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Investing in Real Estate


									Investing in
 Real Estate
 Home Sweet Home
Owning vs. Renting
   Exploring the options of owning your own home
Owning vs. Renting
Advantages of Owning
 ▫Build equity
 ▫Income tax deduction for interest paid
 ▫You can modify it the way you want

Disadvantages of Owning
 ▫Increased maintenance costs
 ▫Larger monthly payment
 ▫Additional costs associated with ownership
 ▫Longer selling/moving time
Comparing the Costs
Advantages of Renting
  ▫ Virtually no maintenance costs
  ▫ Lower monthly payments
  ▫ Ability to change locations quickly

Disadvantages of Renting
  ▫ Your money goes into someone else's investment
  ▫ Limited ability to modify the property for your needs
  ▫ You are responsible for damages to the property
Home Buying Process
▫ Selection Criteria – what are you looking for in a home
   Size , number of bedrooms, etc.
   Location
   Price range
▫ Determine how to finance your purchase
   What type of loan
   Down payment needed
   Estimated closing costs
▫ Finding the right house
   Don’t look at everything, narrow your search with a realtor
▫ Making a solid offer
   Offer, negotiate, and acceptance
▫ Handling issues after you buy
   Move in expense
   Maintenance, alterations, repairs
Determine what you can afford
Mortgage payment should be no more than 33% of
     your monthly income

“Even though I qualify for the mortgage, is it too
    Other important questions to consider
        Am I saving enough for retirement?
        How much do I want to spend on fun activities?
        How willing am I to adhere to a strict budget in order to meet
         my monthly payments?
How Much Can I Borrow?
When Mortgage Interest Rates   Multiply Your Gross Annual
Are:                           Income By This Figure To Get
                               The Maximum You May Be Able
                               To Borrow
             4%                            4.6
             5%                            4.2
             6%                            3.8
             7%                            3.5
             8%                            3.2
             9%                            2.9
What’s included in your mortgage
A mortgage payment will include: (P.I.T.I.)

Principal + Interest + Taxes (property) + Insurance
15 year mortgage
30 year mortgage

Mortgage Calculators:
Types of Mortgages
 Fixed Rate Mortgage – The interest rate stays the same throughout the
   duration of the loan

 Adjustable Rate (ARM) – The interest rate fluctuates throughout the
   duration of the loan depending on national mortgage rates. However, some
   ARM’s have built in fixed periods.
    ▫ For example a 5 year ARM might have a fixed interest rate for the first 5 years and
      then it adjusts afterward.

Graduated Payment Mortgage (GPM) – The payment amount rises by a
  constant percent for a specified number of payments, after which it levels
  off for the remainder of the loan.
    ▫ For example, your payment might increase by 7.5% every 12 months for 6 years,
      then it remains constant from then on.
More Types of Mortgages
• Interest Only Mortgage – A mortgage payment that consists of interest
  only. During the “interest only” period, the loan balance remains

• Reverse Mortgage - A loan to an elderly home owner. The loan balance
  rises over time and is not repaid until the owner dies, sells the house, or
  moves out permanently.

• VA mortgage - A mortgage with no down payment requirement, available
  only to ex-servicemen and women as well as those on active duty. The
  bank/lender is insured against loss by the Veterans Administration.

• And others . . . .
Mortgage Terms
• Balloon Payment: A provision in the mortgage contract
  that calls for full repayment (a “balloon” payment) of the loan
  prior to the 15 or 30 years.

• Default:     If you fail to honor the terms of the mortgage loan,
  you are in “default” (ie: not making payments, abandoning the
  home, renting the home without permission, etc.)

• Refinance: Paying off an old loan by taking out a new one.
  This may be done to:
  ▫ Reduce overall borrowing and interest costs by obtaining a
    new loan at a lower interest rate

  ▫ Raise cash, as an alternative to a home equity loan

  ▫ To reduce the amount of your monthly payment
Fixed or Adjustable?
 ▫ How long will you be in the property?

 ▫ How much risk are you willing to incur?

 ▫ Future Income or Expenses?
Four Criteria When Obtaining a Mortgage
 • Job History -- length of employment

 • Job -- current salary

 • Credit History -- have you repaid debts

 • Cash for a Down Payment -- what percent of
   purchase price do you have in cash
Buyer’s Closing Costs
•   Loan Application and Processing Fees
•   Credit Report
•   Appraisal
•   Inspection
•   Title Insurance
•   Recording Fees
•   Escrow Charges
•   Others
How much do I need for a down
Most of the time 20% of the purchase price is the
 needed amount. However… there are exceptions.

 ▫ 1st time home buyers -- may not be required to
   have as large of a down payment

 ▫ Specialty loans

 ▫ Investment property – may need more than 20%
Types of Insurance
• Mortgage Insurance – insurance required by the
 lender if you have less than a 20% down payment
 (protects the lender if you default)

• Homeowner’s Insurance – required by the lender to
 replace or repair the home in case of damage

• Misc. Insurance – Flood Insurance; Earthquake
 Insurance; Hurricane Insurance, etc.
How to afford to buy a house

• Plan your budget to save for a down payment
• Consider lower priced properties
• Seek reduced down payment financing
• Get assistance from family
Increase Your Approval Chances!
• Get your finances in shape before you shop for a
• Clean up credit problems!
• Get pre-approved or pre-qualified for a loan!
• Be up-front about any financial problems!
• Get a cosigner or have a larger down payment.
What is a home equity loan?
A home equity loan is a second   Your house is worth $160,000

  loan on your house (also       Your first mortgage is for $100,000

                                 Therefore, you have $60,000 in
  called a Second Mortgage)      equity
                                 Your home equity loan uses your
                                 $60,000 equity for collateral

• You are borrowing against
  your equity

• Often payments are interest

• Payments are tax deductible
When you go to sell your house
In order to cover the initial buying closing costs, a
  property needs to appreciate about 12-15%
  before you should sell (on average real estate
  appreciates 4-5% per year)

If you sell before you have lived in a house for 2
   years, there may be income taxes owing on the
   profit you make on the sale – this is called
   capital gains
If you do not make your mortgage payments, the
   lender has the right to repossess or take ownership
   of the house – this legal process is called
Glossary Of Mortgage Terms


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