Buying a Home
VALUE & EQUITY
There are 4 methods commonly used in real estate:
1.) Market Value - the highest price that the property will bring on the market.
2.) Appraised Value - real estate appraisers examine the structure, size, features, & quality as compared to similar homes in the same geographic area.
3.) Assessed Value - the city or county in which you live sets for purposes of computing property taxes owed against your home. It is often computed based on the cost to build, the cost of improvements, and the cost of similar properties.
4.) Estimated Value - real estate agents also estimate the value of homes to help sellers establish a list price. They compare your house and its features to those of comparable properties.
Equity: the difference between the market value of property and the amount owed on it.
Equity increases because each loan payment you make decreases your debt. Equity turns to cash when you sell your home.
TAX SAVINGS
The interest you pay on your home loan, along with the property taxes, is tax-deductible. These deductions lower the cost of home ownership. Because of these tax savings, owning real estate is a tax shelter. Typically, renters cannot deduct any part of their rent payments from their income taxes. Even though your equity in your home may be increasing each year, you do not pay tax on the equity until you sell your home. Even then, you may be able to legally avoid taxes on the gains from the sale if the property was your primary residence.
DOWN PAYMENT
Mortgage lenders usually require that borrowers pay a certain amount down toward the purchase price. Then they will provide a loan for the balance of the price. A CONVENTIONAL LOAN is a mortgage agreement that does not have government backing and that is offered through a commercial bank or mortgage broker. This type of loan often requires a 10-30% down payment.
FHA LOAN: a government-sponsored loan that carries mortgage insurance.
MORTGAGE PAYMENTS
A loan to purchase real estate is called a mortgage.
Trust Deed: a debt security instrument that shows as a lien against property.
Escrow Account: a fund where money is held to pay amounts that will come due during the year.
Mortgage lenders often allow borrowers to buy Discount Points, which are used to lower the mortgage interest rate.
Loan Origination Fee: (mortgage loan fee) the amount charged by a bank or other lender to process the loan papers.
CLOSING COSTS
Closing costs are the expenses incurred in transferring ownership from buyer to seller in a real estate transaction.
PROPERTY TAXES
The real estate property tax is a major source of funding for local governments. Homeowners pay property taxes based on the assessed value of land and buildings.
UTILITIES
Homeowners pay for all utilities and garbage services, whereas a renter may pay for some but not all of these services.
CCRs
(Covenants, Conditions, and Requirements)
CCRs are rules designed to maintain property values & protect the interests of all property owners.
ZONING LAWS
laws passed by local governments to preserve the quality of life for all people in the community.
MAINTENANCE & REPAIRS
As a homeowner, you will be responsible for maintenance and repairs inside and outside of your home. Before you choose to buy, make sure you are willing to spend the time and money needed to keep your home in good condition. For example, yard landscaping, fencing, and other features may be needed to meet neighborhood standards.
WORKING WITH A REAL ESTATE AGENT
- Agents know the market, can help you find the right home, and will assist you with the purchasing, financing, and closing processes.
- One of the first things an agent will have you do is go to a mortgage lender and prequalify for a real estate loan.
- Real estate agents earn commission income. The commission is a percentage of the home sale price, usually between 5-7%. The seller pays the commission, and the agents working for the buyer and seller split it.
- The MULTIPLE LISTING SERVICE (MLS) is a real estate marketing service in which agents from many real estate agencies pool their home listings and agree to share commissions on the sales.
DOWN PAYMENT SOURCES
The most common sources of down payment money are personal savings and informal loans from parents or relatives.
QUALIFYING FOR A MORTGAGE
To qualify for a mortgage, you must complete an extensive loan application. The financial institution will check your credit history, employment, and references.
TYPES OF MORTGAGES
There are 2 basic types of mortgages:
1.) FIXED-RATE: a mortgage on which the interest rate does not change during the term of the loan.
2.) ADJUSTABLE-RATE: a mortgage for which the interest rate changes in response to the movement of interest rates in the economy as a whole.
