URBS/PLSI 580 "Housing & Community Development
Policy"
Spring, l998 Richard LeGates
Office HSS 265 Office Hrs. MW 1:30 - 2:00 & appt
FAX (415) 338-2391 E-mail dlegates@sfsu.edu
Project # 1: Home Purchase Exercise
The purpose of this exercise is to introduce students to the Bay Area housing market, the homebuying process, housing finance, and the use of the internet for homebuying.
A homepage for this project is accessible from the URBS 580 Homepage. Click on "Project 1" at the top of the page. This homepage repeats the text that follows with one important addition: many of the words that follow are live links that will take you to sites on the internet where you can either read background on the subject matter called for, find descriptions of actual houses and other properties that are on the market in the Bay Area right now, perform calculations to see whether it makes sense for you to rent or buy, calculate what price you can afford given different scenarios regarding your available downpayment, mortage term, interest rates, and other variables.
A. Whooo am I? Begin by picking a hypothetical stage
which you intend to reach in your own life at some point in the
future in 5, 10, 20 or more years from now. For example in 15
years you might be 45 years old, expect to be married and have
two children, have a combined household income between yourself
and your working spouse of $ 83,000, have a saved or inherited
$37,000 and expect various monthly non-housing expenses to be $
2,100 a month. Alternatively you might make up more or less
improbable scenarios. Write one page describing your hypothetical
situation. Make sure to list at least your age, martial status,
occupation, occupation of spouse if any, number of children,
total amount of savings, and monthly payments of different types.
Note: be optimistic. Assume a combined household
income of at least $ 60,000 and savings of at least $ 25,000.
Otherwise you are unlikely to find much of a choice in the Bay
Area!;
B. What is my dream? Before learning more about homebuying
and housing finance or beginning a search for an actual property,
write one page describing your ideal house. What features would
you like in a home? What city would you like to live in? What
characteristics are important for your neighborhood (proximity to
work, school, shopping, entertainment? Safety? Proximity to
nature or what). What else would you like in a house? How many
bedrooms. What other rooms? Old or new? Any particular
architectural style? How big a yard? An investment potential?
Gourmet kitchen, hardwood floors, garden, weight room, shop or
what....?
C. What Can I Afford? Now get on the internet. Use the INTUIT homepage to determine the actual
current interest rate for a 30 year fixed rate loan.
Click on the INTUIT site. You will see a page asking you to
follow three steps. First Under Choose a State select
"California", Second under Choose a mortgage type
select "Fixed." Third clock on "Show Rates."
This will produce a table show the current rate for a 30 year
fixed rate loan in California. The table is divided into two
parts showing rates for conventional loans
(below about $ 214,600) and jumbo loans (with a
loan amount over $ 24,600). The table also shows
low, average, and high rates for each type. Make a note of the
average amount for a conventional 30 year fixed rate mortgage.
Then experiment by entering other loan types and looking a the
lows, mediums, and highs for different loan terms. You can get
similar information from E-loan,
HomeShark, Keystroke, Bank Rate Monitor, or HomeByNet. Go
to the DreamHomeLoan
Loan Qualification amount calculator. Enter your total
(hypothetical) yearly income (from all sources and before tax), a
30 year fixed loan term, and the current actual interest rate you
found on the internet.
Use the calculator to calculate how much you can afford to pay for a home. Experiment with alternative loan terms, interest rates, and types of loans to see how these can affect what you can afford.
Print out the Calculator results. Write one page describing
which source you used to determine a current interest rate and
what you found assuming a 30 year fixed loan term and other types
of loans and terms. Attach the calculator results for the 30 year
fixed loan term as appendix A.
D. What is the Homebuying Process like and
how does home financing actually work? Learn about the
housebuying process and housing finance by exploring topics in
the Dreamhomeloan site.
Visit all of the following sites in the order suggested below
(slightly different from Dreamhomeloan's order.
Whether to Rent or buy?
Your personal finances
Finding someone you trust
Real Estate Agents
Loan brokers
Loan Variables
Down payment
Interest
Talk about Mortgage insurance
Property Insurance
Property taxes
Discuss loan options and choose rates vs points
Get a good faith estimate of Closing costs
The Loan application process.
Establish realistic timelines for your purchase.
Discuss the loan options and choose rates vs points
Discuss the application what are your goals and concerns.
Filling out the application package.
Loan programs
Conforming and Jumbo mortgages
Fixed rate mortgages
ARMs--different indices, margins, neg am, etc.
First time home buyers programs.
The Loan Approval Process
Determining the Property
Structuring your purchase offer / Negotiating the deal
The fair witness -- escrow defined.
Write two pages describing the homebuying and home purchase
process based on the above. The midterm exam will draw
significantly on this material.
E. What can I actually buy? Find 3 actual Bay Area homes
which you could purchase given the assumptions in the scenario
you wrote by using the HomeScout site. Click on HomeScout.
From the HomeScout page enter California for the State and select
the city where you want to find a home. Enter a 0 for
"Include cities with -- miles." Select
"House" as the property type to search for. Enter a
maximum and minimum price and a minimum number of bedrooms. The
click on GO GET IT. Try the BayNet Home Search site
or if your are interested in purchasing a new home use BayNet's New
Home Developers site which operate very
similarly to HomeScout. Experiment with different cities
and property types (condo, coop, mobile home etc.).Compare what
amount of housing you can get for the same amount of money in
different Bay Area locations. If there are no homes available in
your price range go back and change your assumptions about the
income and savings you expect to have. You might want to age,
inherit more money, marry a richer spouse, or win the lottery.
Write one page describing in depth the house you selected and
briefly describing the other two houses you examined. How does
reality mesh with your dreams?.
F. Talk to a Realtor Review the material from the
DreamHomeLoan site about housebuying and housing finance. Select
one of the homes you have found. Prepare for a discussion about
the home and buying it and prepare a list of questions you have
for the realtor. For example you might explore in greater detail
whether the house needs repairs, what the neighborhood is like,
whether (and if so how fast) homes in this area are appreciating,
etc. This is a good time to formulate questions about any
homebuying or housing finance concepts you don't understand. Call
the realtor who is listing the property. Tell the realtor that
you are a SFSU student enrolled in a housing course and that you
are not yet in the market for a house. You might tell the realtor
that you expect to be looking for a home to buy in the future if
this is true. Ask for 20 minutes to discuss the specific house
and homebuying either in person at the realtor's office or by
phone (expressing appreciation for their taking time to do this).
Schedule a convenient time to talk. Write two pages describing
what you learned in your interaction with the broker.
Your final report should be 8 double spaced typed pages long, not counting appendices. It should be carefully written and proofed and should contain:
One page describing your hypothetical situation
One page describing your ideal house
One page describing which source you used to determine a current interest rate and what you found assuming a 30 year fixed loan term and other types of loans and terms
Two pages describing the homebuying and home purchase process based on the Dreamhomeloan site.
One page with an in depth description of the house you selected using the BayNet or HomeScout site and brief descriptions of the other two houses you looked at
Two pages describing what you learned in your interaction with the broker
Attach the calculator results for the 30 year fixed loan term as Appendix A
Attach any printouts, pictures or other material about the house you selected as Appendix B.