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l How to compare theadvantages anddisadvantages ofbuying a homel How to determine theamount of downpayment you will needand the approximateamount you canborrow to buy a homel How to describevarious types of homeownershipBeing able to evaluatehousing alternativeswill help you to decidewhether to purchasea home.l mortgagel equityl mortgagel equityl debt ratiol cooperativel condominiumEvaluating HousingAlternativesDeciding to Buy a HomeBuying a home may be the most important purchase you will evermake. You will need to weigh the advantages and disadvantages of homeownership, consider how much you can afford, and determine the typeof home that will best fit your needs (see Figure 34.1). You will probablyconsider taking out a mortgage to help you with the costs. A mortgageis a written instrument by which the buyer (the mortgagor) pledges realproperty to the lender (the mortgagee) as security for a loan.Advantages to Home BuyingA key advantage of owning your home is the ability to do with it asyou wish without having to answer to another owner. The gradual increasein equity , or the difference between the fair market value andthe mortgage, in the property is another important advantage of homeownership. Equity increases as you pay off the mortgage and as theproperty increases in value. Except during times of recession, you canoften sell a house for more than you paid for it. You can also deductproperty taxes and interest paid on your mortgage from your incometax return.Disadvantages to Home BuyingThere are some disadvantages to owning a house. They include theinconvenience and cost of upkeep, as well as the inability to move easilyand quickly if necessary.How Much Can You Afford?The first step in buying a house is determining the price range thatyou can afford. This information can be obtained by talking with a loanofficer at a bank. The officer can give you an idea of the amount ofdown payment you will need and the approximate amount you canborrow, based on your income and expenses.Down Payment Down-payment requirements range from zero to30 percent of the purchase price. Qualified veterans can obtain a Veteran’sAdministration (VA) loan to buy a house up to $240,000 with nodown payment. Mortgages backed by federal agencies, such as FannieMae and Freddy Mac, are available with a 3 percent down payment.730 Unit 7: Planning for the Future