34.1
Buying a Home
Types of Home Ownership Single- and Multifamily HomesMobile HomesCooperativesCondominiums
Section OutlineSection Outline
Understanding Business and Personal Law
Evaluating Housing Evaluating Housing Alternatives Alternatives
Section 34.1Section 34.1
Buying a Home
Pre-Learning Question Pre-Learning Question
What do you do before deciding to buy a home?
Understanding Business and Personal Law
Evaluating Housing Evaluating Housing Alternatives Alternatives
Section 34.1Section 34.1
Buying a Home
Deciding to Buy a Home Deciding to Buy a Home
Buying a home may be the most Buying a home may be the most important purchase you will ever important purchase you will ever make. make.
Understanding Business and Personal Law
Evaluating Housing Evaluating Housing Alternatives Alternatives
Section 34.1Section 34.1
Buying a Home
Deciding to Buy a Home Deciding to Buy a Home
You will need to:You will need to:
weigh the advantages and weigh the advantages and disadvantagesdisadvantagesconsider how much you can affordconsider how much you can afforddetermine the type of house will determine the type of house will best fit your needs best fit your needs
Understanding Business and Personal Law
Evaluating Housing Evaluating Housing Alternatives Alternatives
Section 34.1Section 34.1
Buying a Home
Deciding to Buy a Home Deciding to Buy a Home
Most people take out a mortgage to Most people take out a mortgage to help with the costs. help with the costs.
A A mortgagemortgage is a written instrument by is a written instrument by which the buyer (the mortgagor) which the buyer (the mortgagor) pledges real property to the lender pledges real property to the lender (the mortgagee) as security for a loan.(the mortgagee) as security for a loan.
Understanding Business and Personal Law
Evaluating Housing Evaluating Housing Alternatives Alternatives
Section 34.1Section 34.1
Buying a Home
Advantages to Home Buying Advantages to Home Buying
There are several advantages to There are several advantages to buying a home. buying a home.
One is the ability to do with it as you One is the ability to do with it as you wish without having to answer to wish without having to answer to another owner.another owner.
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Section 34.1Section 34.1
Buying a Home
Advantages to Home Buying Advantages to Home Buying
Another advantage is the increase in Another advantage is the increase in equityequity, or the difference between the , or the difference between the fair market value and the mortgage, in fair market value and the mortgage, in the property. Equity increases as you the property. Equity increases as you pay off the mortgage and as the pay off the mortgage and as the property increases in value.property increases in value.
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Section 34.1Section 34.1
Buying a Home
Advantages to Home Buying Advantages to Home Buying
A third advantage is that you can A third advantage is that you can deduct property taxes and interest deduct property taxes and interest paid on your mortgage from your paid on your mortgage from your income tax return.income tax return.
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Section 34.1Section 34.1
Buying a Home
Disadvantages to Home Buying Disadvantages to Home Buying
There are some disadvantages.There are some disadvantages.
the inconvenience and cost of the inconvenience and cost of upkeepupkeepthe inability to move easily and the inability to move easily and quickly if necessary quickly if necessary
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Section 34.1Section 34.1
Buying a Home
How Much Can You Afford? How Much Can You Afford?
To determine how much you can To determine how much you can afford to pay for a house, you must afford to pay for a house, you must consider: consider:
the amount of down paymentthe amount of down paymentthe amount you can borrow based the amount you can borrow based on your income and expenses on your income and expenses
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Section 34.1Section 34.1
Buying a Home
Down Payment Down Payment
Down-payment requirements range Down-payment requirements range from zero to 30 percent of the from zero to 30 percent of the purchase price. purchase price.
