The Finances of Housing

Chapter 7Ms. Baumgartner

Housing Options 7.1

Your Lifestyle affects your Choice of Housing How close to work you want to live How long you plan to stay in one place How much privacy you would like to have How much you want to spend

Housing Options 7.1

Opportunity Costs of Housing Choices A “fixer-upper” will allow you to purchase a

larger property at a lower cost…but it may need work

Renting an apartment will give you mobility …ability to easily move from place to place

Housing Options 7.1

Renting versus Buying…depends on lifestyle Renting

Good for young adults who are beginning their careers

Good for those who want or need mobility Good for those who don’t want to spend time or

money on maintenance Often cheaper to rent

Housing Options 7.1

Renting versus Buying…depends on lifestyle Buying

Good for those who want a certain amount of stability Good for those who want privacy and some freedoms not

available to a renter (pets or large parties/gatherings) Offers tax advantages Value may increase…long term investment

Housing Options 7.1

Housing Information Sources Libraries Newspapers Internet Friends and Family Real Estate Agents Government Agencies

7.1 Assessment

1. What should you consider when you evaluate housing options?

2. When would buying a residence be a better choice than renting?

3. What are at least 3 sources of housing information?

Renting a Residence 7.2

Selecting a Rental Unit: What should you know before signing a lease?

Tenant – person who pays for the right to live in a residence owned by someone else

Landlord – person who owns the property that is rented

Renting a Residence 7.2

Selecting a Rental Unit: What to consider Size and Cost (depends on location)

Flat, high-rise, complex, garden apt Source of Information – classified section of

newspaper or real estate and rental offices 3-bdrm apt., a/c, w/w carpet, pvt back ent,

$800+utils, ref reqd Close to campus. Pvt 1st flr, 1BR apt, wood flr, lndry

incl & prkg. No smkg/pets. $925/mo. 1yr lease

Renting a Residence 7.2

Advantages of Renting Mobility Fewer Responsibilities Low Initial cost

Disadvantages of Renting Financial (no tax breaks) Lifestyle Restrictions (large gatherings) Legal Issues…must sign a lease…be sure

to read before signing

Renting a Residence 7.2

Cost of Renting is dependant on… Location-nice part of town? Living space-large size? Utilities-are they included? Security deposit- money you pay the

owner/manager to protect them against any damage the renter may cause

Renters Insurance- covers the loss of tenant’s personal property in case of damage or theft. Pay this monthly

7.2 Assessment

1. What are the 3 main advantages of renting?

2. What are the main disadvantages of renting?

3. What are the costs associated with renting?

Buying and Selling a Home 7.3 The Home-Buying Process

Step 1 – Determine Your Home Ownership Needs Benefits – stability,

individual expression, pets, tax advantages

Gain equity (value of home minus the amount you still owe on the loan)

Drawbacks – doesn’t guarantee happiness, financial risk, down payment, limited mobility, cost of maintenance and repairs

Buying and Selling a Home 7.3

The Home-Buying Process Step 1 – (cont.) Determine Your Home Ownership Needs Types of Housing

Single-family dwelling – most popular in US…stands on a separate lot with a lawn and some outdoor living space

Multiunit dwelling – duplexes and townhomes Condominiums – group of apartments or

townhouses that people buy instead of rent

Buying and Selling a Home 7.3

The Home-Buying Process Step 1 – (cont.) Determine Your Home Ownership Needs Types of Housing (cont.)

Cooperative Housing – apartment style living…owned by a non-profit organization

Prefabricated Homes – manufactured and partially assembled at a factory…often cheaper. Put together at building site after being sent from factory.

Mobile Homes – homes fully assembled at a factory and shipped to a location to sell

Affordability and Your Needs – price, size, and quality You may not get every feature you want in your price range

Buying and Selling a Home 7.3

The Home-Buying Process Step 2 – Find and Evaluate a Property to Purchase

Selecting a Location – city, suburbs, small-town or country

Hiring a Real Estate Agent – services are usually free to the buyer (make commission 3-6%)

Conducting a Home Inspection – before you make a final decision…a professional inspector needs to evaluate the home and address repairs

Buying and Selling a Home 7.3

The Home-Buying Process Step 3 – Price the Property Determine the Price of the Home (what you

think it should be / what you can afford) How long has it been on the market? What have similar homes in the neighborhood sold

for recently? Is it a seller’s or buyer’s market? Do the current owners need to sell in a hurry? How well does the home meet your needs? How easily can you arrange financing?

Buying and Selling a Home 7.3 The Home-Buying Process Step

3 – Price the Property (cont.) Negotiating the Purchase Price

Don’t have to ask the list or asking price…can make a lower offer

Sometimes the owner makes a counteroffer

Once accepted, sometimes the buyer must pay the seller a portion of the purchase price, called earnest money held in an escrow account …shows that the buyer is serious

Money is held until paid to designated parties (insurance, taxes)

Buying and Selling a Home 7.3

The Home-Buying Process Step 4 – Obtain Financing How will you pay for your purchase?

Determine Down payment – probably have to come up with on your own…20% of the purchase price is suggested

Private Mortgage Insurance- if you can’t cover 20% down, you buy this to protect the lender. Can pay up front or in monthly payments

Mortgage – loan used to pay for the remainder of the property/home…long-term loan…15, 20, or 30 years

Financial qualifications (debts, income) Interest Rate Factors (will affect how much you can afford)

Buying and Selling a Home 7.3

The Home-Buying Process Step 4 – Obtain Financing (cont.) How will you pay for your purchase?

Paying Points – Different lenders offer different interest rates…if you want a lower interest rate you may have to pay a higher down payment and points (extra charges that must be paid by the buyer…each point equals 1 percent of the loan amount)

The Loan Application Process – buyer may have to pay $100-300 to apply for a mortgage (this is counted towards total costs)

Buying and Selling a Home 7.3

The Home-Buying Process Step 4 – Obtain Financing Types of Mortgages - Amortization – reduction

of a loan balance through payments made over a period of time…many types of mortgages

Fixed-Rate – interest rate does not changes, fixed payment schedule (EX: Conventional)

Adjustable-Rate – interest rate changes depending on the economic indicators

Buying and Selling a Home 7.3

The Home-Buying Process Step 4 – Obtain Financing (cont.) Types of Mortgages

Home Equity Loans – borrow money from the amount you have already paid on the mortgage

Refinancing – homeowners may need extra money or may want to reduce their monthly payments…refinancing is a way to obtain a new mortgage (start over and recalculate payments)

Buying and Selling a Home 7.3

The Home-Buying Process Step 5 – Close the Transaction Closing is the final step in buying a home;

meeting between buyer/seller/lawyer Papers are signed, last-minute details are settled, and money is

paid Closing costs – paid by buyer and seller Title insurance is offered – protects the buyer in case

problems with the title arise later Deed Recording Fees paid – official document transferring

ownership from seller to buyer Escrow Account – money set aside for taxes and insurance

Buying and Selling a Home 7.3

Selling a Home Make needed repairs Get Appraisal – estimate of current value Determine the Selling Price Use a Real Estate Agent or sell yourself

7.3 Assessment

1. What are five steps that make up process of buying a home?

2. What costs are associated with buying a home?

3. What activities are associated with selling a home?

4. 3 reasons why you should carefully inspect a home you plan to purchase.

Chapter 7 Review 1-7, YOUR FINANCIAL FIGURES #1

Worksheets YOUR FINANCIAL PORTFOLIO (p231) Buy your dream home