ADVANTAGES OFRENTING• Possibly lower cost• If you can save 10% or more of your earnings, you areon your way to meeting your financial goals.• No maintenance costs• Flexibility• Financial freedom: spend without obligation• Psychological freedom: move more easily• Liquidity• Wealth not tied up in home
COSTS OF RENTING• Monthly rent is subject to inflation• Consider your costs in the long-termCost of owning versus renting over 30 yearsYear Ownership cost permonthRental cost per month1 $920 $8005 $980 $94010 $1,080 $1,14020 $1,360 $1,69030 $1,800 $2,500Comparing the costs of owning a home that costs $160,000to renting that same home for $800/month.
COSTS OF RENTING• Owning becomes less expensive in the long run• As a homeowner, you build equity
WHAT’S THE APPROXIMATEMAXIMUM YOU CAN BORROW?When mortgage rates are Multiply your gross incomeby this figure4% 4.65% 4.26% 3.87% 3.58% 3.29% 2.910% 2.711% 2.5
MULTIPLIERThe number you multiply by your gross income to determinehow much money you can borrow for a home mortgage;determined by interest rates.ORThe number you multiply by your mortgage expressed inthousands of dollars (divided by 1000) to determine yourmonthly mortgage payment
As rates fall, the monthly mortgage payment dropsLower interest rates make buying real estate more affordable
CALCULATEWhat is the maximum amount you can borrow?1. Annual income $45,870a) Interest rate 5%b) Interest rate 11%2. Annual income $68,900a) Interest rate 4%b) Interest rate 8%3. Annual income $159,650a) Interest rate 9%b) Interest rate 6%
THE DOWN PAYMENTIf you put down 20% of the purchase price of the home• Most favorable terms, including interest rate and closingcosts• Don’t have to pay mortgage insuranceFor a $100,000 home, the down payment would be $20,000• (100,000)(.2) = $20,000
PMI: PRIVATEMORTGAGE INSURANCE• If you put less than 20% down• Protects lenders if you default on your loan• Several hundred $ per year• Varies depending on the percent of the purchase price youput down• The higher the down payment, the lower the PMI• Visit http://www.goodmortgage.com/Calculators/PMI.html
PURCHASE PRICEPurchase Price = Mortgage Loan + Down Payment
CLOSING COSTS• In addition to a down payment, you must have cash savedfor closing costs• Includes escrow fees, inspection fees, title insurance, andother miscellaneous fees• On average from 2-3 percent of the price of the home• Could be anywhere from 1-8% of the price of the home• Your lender will give you a “Good Faith Estimate”
HELP WITH CLOSINGCOSTS• You can request• Your seller pay part of the closing costs• Your lender add part of the closing costs to your mortgageloan• Interest rate will go up about .25%
1. How can you determine if you are ready to buy a home?2. How do lenders decide how much money you can borrow topurchase a home?3. What factors should you consider when determining howmuch money to save to buy a home?ESSENTIAL QUESTIONSWHAT ARE YOU LEARNING? WHY ARE YOU LEARNING IT? HOW WILL YOU USE IT?