What is the difference between a condominium and a cooperative (co-op)?
a condo means you own your own individual apartment and can sell when you want and to who you want; you receive a deed.
-a co-op gives you shares in a corporatoin or building. There are stricter rules and other people there and the owner can have a say if you can sell to someone for any reason; you are not really buying real estate, you are buying shares on where you would like to live; you will receive a stock certificate and a lease.
-both do have fees: condo; maintenance fee, coop fee includes maintenance fee and the price to help pay off the buildings mortgage.
-coop is less expensive than a condo, but it is more risky because you are buying shares; if the corporation is in bad shape you can lose you coop and all the money you invested in it. Even worst you may still need to pay of the coop loan even when you lost it; you really have to do your homework on a coop, because they may not own the land the building is on, or are in bad financial shape.
-on both find out if there is a tax abatement and if so when will it expire, also maintenance fees can go up.
-you can most likely rent out a condo
single-family homes that are joined by a common wall. If the land is not owned by the individual homeowners, they are condominiums
Planned Unit Development (PUD)
-has individuals lots and houses that is on a big piece of land. There are rules and can be monthly fees for shared onsite recreation.
commercial property that has been turned into residental
In addition to residential units, they can provide recreational facilities
combine condo or apartment living with shopping and recreational facilities either in one building or in a group of buildings; popular in metropolitan areas.
Manufactured homes (mobile homes)
the homes are usually transferred from factories or dealerships to permanent ground where they are hooked up to gas, water, and electricity in housing parks.
Modular and prefab or kit homes
built in factories, installed fast, not permanent
multiple purchasers share ownership of a single property, usually a vacation home; each owner is entitled to use the property for a certain period each year; owners pay a annual maintenance fee.
What are the five major influences on the choice of location?
-Cultural advantages-schools, attractions
-governmental structure-police, protection, taxes
-social services-hospitals, community facilities
Since the crisis in the late 2000s, lenders have been more cautious about lending. Because of this have to earn what percent of income for the average home. How much does a conventional home loan lend?
-80%, buyers put at least 20% down.
The basic costs of owning a home are
-PITI; Principle and Interest, Taxes and Insurance.
How lenders determine whether a prospective buyer can afford a certain purchase
-calculate the borrower's debt-to-income ratio (DTI radio): the monthly cost of purchasing a home (mortgage principle plus interest on the remaining balance plus 1/12 of annual taxes and insurance) should not exceed 25 to 28% of the borrower's gross (pretax) monthly income.
-The payments of all debts (total debt or back-end ratio) should not exceed 33 to 36% of gross monthly income.
-Also depends on the specific requirements of the lender, type of loan, amount of down payment, potential future earnings, number of dependents, credit history, and general economic conditions.
In what ways is a mortgage an investments?
Property's value could increase
-equity (increasing ownership interest)
What is equity?
value of the property minus what you owe
assets minus liabilities
What are the five tax deductions homeowners can qualify for?
-Mortgage interest payments on first and second homes, subject to limitation
-Real estate taxes
-certain loan origination fees
-loan discount points
-mortgage insurance provided by the U.S. Department of Veterans Affairs, the Federal Housing Administration, or the Rural Housing Service, and private mortgage insurance (PMI).
What is a deduction
you don't have to pay
What is a credit
money back to you
Mortgage interest payments on first and second homes, subjects to limitation is
the interest you pay on your mortgage is not taxed.
Real Estate taxes deductions
Certain Loan Origination fees
some of the costs to get the loan; one time thing; not annually; ex; closing costs
Loan Discount Points
What are points?
basically pre-paid interest; if you think rates are going to go up later; if you make a lot of money; pay the lower rate now.
Mortgage insurance provided by certain government agencies
insurance on the loan; if the buyer falls to pay, the insurance will pay up to 20% of mortgage.
What are Capital Gains?
are the profits realized from the sale or exchange of an asset, including real property.
The Taxpayer Relief Act of 1977 do what?
married homeowners who file jointly are able to exclude up to $500,000 of capital gains of a sale or exchange of a principle residents and single homeowners can exclude up to $250,000. owned and used for two years out of the five of ownership
If the homeowners don't stay for at least two years in the owned home do to employment changes, health, death, natural or man-made disasters, divorce or legal separation are able to
exclude a fraction of the 500,000 or 250,000 if met requirements.
