Home Ownership

Mortgages

• A mortgage is a loan for buying a house• Over a period of many years, the borrower

repays the loan, plus interest, until he/she eventually owns the house.

• Default is if the borrower stops paying the mortgage. If this happens the bank can foreclose.

Mortgage Formula

M: monthly paymenti: interest per period (rate/12)gf: growth factor (i+1)n: number of periods (360 or 180)

Down Payment

• A down payment is a percentage of the cost of a house paid out of pocket before a mortgage can be taken out.

• Typically, a down payment should be 20% or more of the total cost of the house.

PRIVATE MORTGAGE INSURANCE PMI

• A risk-management product that protects lenders against loss if a borrower defaults. Most lenders require PMI for loans where the buyer put down less than 20% of the home's value upon purchase

PMI

• This allows borrowers to make a smaller down payment of 3% to 19.99%, instead of 20%, allowing them to obtain a mortgage sooner since they don’t have to save up as much money.

PMI

• Typically costs between 0.5% to 1% of the entire loan amount on an annual basis.

• Borrowers pay their PMI monthly until they have accumulated enough equity in the home that the lender no longer considers them high risk.

Closing Costs

• When you get a mortgage, you will need to pay closing costs, which are fees – charged by lender.

• In addition to owing the lender the down payment on the home you will also owe closing costs.

• This is a 1-time fee, paid when you settle your mortgage

Closing Costs

• Typically, home buyers will pay between about 2 and 5 percent of the purchase price of their home in closing costs.

• So, if your home cost $150,000, you might pay between $3,000 and $7,500 in closing costs.

Closing CostsClosing costs often include things such as:

• A fee for running your credit report.• A fee for processing the loan paperwork for you.• Attorney’s fees.• Charges for any inspection required or requested by the lender or you.• Discount points, which are fees you pay in exchange for a lower interest rate.• Appraisal fee.• Survey fee, which covers the cost of verifying property lines.• Title insurance, which protects the lender in case the title isn’t clean.• Title search fees, which pay for a background check on the title to make sure there aren't things

such as unpaid mortgages or tax liens on the property.• Escrow deposit, which may pay for a couple months' property taxes and private mortgage

insurance.• Pest inspection fee.• Recording fee, which is paid to a city or county in exchange for recording the new land records.• Underwriting fee, which covers the cost of evaluating a mortgage loan application.

Homeowners Insurance

• A form of property insurance designed to protect an individual's home:

– Against damages to the house itself

– Protect possessions in the home

– Against accidents in the home or on the property.

Homeowners Insurance

• Mortgage lenders often require that the buyer purchases homeowner's insurance as a condition of the loan, in order to protect the bank if the home is destroyed.

Homeowners Insurance

• In the U.S. there are seven forms of homeowners insurance that have become standardized in the industry; they range in name from HO-1 through HO-8 and offer various levels of protection depending on the needs of the homeowner.

• The least expensive is 0.3% annually of the purchase price of the house.

Property Tax

• A property tax is a municipal tax on most types of real estate - including homes, businesses, and parcels of land.

• The amount of property tax owed depends on the appraised fair market value (purchase price) of the property.

Property Tax

• A property tax is paid annually.

• The rate varies depending on location. – Rates vary between about 2% and 0.2%

– For your project you will need to use the link included in the project outline to find the rate for the state you live in.