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REAL ESTATE FINANCE.
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Steps involved in buying a house.... More...
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Paper Abstract:
Steps involved in buying a house. Initial step of financial qualification. Second step of obtaining a commitment from a residential real estate lender. How a prospective purchaser can qualify or a mortgage; downpayment, points, mortgage rates. Further steps involved in identifying and selecting a house for purchase. Two Tables.
Paper Introduction:
REAL ESTATE FINANCE: A DISCUSSION OF THE STEPS INVOLVED IN BUYING A HOUSE
Introduction
This research discusses the steps involved in buying a house. One assumption underlying this discussion is that the hypothetical purchaser is an individual or a couple who desire to purchase a residential structure. A second assumption underlying the discussion is that the purchaser wants to purchase the residential structure for use as a personal or family residence as opposed to acquiring the structure as an investment property to rent or lease to others.
A Discussion of the Steps Involved in Buying a House
One might assume that the first thing a prospective house purchaser should do is determine where he, she, or they desire to
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Therefore, the initial step in purchasing a housemust be determining the level of real estate financing for which they canqualify, and the second step must be obtaining a commitment from aresidential real estate lender to provide the necessary funds and extend amortgage to the prospective purchaser (Quinn, 2 ). Boston, Massachusetts: Financial Publishing Company.Irvin, R. New York: Basic Books.MortgageLoan.com. ||Rate with No | | | | ||Points | | | | ||15-Year Fixed |5.25 % |$1, 66.5 | .625 |$ 7 3.12 ||Rate with |5.125% |$1, 76.62 |1.25 |$1,4 6.25 ||Points | | | | ||15-Year Fixed |5.5 % |$1, 94.62 | . Table 1 (next page) presents comparative examples of mortgage ratesavailable on 16 September 2 2. The factors to consider includeamenities, schools, safety, and other factors. Prospective buyers must determine whetherthe property they want is acceptable to their mortgage lender. Another option is theadjustable rate mortgage. Relying on a realtor is typically thebest approach in this endeavor. The points charged by a lender to extend a mortgage depend onprevailing economic conditions, the creditworthiness of a purchaser, andthe interest rate on the mortgage. The adjustable rate mortgage data in Table 2 reflect a 15-yearamortization schedule. In the above example, the prospective purchaser can qualify for amortgage of $112,5 ; however, the monthly payment on the mortgage must notexceed $1,125. Mortgage rates. ||No Points | | ||Source: MortgageLoan.com [http://www.mortgageloan.com/Rates |Finding the House to Buy Once the financing for the purchase of a house is settled, prospectivebuyers can proceed to looking for a suitable property. Therefore, the price that a purchaser can pay for ahouse is the sum of the level of mortgage financing available and the sizeof the down payment. ||with No Points | | ||15-Year Fixed Rate |5.25 % | .625 ||with Points |5.125% |1.25 ||15-Year Fixed Rate |5.5 % | . (2 ). Using the illustration above, a purchaser qualifying for a $112,5 mortgage who desires to may a five-percent down payment can afford a housea sales price of $118,421 ($112,5 / .95 = $118,421. In return, the purchaser will receive a deedto the property and take possession of the property (Irvin, 2 1). A Discussion of the Steps Involved in Buying a House One might assume that the first thing a prospective house purchasershould do is determine where he, she, or they desire to live, and thenstart looking for the ideal house for their needs. |$ . |Table 1 - Comparative Mortgage Rates & Points [% & Points] ||Mortgage Type |Interest Rate |Points ||3 -Year Fixed Rate |5.875% | .625 ||with Points |5.625% |2.75 ||3 -Year Fixed Rate |6. Mortgage qualifications for buying a home. Unless the prospectivepurchaser is independently wealthy or has family or friends who are willingto provide the necessary funding, however, the prospective purchaser mustplan on financing the purchase through obtaining a residential mortgage onthe property purchased. Therefore, thisdiscussion of the steps involved in buying a house considers the necessaryfinancing activities first, and then considers the steps involved inidentifying and selecting a house to purchase.Arranging to Finance the Purchase of a House Assuming that the individual or couple has no major outstanding billsand also has acceptable credit, an accepted rule of thumb is that theindividual or couple can qualify for a mortgage approximating 2.5 timesannual income (Federal National Mortgage Association, 2 2). The price of housing invarious areas, however, also affects the selection of an area (Irvin,2 1).