© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Making Automobile and Housing Decisions #5

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Q. 1. What are the steps in buying an automobile?

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1. Choosing a Car Factors to Consider Affordability

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1. Choosing a Car Factors to Consider AffordabilityOperating costs

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1. Choosing a Car Factors to Consider AffordabilityOperating costsGas, diesel, or hybrid

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1. Choosing a Car Factors to Consider AffordabilityOperating costsGas, diesel, or hybridNew, used, or “nearly new”

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1. Choosing a Car Factors to Consider AffordabilityOperating costsGas, diesel, or hybridNew, used, or “nearly new”Size, body style, and features

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Choosing a Car Other Considerations: Trading in or selling present car

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Choosing a Car Other Considerations: Trading in or selling present car Fuel economy

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Choosing a Car Other Considerations: Trading in or selling present car Fuel economySafety features

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2. The Purchase Transaction Negotiating price – Sticker price versus dealer’s cost Trade-ins Closing the deal

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Leasing A Car Leasing usually offers: Lower monthly payments More expensive car for same payments Lower down payment When leasing a car, you pay for its use during a specified period of time At the end of lease, you have nothing

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Q. 2. What are the two types of leases?

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Types of Leases Closed-end lease “walk away” from car when lease is over most popular Open-end lease payment based on car’s residual value upon return, pay difference if car’s worth is less than estimated

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Leasing a Car Lease Payment Calculation Based on: Capitalized cost (price) of the carForecasted residual value at end of leaseMoney factor (financing rate) on leaseLease term

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Lease versus Purchase Analysis More or less costly to lease?When the lease ends…Return the car?Buy the car?

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Calculation of Lease – Term of Lease and Loan (months) = Item 2 (Term of Lease and Loan in years) x 12 – Total Payments over term of Lease = Item 3 (Term of Lease and Loan in months) x Item 4 (Monthly Lease payments) – Opportunity Cost of Initial Payment = Item 1 (Initial Payment) x Item 2 (Term of Lease and Loan in years) x Item 6 (Interest Rate earned on savings) – Total Cost of Leasing = Item 1a (Down Payment) + Item 5 (Total Payments over term of Lease) + Item 7 (Opportunity Cost) +/- Item 8 (Payment/Refund)

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Calculation of Purchase – Sales Tax = Item 10 (Purchase price) x Item 12 (Sales Tax rate in decimal) – Total Payments over term of Loan = Item 3 (Term of Lease and Loan in months) x Item 14 (Monthly Loan payments) – Opportunity Cost of Down Payment = Item 11 (Down Payment) x Item 2 (Term of Lease and Loan in years) x Item 6 (Interest Rate earned on savings) – Total Cost of Purchasing = Item 11 (Down Payment) + Item 13 (Sales Tax) + Item 15 (Total Payments over term of Loan) + Item 16 (Opportunity Cost) - Item 17(Trade –in)

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Q. 3. What are the four types of housing needs ?

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Meeting Housing Needs: Buy or Rent? Single family homes Most popular type Offers more privacy and property control

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Condominiums Form of ownership for apartments, townhouses, or cluster housing Title to unit and jointly own common areas Monthly homeowner’s fee in addition to mortgage payments

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Cooperative Apartments “Co-op” Tenants own shares in nonprofit corporation that owns building lease units from corporation Assessed fees based on space occupied c overs service, maintenance, taxes, and mortgage on entire building

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Rental Units Appropriate for those: without a down payment unsettled in job or family status who do not want home ownership responsibilities who feel current conditions are unattractive for home ownership

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Q. 4. What are the two types of rental options?

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Rental Option Contract Protects lessor = owner lessee = one who leases Contract Specifies Monthly rent and due date penalties for late payment length of lease agreement deposit requirement renewal options Know your rights and responsibilities before signing!

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Q. 5. What are the benefits and costs of owning a home?

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Benefits of Owning a Home Personal satisfaction

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Benefits of Owning a Home Personal satisfaction Tax shelter

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Benefits of Owning a Home Personal satisfactionTax shelterInflation hedge

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Cost of Home Ownership Down payment

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Cost of Home Ownership Down paymentPoints and closing costs

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Cost of Home Ownership Down paymentPoints and closing costsMortgage payments

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Cost of Home Ownership Down paymentPoints and closing costsMortgage paymentsProperty taxes and insurance

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Cost of Home Ownership Down paymentPoints and closing costsMortgage paymentsProperty taxes and insurance Maintenance and operating expenses

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. P = Principal I = Interest T = Taxes I = Insurance Go to lender to repay mortgage Collected by lender and held in escrow account The Mortgage Payment (PITI)

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Maintenance & Operating Expenses Consider upkeep expenses PaintingRepairsLawn maintenance Consider operating expenses Utilities

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Q. 6. What are the steps in the home buying process?

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1. Pre-Buy Process Prequalify and applyEnter into a sales contract Provide an earnest money deposit Contingency clause

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2. Using an Agent Most realtors belong to Multiple Listing Service (MLS) – a comprehensive listing, updated daily, of properties for sale Agents, usually employed by seller, are paid a commission if they make a sale

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3. Closing the Deal Real Estate Settlement Procedures Act (RESPA) Title check necessary to ensure title is clear, free of liens Closing statement provides details of costs for both buyer and seller

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Q. 7. What are the types of mortgage loans?

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Types of Mortgage Loans Fixed Rate Mortgage Interest rate and monthly payments (PI) fixed for life of loan Taxes and insurance not fixed, so total payment (PITI) can increase

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Types of Mortgage Loans Adjustable Rate Mortgage (ARM) Interest rate varies, so monthly payments vary May cause negative amortization ARM Features Adjustment period Index rate Margin Interest rate caps Payment caps

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Types of Mortgage Loans FHA mortgage payments insured by Federal Housing Administration lower down payment, interest rates, closing costs VA loan payments guaranteed by Veterans Administration one-time loan with no down payment

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Other Mortgage Payment Options Interest-only

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Other Mortgage Payment Options Interest-onlyGraduated-payment

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Other Mortgage Payment Options Interest-onlyGraduated-paymentGrowing-equity

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Other Mortgage Payment Options Interest-onlyGraduated-paymentGrowing-equityBiweekly