Housing by mudoc123

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									      Chapter 9:
The Housing Expenditure
Objectives
     Discuss the options available for rented
      and owned housing and whether renters
      or owners pay more for housing.

     Determine how much buyers can afford
      for housing.

     Discuss the various mechanisms for
      financing a home.
Objectives
     Identify the numerous costs of buying a
      home, including principle, interest, and
      closing costs.

     List and describe the steps in the home-
      buying process.

     Identify some important concerns in the
      process of selling a home.
Housing Decision
                                                             Young Single
                                              •Rental housing has limited maintenance
                                              and offers mobility.
                                              •Purchase a home or a condominium for
                                              financial and tax benefits.


                   Single Parent
                                                                                             Young Couple, No Children
 •Rental housing can provide suitable environment
                                                                                  •Rental housing offers convenience and
 for children and some degree of housing security.
                                                                                  flexibility of lifestyle.
 •Purchase low-maintenance housing to meet
                                                                                  •Purchase housing for financial benefits and to
 financial and social needs of family.
                                                                                  build long-term financial security.


     Couple, Children No Longer At Home                                                       Couple, Young Children
 •Rental housing for convenience, flexibility for                                 •Rental housing can provide facilities for children
 changing needs and financial situation.                                          in a family-oriented area.
 •Purchase housing that requires minimal                                          •Purchase a home to meet financial and other
 maintenance and meets lifestyle needs.                                           family needs.



                                                           Retired Person
                                          •Rental housing meet financial, social, and
                                          physical needs.
                                          •Purchase housing that requires minimal
                                          maintenance, offers convenience, and provides
                                          needed services.
Renting Your Residence
   Advantages
     Mobility
     Fewer responsibilities
     Lower costs initially
     More amenities

   Disadvantages
     Few financial benefits
     Restricted lifestyle
     Cost of renting - deposits
     Legal concerns of a lease
Advantages of Owning

          Pride of ownership
            American dream/norm
          Reduced income taxes
            deduct property taxes
            deduct mortgage interest
Advantages of Owning            (continued)


    Build an equity
       pay down the loan
       price appreciation
    Builds your credit rating
    Hedge against inflation
    Lifestyle flexibility
       can express your individuality
Disadvantages of Owning
               Financial risk
                 need down payment
                 home prices could drop
               Limited mobility
                 can take time to sell
               Higher living costs
                 maintenance
                 repairs & improvements
                 utilities & insurance
                 real estate taxes
Renting vs. Owning Your Home
   WHO PAYS MORE:

      Based on cash flow, renters appear to win

      After taxes and appreciation, owners usually
       win
Renting versus Buying Place of Residence
                  RENTAL COSTS                                EXAMPLE         YOUR
                                                                            FIGURES
     Annual Rent Payments                                        $15,000              Comparing an
                                                                                      apartment with
     Renter’s Insurance                                              210
                                                                                      $1,250 of
     Interest Lost on Security Deposit (amount of security                            monthly rent
     deposit times after-tax savings account rate)                    36              and a home
                                                                                      that cost
        Total annual cost of renting                             $15,246
                                                                                      $200,000. A
     Annual mortgage payments                                    $15,168              28% tax rate is
                                                                                      assumed.
     Property taxes (annual)                                       4,800
     Homeowner’s insurance (annual)                                  600
     Estimated maintenance and repairs (1%)                        2,000
     After-tax interest lost on down payment and closing
     costs                                                           750
     Less financial benefits of home ownership
        Growth of equity                                          (1,120)
         Tax savings for mortgage interest (annual mortgage
     interest times tax rate)                                     (3,048)
        Tax savings for property taxes (annual property
     taxes times tax rate)                                        (1,344)
        Estimated annual appreciation (1.5%)                      (3,000)
        Total annual cost of buying                              $14,806
Housing Options for Home Buyers

     Single-family dwelling
       tract housing
       built on speculation by builder
       built to your specifications
       previously lived in home
       manufactured home
       mobile home
Home Buying Process Step 4:
Obtaining Financing
   Determine the amount of down payment
      mortgage insurance
   Qualifying for a mortgage
      can be pre-qualified based on income, assets,
       debts, credit history and length of loan
      purpose of “points” (prepaid interest)
   The home loan application process
      fixed or adjustable rate mortgage
      locking in an interest rate - search Web
Qualifying for a Mortgage

  Amount available for down payment
  Amount of income
  Amount of other debts
  Credit rating
  Current mortgage rates
  Length of loan desired
Home Buying Process Step 1:
Determine Ownership Needs