Understanding Business and Personal Law
Evaluating Housing Evaluating Housing Alternatives Alternatives
Section 34.1Section 34.1
Buying a Home
34.134.1
Down PaymentDown Payment
0 percent
3 percent
3 to 5
percent
10 to 30
percent
Veteran’s Administration (VA) loans
(for qualified veterans to buy a house up to $203,000)
Mortgages backed by federal agencies, such as Fannie
Mae and Freddy Mac
FHA loans (loans insured by the Federal Housing
Administration)
Conventional bank loans
Type of Loan Down Payment
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Section 34.1Section 34.1
Buying a Home
Loan Qualifications Loan Qualifications
A lender will judge your ability to repay A lender will judge your ability to repay your loan based on your credit report your loan based on your credit report and your and your debt ratiodebt ratio, or the amount of , or the amount of your monthly payments compared to your monthly payments compared to your monthly income.your monthly income.
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Section 34.1Section 34.1
Buying a Home
Loan Qualifications Loan Qualifications
Your mortgage payment, including Your mortgage payment, including taxes and insurance, should not taxes and insurance, should not exceed 28 percent of your monthly exceed 28 percent of your monthly gross income.gross income.
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Section 34.1Section 34.1
Buying a Home
Loan Qualifications Loan Qualifications
Total monthly debt payments Total monthly debt payments (including your new mortgage, credit (including your new mortgage, credit cards, car payments, and so on) cards, car payments, and so on) should not exceed 36 percent of your should not exceed 36 percent of your income.income.
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Section 34.1Section 34.1
Buying a Home
The Elements of Buying a House The Elements of Buying a House
It’s important to consider the following It’s important to consider the following issues when making a home issues when making a home purchase.purchase.
locationlocationdown paymentdown paymentmortgage rates and points mortgage rates and points
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Section 34.1Section 34.1
Buying a Home
The Elements of Buying a House The Elements of Buying a House
closing costsclosing costsmonthly paymentsmonthly paymentsmaintenance costs maintenance costs
Understanding Business and Personal Law
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Section 34.1Section 34.1
Buying a Home
Pre-Learning Question Pre-Learning Question
What are some different types of homes a person can own?
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Section 34.1Section 34.1
Buying a Home
You have many choices in selecting a You have many choices in selecting a home, depending on how much you home, depending on how much you can afford and the desired size of the can afford and the desired size of the house and its location. house and its location.
Types of Home Ownership Types of Home Ownership
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Section 34.1Section 34.1
Buying a Home
Different types include Different types include
Types of Home Ownership Types of Home Ownership
single-family homessingle-family homesmultifamily homesmultifamily homesmobile homesmobile homescooperativescooperativescondominiumscondominiums
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Buying a Home
Single-family homes are the most Single-family homes are the most popular type of home.popular type of home.They offer privacy and more overall They offer privacy and more overall usable space than other types of usable space than other types of housing. housing.
Single- and Multifamily Homes Single- and Multifamily Homes
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Section 34.1Section 34.1
Buying a Home
Multifamily dwellings are less Multifamily dwellings are less expensive to own because of the expensive to own because of the income from nonowner-occupied income from nonowner-occupied units.units.The owner’s monthly mortgage and The owner’s monthly mortgage and tax payments can often come from tax payments can often come from rental income.rental income.
Single- and Multifamily Homes Single- and Multifamily Homes
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Section 34.1Section 34.1
Buying a Home
Mobile homes are also known as Mobile homes are also known as manufactured homes.manufactured homes.They are less expensive to They are less expensive to purchase and to keep up.purchase and to keep up.They usually can be sold quickly They usually can be sold quickly and easily.and easily.
Mobile Homes Mobile Homes
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Section 34.1Section 34.1
Buying a Home
A A cooperativecooperative (co-op) is a form of (co-op) is a form of home ownership in which buyers home ownership in which buyers purchase shares in the corporation purchase shares in the corporation that owns an apartment building and that owns an apartment building and holds the mortgage on it.holds the mortgage on it.
Cooperatives Cooperatives
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Buying a Home
Shareholders have a proprietary lease Shareholders have a proprietary lease that gives them the right to the that gives them the right to the individual units.individual units.
Cooperatives Cooperatives
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Buying a Home
In a In a condominiumcondominium (often called a (often called a condo), each owner has an absolute condo), each owner has an absolute individual interest in an apartment unit individual interest in an apartment unit and an undivided common interest in and an undivided common interest in the common areas of the condo the common areas of the condo project.project.
