HACE 3200 1nd Edition Lecture 16Outline of Last Lecture I. Practice ProblemsOutline of Current LectureI. HousingII. One-Time or Initial CostsIII. Adjustable-Rate MortgageCurrent Lecture- Housingo Weighing the alternatives of renting versus buying Personal and lifestyle considerations Financial considerations- Houseso Typically single-family free-standing dwellings( not connected to something else)o Advantages More space Greater privacy Builds equityo Disadvantages Maintenance time and costs Repair costs Resale hassles- Cooperativeso Corporate-owned multi-unit dwellings in which the residents, as shareholders, own stock representative of the value of their unit. Monthly homeowner’s fee- CondominiumsThese 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 Seao 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 Costso Down payment- amount of money not covered by mortgage funds that a home buyer puts down on a home at the time of saleo Closing or settlement costs- expenses associated with finalizing transfer of ownership of the houseo 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 loano Loan application fee- generally $200-$300 that defers some of the processing costs for the leadero Appraisal fee- $200-$300; home appraisal required before loan is approvedo Title Search: Investigation of public records to determine legal ownership rights to a property or home- Recurring Costso 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 Standardso 1. Financial history income stability credit historyo 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% ruleo Prequalification, or knowing for sure what is affordableo 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 Purchaseo Shop for the lowest interest rateo Determine where you want to financeo Determine the length of the mortgageo Choose the type of mortgage- Fixed-rate mortgage Loans (WHAT YOU WANT)o Fixed-rate- the payment does not fluctuateo Assumable loans- allow for transfer of the mortgage to a new buyer who takes over the loano Prepayment privilege- allows the payee to increase the monthly payments towards the principle- Adjustable-rate Mortgage( ARM) loans BADo ARMs have fluctuating interest rateo Initial rate(teaser rate) the first rate on the mortgage, usually short termo After your low “teaser period” ends, your interest rate increases and then typical follows national interest rates- Other Mortgage Loan Optionso Balloon payments mortgage: small payments for several years , after which entireloan must be paid off in one large “balloon payment”o Graduated payment mortgage: payments steadily increase for a period of time and then level
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