HACE 3200 1nd Edition Lecture 16 Outline of Last Lecture I Practice Problems Outline of Current Lecture I Housing II One Time or Initial Costs III Adjustable Rate Mortgage Current Lecture Housing o Weighing the alternatives of renting versus buying Personal and lifestyle considerations Financial considerations Houses o Typically single family free standing dwellings not connected to something else o Advantages More space Greater privacy Builds equity o Disadvantages Maintenance time and costs Repair costs Resale hassles Cooperatives o Corporate owned multi unit dwellings in which the residents as shareholders own stock representative of the value of their unit Monthly homeowner s fee Condominiums These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute o Multi unit dwellings residents have sole ownership of the living space but joint ownership of the land and common areas Monthly maintenance fee From Sea to Shining Sea o Where do you want to live compare school systems proximity to shopping safety o Moving com good website to compare two cities when deciding where to live One Time or Initial Costs o Down payment amount of money not covered by mortgage funds that a home buyer puts down on a home at the time of sale o Closing or settlement costs expenses associated with finalizing transfer of ownership of the house o Discount points charges used to raise the effective cost of the mortgage loan which must be paid in full at the time of the sale Bargaining chip 1 pt 1 One time or Initial Costs cont d o Loan origination fees a fee generally one point or 1 of the loan amount compensates the lender for costs of reviewing finalizing the loan o Loan application fee generally 200 300 that defers some of the processing costs for the leader o Appraisal fee 200 300 home appraisal required before loan is approved o Title Search Investigation of public records to determine legal ownership rights to a property or home Recurring Costs o Monthly Mortgage Payments PITI Principal what you borrowed Interest the cost of borrowing Taxes support of government Insurance protection of your dwelling and contents Buying a Home Lending Standards o 1 Financial history income stability credit history o 2 Ability to pay Housing cost ratio at a maximum of 28 of gross income Housing and other long term debt ratio at a maximum of 36 of gross income 3 80 of Appraised home value Buying a Home What can you afford o Calculation of your mortgage limit 28 rule 36 rule 80 rule o Prequalification or knowing for sure what is affordable o Accumulation of a down payment Down payments sources FHA VA and FmHA federally backed loans require a lower down payments IRA loan of up to 10 000 for first time homebuyer Financing the Purchase o Shop for the lowest interest rate o Determine where you want to finance o Determine the length of the mortgage o Choose the type of mortgage Fixed rate mortgage Loans WHAT YOU WANT o Fixed rate the payment does not fluctuate o Assumable loans allow for transfer of the mortgage to a new buyer who takes over the loan o Prepayment privilege allows the payee to increase the monthly payments towards the principle Adjustable rate Mortgage ARM loans BAD o ARMs have fluctuating interest rate o Initial rate teaser rate the first rate on the mortgage usually short term o After your low teaser period ends your interest rate increases and then typical follows national interest rates Other Mortgage Loan Options o Balloon payments mortgage small payments for several years after which entire loan must be paid off in one large balloon payment o Graduated payment mortgage payments steadily increase for a period of time and then level off
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