The new realities of home buying for first time buyers.
The good; interest rates are historically low
The good; it’s a buyer’s market with low purchase prices
The bad; lenders have very high standards
The bad; lenders want high down payments
Represents the buyer’s equity
Must be paid at time of closing
Anywhere from 5% to 20% of the purchase price of the house, depending on lenders.
If down payment is less than 20%, lender usually requires PMI (Private Mortgage Insurance) additional expense
One-time fee charged by lender
Represents a premium paid for obtaining a lower mortgage rate (pay more up front at closing for slightly lower payments)
Usually 0-3 points assessed on a mortgage.
One point – 1% of the loan amount (not the purchase price).
Expenses paid by borrower to close on the purchase of a home.
Fees and charges:
Other costs, such as inspections, appraisal, credit report, survey of property filing fees, etc.
Mortgage Payment Composed of 4 parts
I – Interest
I – Insurance
*second I in PIT – Insurance
Property Taxes and Insurance typically lender collects month amount and places in an escrow account lender then pays these expenses on homeowner’s behalf when they come due it is possible for the homeowner to pay these expenses directly
Maitenance & Operating Expenses
May be greater for larger or older homes
Consider upkeep expenses:
Consider operating expenses:
Types of Mortgages
Interest rate and monthly payments (PI) fixed for life of loan
Taxes and insurance NOT fixed, so total house payment can increase
Adjustable Rate Mortgage
Interest rate varies causing monthly paymnets(PI) to vary. May cause negative amortization.
Insurance reduces risk
Any condition that increases the probability that a peril will occur
*principle of indemnity (p292) – you don’t pay for more than you actually lost only certain losses are insurable fortuitous losses financial loss personal losses factors that reduce the cost of insurance: deductibles coinsurance hazard reduction loss reduction insurance is typically sold through insurance agents
Provides both property and…