There are 4 methods commonly used in real estate:
1.) Market Value - the highest price that the property will bring on the market.
2.) Appraised Value - real estate appraisers examine the structure, size, features, & quality as compared to similar homes in the same geographic area.
3.) Assessed Value - the city or county in which you live sets for purposes of computing property taxes owed against your home. It is often computed based on the cost to build, the cost of improvements, and the cost of similar properties.
4.) Estimated Value - real estate agents also estimate the value of homes to help sellers establish a list price. They compare your house and its features to those of comparable properties.
Equity: the difference between the market value of property and the amount owed on it.
Equity increases because each loan payment you make decreases your debt. Equity turns to cash when you sell your home.
TAX SAVINGS
The interest you pay on your home loan, along with the property taxes, is tax-deductible. These deductions lower the cost of home ownership. Because of these tax savings, owning real estate is a tax shelter. Typically, renters cannot deduct any part of their rent payments from their income taxes. Even though your equity in your home may be increasing each year, you do not pay tax on the equity until you sell your home. Even then, you may be able to legally avoid taxes on the gains from the sale if the property was your primary residence.
DOWN PAYMENT
Mortgage lenders usually require that borrowers pay a certain amount down toward the purchase price. Then they will provide a loan for the balance of the price. A CONVENTIONAL LOAN is a mortgage agreement that does not have government backing and that is offered through a commercial bank or mortgage broker. This type of loan often requires a 10-30% down payment.
FHA LOAN: a government-sponsored loan that carries mortgage insurance.
MORTGAGE PAYMENTS
A loan to purchase real estate is called a mortgage.
Trust Deed: a debt security instrument that shows as a lien against property.
Escrow Account: a fund where money is held to pay amounts that will come due during the year.
Mortgage lenders often allow borrowers to buy Discount Points, which are used to lower the mortgage interest rate.
Loan Origination Fee: (mortgage loan fee) the amount charged by a bank or other lender to process the loan papers.
CLOSING COSTS
Closing costs are the expenses incurred in transferring ownership from buyer to seller in a real estate transaction.
PROPERTY TAXES
The real estate property tax is a major source of funding for local governments. Homeowners pay property taxes based on the assessed value of land and buildings.
UTILITIES
Homeowners pay for all utilities and garbage services, whereas a renter may pay for some but not all of these services.
CCRs
(Covenants, Conditions, and Requirements)
CCRs are rules designed to maintain property values & protect the interests of all property owners.
ZONING LAWS
laws passed by local governments to preserve the quality of life for all people in the community.
MAINTENANCE & REPAIRS
As a homeowner, you will be responsible for maintenance and repairs inside and outside of your home. Before you choose to buy, make sure you are willing to spend the time and money needed to keep your home in good condition. For example, yard landscaping, fencing, and other features may be needed to meet neighborhood standards.
WORKING WITH A REAL ESTATE AGENT
- Agents know the market, can help you find the right home, and will assist you with the purchasing, financing, and closing processes.
- One of the first things an agent will have you do is go to a mortgage lender and prequalify for a real estate loan.
- Real estate agents earn commission income. The commission is a percentage of the home sale price, usually between 5-7%. The seller pays the commission, and the agents working for the buyer and seller split it.
- The MULTIPLE LISTING SERVICE (MLS) is a real estate marketing service in which agents from many real estate agencies pool their home listings and agree to share commissions on the sales.
DOWN PAYMENT SOURCES
The most common sources of down payment money are personal savings and informal loans from parents or relatives.
QUALIFYING FOR A MORTGAGE
To qualify for a mortgage, you must complete an extensive loan application. The financial institution will check your credit history, employment, and references.
TYPES OF MORTGAGES
There are 2 basic types of mortgages:
1.) FIXED-RATE: a mortgage on which the interest rate does not change during the term of the loan.
2.) ADJUSTABLE-RATE: a mortgage for which the interest rate changes in response to the movement of interest rates in the economy as a whole.