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Unit 6.2 Part 2 The Home-Buying
Process
Finding and Selecting a Home
What Are the Steps for Buying a Home?
1. Determine if you should rent or buy
2. Determine how much you can afford to
spend
3. Get your loan Pre-approved
4. Find the kind of home you want and need
and Place an offer on the house
Rule of Thumb – you can afford a house that costs up to
2.5 times your annual gross income. Large debts will reduce this amount
Example: if your annual income is $50,000 and you have little debt, you should be able to afford a $125,000 home. (50000 x 2.5)
*Your Mortgage Loan Officer can help you figure this out.*
Can you Afford It?
Chose a financial institution that you are
comfortable working with. Timing is everything so make sure your
Mortgage Loan Officer knows you timeframe Compare rates and fees
Get your loan Pre-approved
Mortgage (home loan) - Is a loan to purchase
real estate
Principal - Amount you borrow.
Equity - The difference between the value of
your home and the amount you owe.
Title - Legal right to ownership of property
Liens - Claims against property for a debt.
Terms You Should Know
Fixed Rate Mortgage
Usually last 15 - 30 years. Same interest rate. Payment does not change.
Adjustable Rate Mortgage Rate can move up or down with the economy. ARM specifies how often and how much.
Assuming rates will not go up too much, usually lower at first.
Types of Mortgages
FHA Mortgage
For first time home buyers offered by the Federal Housing Administration.
Can get this loan through a bank, savings and loan or other financial institution.
Offer low down payments.
VA Mortgage If you are a military veteran.
Graduated Payment Mortgage Small payments at first and much larger ones later.
Types of Mortgages – Cont
Down Payment
Percentage of the purchase price, 5-20% Closing Costs
Fees and services required to transfer ownership of the property Title search – investigation to see if the property has
debt Moving Expenses
Can you haul yourself or need a u-haul? Other Expenses
Repairs? Utility installations Appliances (replacement of old)
Looking At The Costs
Points
A service fee in the form of a point. Each point equals 1% of the principal. Points are the costs of obtaining the loan.
Homeowners Insurance – paid every 6-12 months Lenders require you to carry it. Helps protect
you against loss, fire, theft and other hazards. Property Taxes – paid once a year
Taxes based on the value of your property.
Looking At The Costs – cont.
You can look by yourself or work with a real
estate agent. Agents are trained to know the market, help
you find the right home, and assist you with the purchase, financing, and closing.
They earn a commission for their work. The seller pays the commission
Finding a Home
You can find a home for sale
Online Newspapers Special print booklets Real estate agent
Use multiple listings: is a real estate marketing service in which agents agree to share commissions on their sales.
Finding a Home – Cont
Market Value
The highest price that the property will bring on the market. The price in which the property could be bought and sold on the market.
Appraisal The estimate of the market value of your home
by comparing it to similar homes that have sold recently.
Home Buying
Offer
A formal document that expresses interest in entering into a contract with someone else. Explains the terms of the purchase Explains what price you are offering The down payment Mortgage amount Dates you will close the deal and take possession
Making an Offer
Earnest Agreement/Money A portion of the purchase price that the buyer
deposits as evidence of good faith to show that the purchase offer is serious.
Counted as part of the total offer amount Takes home off the market Set aside in a separate account until closing Make offer contingent on obtaining financing
and property passing inspection.
Making an Offer – Cont
Acceptance Formal agreement to the terms of an offer,
forming a contract between two parties. If offer is not accepted they may make a
counteroffer. They may make a new offer below the asking price, but higher than the previous offer.
Making an Offer – Cont
Final step is the closing, a meeting between
you, your lender, the seller & other interested parties Review & sign loan documents Exchange of documents between buyer,
seller & lender Disbursement of funds
You receive the deed to the property & join the ranks of homeowners!
Closing