To meet down payment and closing costs requirements, a first-time homebuyer can make a penalty-free withdrawal from a tax-deferred individual retirement account (IRA). What is the limit?
Estate Tax Exemption
an estate tax exemption is the amount an individual can leave to heirs tax free up to $5 million per person. Exceeding $5 million will be taxed 40%
Lenders usually require that a homeowner obtain insurance.
A lender can require a borrower to purchase homeowners or other residential property insurance coverage in an amount that exceeds the replacement value of the dwelling and its contents.
False, however insurance companies may require that properties purchased below replacement cost (foreclosure), be insured at market value rather than at purchase price.
Homeowners Insurance Policy covers what five things?
-Dwelling--pays for damage to the house and any outbuildings, such as detached garages and storage sheds.
-Personal property--pays when household items, including furniture, clothing, and appliances, are damaged, stolen, or destroyed.
-Liability--provides $25,000 in coverage if homeowner is sued and found legally responsible for someone else's injury or property damage, if a property owner wants more liability coverage than a homeowner policy provides, a separate umbrella liability policy can be purchased.
-Medical payments--pays medical bills for people hurt on the homeowner's property; a basic homeowners policy pays $500 in medical bills.
-Loss of use--pays living expenses if a home is too damaged to live in during repairs (if the damage was due to a covered loss).
What are the three basic insurance policies in Texas? What do they cover?
-HO-A policies provide limited actual cash value coverage of the home and contents and has a specific limited list of coverage
-HO-A amended policies provide more extensive coverage than the base HO-A policy but less that HO-B coverage.
-HO-B polices, most common, provide replacement cost coverage for most types of damage and personal property.
-HO-C polices, most extensive coverage, more expensive
Most policies cover losses caused by:
-Fire and lighting
-Aircraft and vehicles
-Vandalism and malicious mischief
-Riot and civil commotion
-Windstorm, hurricane, and hail
-Sudden and accidental water damage
Most polices do not cover losses caused by
-Insects, rats or mice
-Freezing pipes while the house is unoccupied
-Wind or hail damage to trees and shrubs
-Losses if the house is vacant for 60 days or more
-Wear and tear or maintenance.
What are endorsements?
modification by a insurance company of the homeowner's policy. Ex: glass breakage, fine arts, computer equipment, etc.
only provide cash value coverage (unless there is an endorsement). Actual cash value is the replacement cost of the property minus depreciation.
HO-B and HO-C policies
provide replacement cost coverage for the house up to the policy's dollar limits.
-Replacement cost is the amount to rebuild or repair a home, based on current construction costs. does not include value of land.
the policy that requires that the property be insured for a least 80% of its replacement cost to receive full payment (minus the deductible).
In any event, the total settlement cannot exceed the face value of the policy unless
an endorsement to the policy specifies otherwise.
a clause in an insurance policy that limits the exposure to loss for an insured homeowner.
-the larger the deductible the lower the premium.
Insurance companies use a number of criteria to establish a policy including:
-the age and condition of the home; cannot deny coverage solely on home age or value
-the home's replacement cost; higher premiums for homes with high replacement cost.
-the construction materials used in the home; brick is less expensive than frame homes
-the location of the home
-availability of local fire protection
-the homeowner's claims history; companies will charge more if claims have been filed in the past, unless the loss was caused by nature; companies use Comprehensive Loss Underwriting Exchange (CLUE) to review an applicant's claims history.
-the homeowner's credit score
Texas Water Development Board is responsible for state administration and management of local participation in the National Flood Insurance Program.
Federal Emergency Management Agency (FEMA) does what?
sets rates and coverage limits, establishes eligibility requirements for flood insurance, and issues detailed Flood Insurance Rate Maps (FIRMs), establishing flood zones and rates for each participating community.
Federal law requires that owners of properties on which a "structure" is located in a floodplain area obtain flood insurance if the properties are financed by loans provided, regulated, or insured by the federal government or purchased by Fannie Mae or Freddie Mac secondary mortgage market agencies.
Most homeowners policies contain a coinsurance clause that requires that the property be insured for at least...
80% of its replacement cost. If this percent is not met, the policyholder may not be reimbursed for full repair costs if a loss occurs.