FHCE 3300 1st Edition Lecture 7Outline of Last Lecture I. Normative Influences on Residential MobilityII. Models of Residential MobilityA. Housing Adjustment TheoryB. Family Life CycleC. Housing LadderD. Housing CareerOutline of Current Lecture I. Advantages and Disadvantages A. Owning a HomeB. Renting a HomeII. The Rental ProcessIII. The Home Buying Process A. Self-evaluationA. Credit HistoryB. Pre-qualificationC. Mortgage Pre-approvalD. Real Estate Agent AssistanceE. Purchase OfferThese 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.F. Mortgage FinancingG. Home InspectionH. ClosingCurrent LectureI. Advantages and DisadvantagesA. Owning a Home- Advantages: Pride of ownership, possible appreciation, build equity over time, tax benefits, stable housing costs, control over living environment- Disadvantages: Usually a long-term commitment, equity is not a liquid asset, some investment risk, responsible for home maintenance (can be time consuming and expensive), may need to purchase basic household items (lawn mower, appliances)B. Renting a Home- Advantages: Small initial investment and low transaction costs, minimum financial risk, monthly costs are fairly easy to predict, flexibility, special services- Disadvantages: Less control over living environment, costs may increase over time, lack of control over how property is maintainedII. The Rental Process - Know your situation (Monthly income, credit score, rental history, criminal background)- Find the right rental unit (Know your criteria, visit properties and units in person, check out the area)- Understand the property manager’s rental criteria (Income, credit score, rental history requirements, criminal activity that will result in a decline of application)- What fees will you need to pay? (Application fees, security deposit, administration fees, late fees)- Moving in (Document the unit condition with the property manager)- Living in the unit (Pay rent on time, communicate maintenance issues, know the rules in your lease, keep your unit clean, be a good neighbor)- Moving out (When do you need to give notice that you are leaving? Clean the unit, make sure to give forwarding address)III. The Home Buying Process A. Self-evaluation - Understanding advantages and disadvantages of homeownership- Am I ready for homeownership?- Homebuyer education and counseling- Continued and reliable source of income- Credit history- Total debt is manageable, ability to handle costs associated with homeownership- Money available for down payment and closing costsA. Credit History- Shows how well you have paid debts in the past- Credit bureaus compile a record of your debts and how you have repaid them- They gather their info from credit card companies, banks,department stores, and other firms- This info makes up your credit score B. Pre-qualification- How much can I afford?- Before a prospective home buyer applies for a loan- Determines how much money a household will be eligible to borrow- Most common pre-qualifying guidelines Front-end ratio- No more than 28% of monthly gross income should be used to cover house payments- House payments = mortgage principal and interest, property taxes and insurance Back-end ratio- No more than 36% of monthly payments should be used tocover total debt payments- Total debt payments = credit card obligations, car payments, student loans, and proposed home mortgage payment  Difference between ratios- 8% of the monthly income; therefore, the amount of debt allowed other than the house payment is relatively small- Process of calculating these ratios is part of pre-qualification C. Mortgage Pre-approval- Process of obtaining approval from a mortgage lender- Based on credit history and verified income- Means that a lender has approved the buyer for a mortgage for a pre-set amount- Helps people target search within a specific price range- Especially useful in tight housing marketsD. Real Estate Assistance - Agents can look for homes that meet a buyer’s needs and financial circumstances- Can help you narrow your choices- May provide specific community info on shopping, schools, property tax rates and more- Services are usually free. Cost is paid by person selling the home E. Purchase Offer - Legally binding contract the homebuyer uses to make an offer on a desired property- Usually accompanied with earnest money- When a seller accepts a purchase offer, both parties enter into a commitment called a purchase agreement- Should clearly state What is included in the sale of the house (window treatments, appliances) A closing date, walk through date, possession date Any contingencies - clauses defining conditions that void the purchase offer (inspections, appraisals) F. Mortgage Financing- Most real estate purchases are financed with mortgage- Mortgage is a  Long-term loan on real property, which serves as collateral for the loan Legal document that allows the lender to retain title or place a lienor claim on the title and gives the lender the right to demand full payment if the borrower fails to make payments - Securing a mortgage includes decisions about down payment amount, mortgage type, loan term, interest rate - Application fee  Covers costs to process info for loan Collect credit reports, complete paperwork for mortgage insurance, put together appraisals G. Home Inspection- An objective examination of the physical structure and systems of a home- If the home inspector identifies major concerns, homebuyer could re-negotiate or back out of the offer (if included as a contingency)- Assures the buyer of the unit’s structural integrity- Helps the homebuyer to maintain the dwelling H. Closing- Final step in the home buying process- Checks are written to cover various fees and the down payment- Many papers are signed- Deed is recorded in new owner’s name- Homebuyer receives the keysWho’s on Your Home Buying Team? Homeownership counselor, real estate agent, home inspector, loan officer, loan processor, underwriter, appraiser, attorney, closing agent, insurance agent, loan servicer, mortgage