Real Estate Basics and Home Buying

• Study notes from real estate information provided.

Announcements:

• Assignment #2 (D2L & Connect) is due Thursday at 11:59 pm EST.
• In the D2L portion, adjust the monthly payment amount higher if the interest payment doesn't calculate for the $5000 balance.
• In the Connect portion, calculate the vehicle cost as price x (1 + tax as a decimal).
• Extra Credit Opportunity: MSUFCU Financial 4.0 on March 13th at 5 pm for Homebuying Resources and March 18th at 6 pm for Getting Ahead of Student Loans.
• The upcoming schedule includes: Thursday - Buying a Home (remaining content) and Insurance, Tuesday, March 18th - Guest Speaker: Financial Aid AND Exam #2 Review, SmartBook due Wednesday, March 19th at 11:59 pm EST, Review – Wednesday, March 19th at 7 pm EST on Zoom, and Thursday, March 20th – Exam #2.

Feedback Summary:

• Survey received 83 responses with overall positive feedback.
• Helpful aspects include class structure, content, topics, and real-world relatability.
• Opportunities for consideration given to the study guiede order.
• Slideshows are now 2 to a page; more review during class; and more guest speakers.

Investopedia Simulation:

• Each student gets $10,000 mock funds to pick at least 3 stocks.
• Available today, Monday, March 10th, through Friday, March 14th at 4 pm.
• Once registered, stocks can be bought or sold as desired over one month.
• To register, log in at https://www.investopedia.com/simulator/ and create an account; Join Game: Spring 238 001 Tobe; Password: hdfs238001.

Housing Options:

• Options include single-family dwellings, multiunit dwellings, condominiums, cooperative housing, factory-built houses, building a home, prefabricated home, modular home, and mobile homes (manufactured homes).

Recruit Your Team of Professionals:

• Realtor (Seller's, Buyer's or Dual): Helps clients buy, sell, or rent properties.
• Lender/Broker: Provide loans for property purchases.
• Home Inspector: Evaluates a home's condition and identifies potential issues.
• Appraiser: Determines the value of a property.
• Title Company: Verifies property ownership and handles title insurance.
• Insurance Agent: Sells policies to a homeowner to protect if a disaster occurs.
• Attorney: Provides advice and represents clients in legal matters.

Home-Buying Activities: Step 1: Determine Home Ownership Needs:

• Evaluate Home Ownership (Why?): Offers stability of residence and personalized living location.
• Benefits: Mortgage interest and real estate taxes may be tax-deductible.
• Disadvantage: Involves financial uncertainty and difficulty in changing living locations.
• Responsibility for: Maintenance, repainting, repairs, and home improvements.

Determine What You Can Afford:

• Amount depends on down payment, income, and current living expenses.
• To determine affordability, contact a mortgage company or financial institution to prequalify.

What Makes Up the Mortgage Payment?:

• PITIA = Principal + Interest + Taxes + Insurance + Association.
• Principal and Interest: Principal is the amount borrowed, interest is the cost of borrowing.
• Taxes: 1/12th of estimated annual real estate taxes + 2-month reserve.
• Insurance: 1/12th of annual homeowner's insurance premium + 2-month reserve.
• Association Fee: Paid monthly or annually.

Quick Lender's Formula to Approximate House Purchase Price:

• Annual Salary * 2.5 = Approximate Housing Cost.
• For example, if annual gross income is $73,000, the affordable house cost is $182,500.

Determining Affordability: Front End Ratio:

• The front end ratio can be found by: Housing Costs/Gross Monthly Income = Front End Ratio
• Maximum Housing Costs are figured by multiplying the gross monthly income * .28

Determining Affordability: Back End Ratio (Debt to Income):

• The back end ratio can be found by: Total Debt/GMI = Front End Ratio
• Maximum Total Debt including Housing Costs are figured by multiplying the gross monthly income * .36

Starting the Conversation with a Lender: Ask about:

• How much money will they lend?
• What price home can you afford?
• How much down payment will you need?
• How much are closing costs?
• How much will your monthly payments be?
• What down payment assistance programs do they offer?
• How do they calculate student loan payments?

Do Different Interest Rates Matter?:

• To determine the monthly mortgage payment, multiply the factor from the exhibit by the number of thousands of the loan amount.

Home-buying Activities: Step 2: Find And Evaluate A Home:

• Seek A Real Estate Agent, they will show you homes based on your needs and pre-approved mortgage amount, can present your offer and will help negotiate a purchasing price.
• Home Inspections: Some cities or lenders require inspection documents for pests, mold, or radon.
• Appraisals: Are an assessment of the property's current market value.

Home-buying Activities: Step 3: Price the Property:

• Negotiating the purchase price.
• If the offer is accepted, you have a valid contract.
• If the offer is rejected, you can counteroffer and negotiations may include: price, closing date, and earnest money based on the portion of price of a home that buyer deposits as evidence of good faith.
• Contingency clauses state the agreement is binding if a certain event occurs.
• Determine the home price based on: Recent selling prices in the area, current housing demand, time on the market, owner's need to sell, condition, and mortgage amount.

The Purchase Agreement Includes:

• Legal description of property, legal/binding agreement, terms and conditions, price and contingencies, scheduled timing, earnest money and refunds, and signatures for offer and acceptance.
• Agent Presents Offer with 3 options: Accept, Reject, or Counter-Offer including the Buyer's and Seller's Contingency.

The Finances of Home Buying: Step 4: Obtain Financing:

• This step involves the mortgage amount and type of loan, down payment, term, interest rate, monthly payments, other costs and fees, and prepayment penalty.
• A mortgage is a long-term loan typically ranging from 10 to 30 years.
• Lender obtains a credit and verify your application.

Mortgage:

• Fixed-rate, fixed-payment mortgages are the most common.
• Government-guaranteed financing programs can be FHA, VA, or USDA.
• Adjustable-rate, variable-payment mortgages (ARM) have interest rates that increase/decrease during the loan.
• Interest only mortgage offers lower payments in the first few years where none go towards the loan amount
• 15 year term saves cost in the long run but costs can be an additional $456 per month.

Home-Buying Activities: Step 5: Close the Purchase Transaction:

• Conduct a walk-through before finalizing transaction; taking photos or video for evidence.
• Closing: Meeting of buyer, seller, and lender to complete transaction; final details settled.
• Closing costs: Fees and charges paid when a real estate transaction is completed.

Common Closing Costs:

• Title search fee, Title insurance, Attorney's fee, Property survey, Appraisal Fee, Recording fees, Settlement Fee, Wire transfer fee, Lender's origination fee.

Closing Document includes:

• Title insurance: protects against financial loss from future defects or claims.
• Deed: Transfers property ownership from one party to another.
• Escrow account: Funds deposited with the lending institution for property taxes and insurance.

What if you don't make your house payment?:

• A legal process utilized by a lender is Foreclosure.
• Can result from: Unpaid mortgage, homeowner association dues, or property taxes.