|Table 2 - Comparative Mortgage Rates & Points [$ Values] ||[$112,5 Mortgage] ||Mortgage Type |Interest |Monthly |Points |Points || |Rate |Payment | |Payment ||3 -Year Fixed |5.875% |$ 798.75 | .625 |$ 7 3.12 ||Rate with |5.625% |$ 777.37 |2.75 |$3, 93.75 ||Points | | | | ||3 -Year Fixed |6. Financial constant percent amortization tables. Occasionally, "no downpayment" financing is available. The down payment in thisexample would be $28,125 ($14 ,625 - $112,5 = $28,125). The down paymentin this example would be $5,921 ($118,421 - $112,5 ). % |$ 81 . Pointstypically range from one-half of one point to four points in the currentmarket. How to buy your first home. | . B. The purchaseralso may desire to limit the level of the monthly payment further to meetthe monthly costs of property taxes and property insurance, although thecriteria for extending a mortgage may not include such limitations on thelevel of the monthly payment. |$ . A purchaser whocould afford a 2 percent down payment could afford a house with a salesprice of $14 ,625 ($112,5 / .8 = $14 ,625). At this point, the purchaser mustmake the down payment (or pay the difference between the amount of the downpayment and the earnest money deposit), pay closing costs (points andfees), and sign the mortgage. Oneassumption underlying this discussion is that the hypothetical purchaser isan individual or a couple who desire to purchase a residential structure.A second assumption underlying the discussion is that the purchaser wantsto purchase the residential structure for use as a personal or familyresidence as opposed to acquiring the structure as an investment propertyto rent or lease to others. (2 2, September 16). An adjustable rate mortgage fluctuates inrelation to some external measure, such as the cost of funds in a FederalReserve District as of specified dates. 5). This criterion establishesthe maximum monthly mortgage payment at $1,125 [($45, / 12) ? A lower mortgage interest ratetypically offsets the cost of higher points paid up front. After making the decision on aproperty to purchase, prospective buyers also should require the seller toprovide a title search report to guarantee that the property is free ofliens or other encumbrances (Irvin, 2 1). (2nd ed.). New York: McGraw-Hill. Making the most of your money. Because a lender commits funding for ashorter period, however, interest rates on 15-year mortgages typically arelower than interest rates on 3 -year mortgages. Adjustable rate mortgages may lower rates to allowa purchaser to qualify for a mortgage that would be otherwise unattainable;however, rising rates in later years could offset the lower rates in earlyyears. % | . One point equalone-percent of the amount of the purchase price mortgaged. Washington, D.C.: Federal National Mortgage Association.Financial Publishing Company. Table 2 (on page 7)illustrates these differences. The maximum movement in either direction ateach adjustment point typically is one-percentage point in the mortgagerate. Shorter term mortgages (15 years as opposed to 3 or 4 years as anexample) save purchaser substantial sums in interest expense over the lifeof the mortgage. ||with No Points | | ||Adjustable Rate with |4.625% | .625 ||Points | | ||Adjustable Rate with |4.875% | . The various mortgage interest rates and mortgage initiation pointscreate substantially different monthly mortgage payments and up-frontpoints payments for prospective purchasers. ||with No | | | | ||Points/15 | | | | ||Source: MortgageLoan.com[http://www.mortgageloan.com/Rates; ||Financial Publishing Company, 2 1 | Once the selection of an area is determined, prospective purchasersmust find an appropriate property. The prospective purchaser also must be prepared to make a down paymenton any house purchased, as well as paying points to the lender to initiatethe mortgage. 2.5 = $112,5 ]. In most instances, however, lenders willrequire down payments ranging from five- to 3 percent of the purchaseprice of the house. Thus, if theannual income of an individual or the combined income of a couple is$45, , this criterion establishes the maximum mortgage limit at $112,5 [$45, ? ||Rate with No | | | | ||Points | | | | ||Adjustable Rate|4.625% |$ 897.94 | .625 |$ 7 3.12 ||with Points/15 | | | | ||Adjustable Rate|4.875% |$ 993.37 | . real estate finance: a discussion of the steps involved in buying a house Introduction This research discusses the steps involved in buying a house. (2 1). (2 2). Prospective buyers then are ina position to make an offer on the property and negotiate a deal with theseller.Closing the Purchase Once both the financing arrangements, the selection of the property,and the negotiation with the seller are complete, the final step in thepurchase of the property is the closing. In this part of theprocess of buying a house, prospective purchasers begin with the selectionof the area where they want to live. Monthly payments would be lower using a 3 -yearamortization schedule. The adjustment of rates on thesemortgages typically occurs semiannually and the rate may move either up ordown at each adjustment point. Creditworthiness determines the level of a down payment thata lender will require; however, major interest expense savings accrue tothe purchaser who makes a larger down payment. Prevailing interest rates and the terms (number of yearsfor repayment) of available mortgage contracts may cause the maximum levelof the mortgage to be less than $112,5 in this example. (2 1). Prospectivebuyers also should pay for an independent inspection of the property toidentify any potential structural flaws. .3 =$1,125]. |$ . Retrieved from the Internet on 2 2- 9-16 at: http://www.mortgageloan.com/RatesQuinn, J. Shorter-term mortgages, however, also increase the levelof the monthly mortgage payment. Another rule of thumb is that mortgageprincipal and interest should not exceed 3 percent of monthly income(Federal National Mortgage Association, 2 2). ReferencesFederal National Mortgage Association.
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