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Activity: How Much Will It Cost?
Section I: Narrative
Shawnda Williams lives in Lynn, Massachusetts.
She is tired of paying rent for an apartment that she doesn’t
have any control over. Together with her sister Michelle,
who has two children; their mother, Mrs. Williams; and their
grandmother, Mrs. Foote; they have decided to look for a
house to buy for the whole family. They have spoken many
times about what they would like in a house.
Michelle wants a unit with at least two
bedrooms and a smaller alcove that can be used for her youngest
daughter’s bedroom. Mrs. Williams and Mrs. Foote want
to stay in the neighborhood they have lived in most of their
lives, as it’s close to the bus, the train, their friends,
the church, and the clinic whose doctors and nurses they
trust. Shawnda wants a big yard for the kids. She dreams
of setting up a hammock and reading her favorite books during
her two weeks of vacation in August.
Shawnda feels optimistic after visiting
the mortgage broker at her bank. With her mother’s
and grandmother’s bit of savings, along with Michelle’s
and Shawnda’s work history as employed nurses, they
might just be able to pull this off. She’s so excited
that she has signed up for a first-time home-buying class
at a local community center. For the past nine Sunday mornings,
after everyone else has left for church, she has looked
at the real estate section of the paper to see what kinds
of houses are on the market. Last Sunday she read about
a triple-decker in good condition that was selling for $225,000.
The next day after work, she stayed on the bus for a few
more stops and strolled down the street to look at the house.
First of all, the house needed a paint
job. The lawn was so overgrown that it looked like a forest.
But then Shawnda noticed a fruit tree alongside the dilapidated
fence; she swore there were small pears growing from it—egglike
and golden—and she could imagine living there. She
could imagine cutting back the weeds to let the tree get
plenty of sun.
Section II: Questions
1. If the Williams/Foote family qualifies
for a 5 percent first-time home buyer’s down payment
program, how much money will they need to have in order
to cover the costs of the down payment, home inspection,
mortgage application, lawyer fee, and closing fees?
2. If they don’t qualify for the
first-time home buyer’s program, how much money would
they need for the above costs?
3. If they need to borrow only the money
for the mortgage payments (since they have been able to
save the money for the down payment) and they are approved
for a 30-year fixed-rate mortgage at a 7.0 percent interest
rate, what will be the total costs of their monthly payments?
4. If Shawnda is paying only one-third
of the mortgage, what will her monthly payments be?
Use the following information about the home-buying process
to help answer your questions:
1. Making an offer: Your offer will be
made contingent upon your satisfaction with the home inspection,
conventional financing eligibility, condo association budget
review, and credit eligibility.
2. Deposit at offer: The amount is negotiable,
between $500 and 5 percent of the price of the property.
Keep it as low as possible (this is counted toward your
down payment).
3. Accepted offer: Check all the dates
for reasonableness; an accepted offer must be in writing.
You have 10 days to get the inspection, 5 days to apply
for the mortgage, 21 days (from application) to receive
approval, and 7 days to closing.
4. Home inspection: Once you have an accepted
offer, schedule a home inspection right away. Be at the
inspection so you can ask questions.
5. Purchase and sale: This is the big
contract. Hire a real estate attorney to review it with
you. Negotiate the attorney fee in advance. You will have
to write another check as part of the down payment at this
point. Again, this amount is negotiable. You have now written
two checks toward the down payment. The first one was when
you made the offer.
6. Mortgage application: Phone a city
or a local community development corporation to get the
latest information on mortgages. Schedule your mortgage
application with an “originator.” The application
process will take about 1.5 hours. The originator will want
to know everything about your life and money! Don’t
apply for more than one mortgage.
7. Follow-up to mortgage application:
During the following week, the mortgage originator will
continue to phone you and ask for more information.
8. Loan approval: After three to four
weeks you should receive a Loan Commitment letter. Read
it. Make sure there are no new contingencies. Sign it and
return it to the bank.
9. Fire and hazard insurance: Now you
can buy your homeowners insurance.You will get your insurance
binder. Take it to the closing. (If you are buying a condominium,
you may not need homeowners insurance. Ask if it’s
included in the condominium fee.)
10. Final walk-through before closing:
This is your last chance to check that all is as it should
be with the property before you close. Do this on the closing
date, or as close to it as possible.
11. Closing cost sheet: Usually about
48 hours before closing, the bank attorney will tell you
what amount to write your final check for. You must use
a certified check. The following are approximate costs on
a $100,000 loan:
Balance 5% down payment: $2,000
Closing costs: $1,200
Escrow (2 months’ tax/insurance): $350
Prepaids (interest): $600
*Private mortgage insurance (PMI): $0
TOTAL: $4,150
*No PMI for this first-time home buyer’s program
12. Closing day: You will attend the closing,
taking with you the insurance binder and your final certified
bank check.
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