    How much you can afford
      down payment
      loan amount
      size and quality
      handyman’s special
      sweat equity
Home Buying Process Step 2:
Finding and Evaluating a Property to Purchase

   Select a location
   Zoning laws
   Covenants, codes and restrictions
   Using a real estate agent
   Property appraisal
   Conducting a home inspection



                                           9-15
Home Buying Process Step 3:
Pricing the Property
    Determining the price to offer
    Negotiating the purchase price
      seller’s or buyer’s market
      earnest money
    Contingency clauses
      home passes
       structural inspection
      able to get a loan
Estimating Mortgage Loan Payments
for Principal and Interest Estimating Mortgage Loan Payments for Principal and Interest
                                     (Monthly Payment per $1,000 Borrowed)


                                                     Payment Period (Years)
           Interest                 15                 20                    25                   30
           Rate (5)
              4.5                  $7.6499              $6.3265               $5.5583              $5.0669
              5.0                    7.9079               6.5996               5.8459               5.3682
              5.5                    8.1708               6.8789               6.1409               5.6779
              6.0                    8.4386               7.1643               6.4430               5.9955
              6.5                    8.7111               7.4557               6.7521               6.3207
              7.0                    8.9883               7.7530               7.0678               6.6530
              7.5                    9.2701               8.0559               7.3899               6.9921
              8.0                    9.5565               8.3644               7.7182               7.3376
              8.5                    9.8474               8.6782               8.0523               7.6891
              9.0                  10.1427                8.9973               8.3920               8.0462
              9.5                  10.4422                9.3213               8.7370               8.4085
             10.0                  10.7461                9.6502               9.0870               8.7757

      Note: To use this table to calculate a monthly mortgage payment, divide the amount borrowed by 1,000 and
      multiply by the appropriate figure in the table where the interest rate and the time period for the loan
      intersect. For example, a $150,000 loan for 30 years at 9 percent would require a payment of $1,206.93
      [($150.000/1,000) x 8.0462]; over 15 years it would require a payment of $1,521.41.
            Effect of Down Payment
Effect of Down Payment Size on Monthly Payment for a $150,000 Home
               (7 Percent Mortgage Loan for 30 Years)



            Down            Amount          Monthly
           Payment          Of Loan         Payment
            $5,000         $145,000          $964.69
            10,000          140,000           931.42
            15,000          135,000           898.16
            20,000          130,000           864.89
            25,000          125,000           831.63
Type of Mortgages
   Conventional
     fixed rate, amortized
     5, 10 or 20 percent down
     15, 20 or 30 years of fixed payments
   Government guaranteed
     Veterans Administration
     Federal Housing Administration
   Adjustable rate mortgages
     varies with the prime rate but has a rate cap
Type of Mortgages                 (continued)


   Graduated payment
     payments start lower and go up
     for persons whose income will increase
   Balloon
     fixed monthly payments plus one large
      payment, usually after 3, 5 or 7 years
   Growing equity
     payment increases to allow loan to be
      paid off more quickly
Type of Mortgages                     (continued)

 Shared appreciation
   borrower agrees to share appreciated
    value of the home with the lender
 Home equity loans
   a second mortgage
   home is collateral and interest may be tax
    deductible
 Reverse
   a loan based on the home equity
 Refinancing
Home Buying Process Step 5:
Closing the Purchase Transaction
                   Title insurance and search fee
Closing Costs      Attorney’s and appraisers fees
                   Property survey
                   Recording fees; transfer taxes
                   Credit report
                   Termite inspection
                   Lender’s origination fee
                   Tax and insurance reserves
                   Pre-paid interest
                   Real estate commission
The Main Elements of Buying a Home

  Location
  Down payment
  Mortgage application
  Points
  Closing costs
  TIPI (taxes, insurance, principal, interest)
  Maintenance costs
Selling Your Home
 Preparing your home
 Determining the asking price
    Appraiser
    Realtor
 For sale by owner or use a broker
 Listing with a real estate agent
         Make Sure Security
         Deposit Is Returned
   1. List damages/defects before moving in unit.
   2. Maintain unit and promptly notify landlord of
     any problems.
   3. Give proper written notice of intent to move.
   4. List all damages/defects after moving out of
     unit.
   5. Use certified mail to request return of
     security deposit.
   6. Use small claims court, if necessary.
            Types of Real
            Estate Agents
   Listing agent

   Selling agent

   Buyer’s agent

   Dual agent

								
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