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Buying a House

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									  Buying a House
          From A to Z
(except we skip a lot of letters,
 like Q, because no one likes
          the letter Q)
              Are you sure??

• Pros
  –   Pride of Ownership
  –   Tax Benefits (interest is deductible)
  –   Investment Potential
  –   Tangibility
• Cons
  – Maintenance Costs
  – Flexiblity
  – Financial Commitment
          First things first…

GET YOUR FINANCIAL
  HOUSE IN ORDER!!
• Credit score??
• 20% cash down
• Debt Payments Ratio
  as low as you can
            First things first…

PRE-APPROVAL
• The lender will need
   – Pay stub(s)
   – Tax forms
• The lender will run
  credit report
• Get preliminary figure of
  maximum monthly
  payment
• Pre-Approval Letter
What type of house?

          • Single-family
          • Multi-unit (duplex,
            apartment)
          • Condos (owned
            apartment)
          • Manufactured
            homes (mobile
            home, prefabs)
      What can you afford?

You already know maximum monthly
 payment…so now we need to know
  – Price of house
  – Annual taxes
  – Cost of insurance
  – Down payment
This determines what you can afford
  Other expenses to factor for
• Property Mortgage            • Closing costs (one-
  Insurance (continuing)         time)
   – You must pay if you own      – Typically between $3,000
     less than 20% of house         and $6,000
   – $60-200/month                – Origination fee (one-time)
• Points (one-time)                   • Typically 1-3% of loan
   – Fee paid up front for        – Miscellaneous fees (one-
     lower interest rate            time)
                                      • Credit reports,
   – 1 point = 1% of loan               attorneys, title search,
• Home Insurance                        appraisal, etc.
  (continuing)                        • Total--$500-800
   – $400-800/year
   – Flood insurance is
     separate expense
      Finding the right home
• Location, location,   • Outside factors
  location                – School district
• Meet current/future     – Crime rate
  needs                   – Proximity to
                            fire/police
• Convenient              – Population trend
• Fixer-upper or          – Subdivision/condo
  newer construction        rules
                          – Value of nearby
                            homes
          Sources of advice

•   Real estate agents
•   Newspaper
•   Internet
•   Information available at house
Once you’ve found it

          • Make offer
          • Include any conditions
          • Expect a counteroffer
          • Work towards getting
            your offer accepted
          • Earnest money—cash
            given as proof that you
            intend to buy house (put
            towards total cost)
            Now what?

• Inspection—make sure no major
  problems
• Appraisal—3rd party determining market
  value of house
• Lender will handle paperwork
• You need to complete the…
         Mortgage Process

• Fixed-rate—same payment for term of loan
  (usually 10, 15, or 30 years)
• Adjustable-rate (ARM)—payments change as
  interest rate adjusts
• Interest-only—pay on interest each month
  (not building any equity)
• WHEDA—program for lower-income first-time
  buyers in Wisconsin with lower interest rates
  and closing costs
You also need to determine…

       ESCROW
• Property tax
  – Pay 1/12 each month
  – Lender writes a check at
    end of year payable to
    city
• Home insurance
  – Pay 1/12 each month
  – Lender pays directly to
    insurance company
       And so…the final $$$
Monthly mortgage payment (cost of house –
 down payment) + 1/12 of taxes + 1/12 of
 insurance = total monthly payment

If this is less than pre-approval amount, you are
   done.
If this is more than pre-approval amount, then
   you need to decrease something
       To put it another way…
       cost of house      mortgage payment
    - down payment     + 1/12 of annual taxes
   + closing costs     +    1/12 of insurance
   Mortgage Amount          Monthly Payment

Use table/program to   Must be less than pre-
  calculate monthly      approved amount
  mortgage payment
Turning your house into cash
• Second mortgage—works just like first
  mortgage
• Home Equity Loan—fixed loan at higher
  interest rate (with low/no fees)
• HELOC—open-ended line of credit at
  variable interest rate/payments

   BE AWARE OF THE DANGERS!!
         Refinancing a house

• Taking out a new mortgage to replace your existing
  mortgage(s)
• Take advantage of lower interest rates
• Closing costs must be taken into account (2008
  Wisconsin average on 200K mortgage = $2700)
• Good idea if
   – Lowers interest rate by at least 1%
   – You plan on staying in house at least 5 years
• The longer you plan on staying in your house, the
  lower the interest drop needs to be

								
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