Ch. 7 The Finances of Housing
Objectives • Students will be able to evaluate the various housing alternatives • Students will be able to assess the advantages & disadvantages of renting • Students will be able to identify the costs of renting • Students will be able to identify the advantages & disadvantages of owning a home
Housing Options • Lifestyle • What are your needs in a home? • How close to work do you want to live • How long do you plan on staying in the city / town you are living in • How much privacy do you need • Are school districts important to you?
Housing Options • Renting vs. Buying • Renting is usually good for young people beginning their careers • Provides Mobility • Generally cheaper than owning a home • Lose tax advantages of owning • Lose the privacy you would have if you owned a home
Housing Options • Renting vs. Buying • Buying is wise for people looking for stability • Increases privacy • Gain tax advantages • Gain freedoms such as being able to paint & hang pictures on the wall • Generally houses appreciate in value
Buying vs. Renting a Home • Short Video • Long Video
Housing Information Sources • Libraries • Newspapers • Internet • www.siouxfallsrealestate.com • Friends & Family • Real Estate Agents • Government Properties
Renting a Residence • Tenant – a Person who pays for the right to live in a residence owned by someone else • Landlord – A person who owns a property that is rented • Sources of Information • www.argusleader.com/apartments
Renting a Residence • Legal Issues • Signing a Lease • Never sign a lease before you have read the entire document & understand what is in it • Protects both the landlord & tenant • Amount of lease • Length of lease • Ability to sublet • Security Deposit • P. 206 of your textbook
Renting a Residence • The Costs of Renting • Location • Living Space • Utilities • Security Deposits • Renters Insurance • The landlords property insurance covers the structure but not what is inside (YOUR STUFF!) • You must get renters insurance to have your personal belongings covered in case of an accident
Objectives • Students will be able to explain how to evaluate a property • Students will discuss the financing involved in purchasing a home • Students will create a plan for selling a home
Buying & Selling a Home • Step 1: Determine your Needs in a home • Types of housing • Single Family Dwellings • Multiunit Dwellings • Duplexes & townhouses • May have HOA Dues each month on top of a mtg pmt • Condo’s • May have HOA Dues each month on top of a mtg pmt • Prefabricated Homes • Manufactured in a factory & transported to a lot • Mobile Homes
Buying & Selling a Home • Tips on Buying a house Video • Step 1: Determine your Needs in a home • Affordability & your needs • Get Prequalified from a local bank or mortgage broker • Step 2: Find & Evaluate a Property to Purchase • Selecting a location • Hiring a Real Estate Agent • Have a plethora of information about local market
Buying & Selling a Home • Step 2: Find & Evaluate a Property to Purchase • Conducting a home inspection • Never purchase a house without a home inspection • Can be used for negotiating the price of a home • Step 3: Price the Property • Listing Price (The Price the owner is asking for the home)
Buying & Selling a Home • Step 3: Price the Property • When deciding what price to offer … consider the following items: • How long has home been on the market • What have similar homes sold for recently (comps) • Is it a seller’s market or buyer’s market • Do current owners need to sell in a hurry • Does home meet my needs • How easily can I arrange financing
Buying & Selling a Home • Step 3: Price the Property • Negotiating the purchase price • Offer a smaller amt than list price & wait for acceptance, denial, or counteroffer • Once settled … you will have to sign a purchase agreement • Make sure this is conditional • Earnest Money – a portion of the purchase price that is refundable if conditions are not met • Typically will be applied toward the down payment • Negotiation Video
Buying & Selling a Home • Step 4: Obtain Financing • Determining Down Payment • If over 80% CLTV … you will typically be required to pay Private Mortgage Insurance (PMI) • Qualifying for a Mortgage • Typically done in 10, 15, 20, or 30 year increments • House serves as collateral for the loan • Points • Each point = 1 % of the value of your home
Buying & Selling a Home • Step 4: Obtain Financing • http://www.mortgagecalculator.org/ • You can buy your mortgage interest rate down by paying points • Determine how long you are staying in the house to determine if you should buy down your rate
Buying & Selling a Home • Types of Mortgages • Fixed Rate Mortgages • Interest rate & payment are fixed for the length of the mortgage • Adjustable Rate Mortgages (ARM’s) • The interest rate & payment will adjust yearly • Ex: 7 year Arm = 4 7/8 APR • APR fixed at 4 7/8 for 1st 7 years then adjusts yearly thereafter • Mortgage Video
Buying & Selling a Home • Adjustable Rate Mortgages (ARM’s) • Rate Cap’s • Limits the amount that an ARM can go up or down • Convertible ARM’s • Allows borrower to convert to a fixed mtg. during the life of the loan • Gov’t Financing Programs • FHA • VA • These agencies guarantee loan repayment to lenders
Buying & Selling a Home • Home Equity Loans • A loan based on the equity of your home • Ability to use the borrowed money for virtually anything • Can potentially be tax deductible • Refinancing • Obtaining a new mortgage to replace my current one • Extra cash / Better Interest Rate
Buying & Selling a Home • Step 5: Closing • Loan documents are signed, down payment is made, seller receives his/her dollars • Buyer pays a number of fees called closing costs • Appraisal fees / title fees / title insurance / recording fees w county (deed) • Escrow Account • You are required to pay your house insurance & real estate taxes into a special account & the bank pays these for you
Buying & Selling a Home • Selling your Home • The nicer your home looks … the faster it will sell! • Make needed repairs • Repaint worn exterior & interior areas • Update light fixtures / floor coverings • Declutter • Stage your home!
Buying & Selling a Home • Determining the selling price • Appraisal • Choosing a Real Estate Agent • Pick someone who knows your neighborhood • Choose someone who will provide you with a variety of services – Marketing, open houses … etc … • Real Estate Agent Video • For Sale by Owner • You take the role of Real Estate Agent • You must do your own Marketing • May be good to enlist a lawyer for contract help!