Condominiums Condominiums
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Buying a Home
Match the type of home with its description.
1. Multi-family home2. Cooperative3. Condominium4. Mobile home
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Section 34.1Section 34.1
Buying a Home
a) A situation in which each owner has an absolute individual interest in an apartment unit and an undivided common interest in the common areas.
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Buying a Home
b) A situation in which buyers purchase shares in the corporation that owns an apartment building and holds the mortgage on it.
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Section 34.1Section 34.1
Buying a Home
c) Also known as a manufactured home
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Buying a Home
d) Less expensive to own that a single-family home because of the income from nonowner-occupied units.
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Section 34.1Section 34.1
Buying a Home
ANSWERANSWER
1. Multi-family home (d)2. Cooperative (b)3. Condominium (a)4. Mobile home (c)
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Section 34.1Section 34.1
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Reviewing What You Learned
1. What are the advantages and disadvantages of buying a home?
Section 34.1 Assessment
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Section 34.1Section 34.1
Buying a Home
Reviewing What You Learned
Advantages—the ability to do with it as you wish; equity build up; ability to deduct property taxes and interest paid on your mortgage from your income tax return.
Section 34.1 Assessment
Answer
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Reviewing What You Learned
Disadvantages—the inconvenience and cost of upkeep and the inability to move easily and quickly.
Section 34.1 Assessment
Answer
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Reviewing What You Learned
2. Is it possible to buy a home with no down payment? Explain your answer.
Section 34.1 Assessment
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Section 34.1Section 34.1
Buying a Home
Reviewing What You Learned
Yes. Qualified veterans can obtain a VA (Veteran’s Administration) loan to buy a house up to $203,000 with no down payment.
Section 34.1 Assessment
Answer
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Buying a Home
Reviewing What You Learned
3. Describe the five types of home ownership.
Section 34.1 Assessment
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Section 34.1Section 34.1
Buying a Home
Reviewing What You Learned
(1) Single-family—offer the most privacy and usually have more usable space than other types of house. (2) Multi-family—are less expensive to own because of the income from nonowner-occupied units.
Section 34.1 Assessment
Answer
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Buying a Home
Reviewing What You Learned
(3) Mobile homes—also known as manufactured homes, are less expensive to purchase than ordinary houses and cost less to keep up. They can usually be sold quickly and easily.
Section 34.1 Assessment
Answer
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Section 34.1Section 34.1
Buying a Home
Reviewing What You Learned
(4) Cooperatives—buyers purchase shares in the corporation that owns an apartment building and holds the mortgage on it.
Section 34.1 Assessment
Answer
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Buying a Home
Reviewing What You Learned
(5) Condominiums—each owner has an absolute individual interest in an apartment unit and an undivided common interest in the common areas of the condo project.
Section 34.1 Assessment
Answer
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Section 34.1 Assessment
Critical Thinking ActivityLender Criteria If you were planning to borrow money to buy a home, why would your employment history be important to a lender?
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Buying a Home
Section 34.1 Assessment
Critical Thinking Activity AnswerLender Criteria Answers will vary, but should include that a lender will want to judge your ability to repay your loan based on different criteria such as your employment history, credit report, and your debt ratio.
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Section 34.1 Assessment
Legal Skills in ActionCalculating the Down Payment Using the following scenarios, determine the down payment required on a house that costs $203,000. (Assume all other costs are already included.)
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Section 34.1 Assessment
Legal Skills in ActionCalculating the Down Payment • VA loan to a qualified veteran• Fannie Mae loan: 3 percent• FHA loan: 4.5 percent• Conventional loan: 15 percent
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Section 34.1 Assessment
Legal Skills in Action AnswerCalculating the Down Payment • VA loan—no down payment• 3 percent loan—$203,000 x .03 = $6,090• 4.5 percent loan—$203,000 x .045 = $9,135• 15 percent loan—$203,000 x .15 = $30,450
Evaluating Housing Alternatives Evaluating Housing Alternatives End of Section 34.1End of Section 34.1