1. Chapter 7 Ms. Baumgartner

2.  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

3.  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

4.  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

5.  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

6.  Housing Information Sources  Libraries  Newspapers  Internet  Friends and Family  Real Estate Agents  Government Agencies

7. 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?

8.  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

9.  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 1 st flr, 1BR apt, wood flr, lndry incl & prkg. No smkg/pets. $925/mo. 1yr lease

10.  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

11.  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

12. 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?

13.  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

14.  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

15.  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

16.  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

17.  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?

18.  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)

19.  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)

20.  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)

21.  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

22.  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)

23.  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

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

25. 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.

26.  Chapter 7 Review 1-7, YOUR FINANCIAL FIGURES #1  Worksheets  YOUR FINANCIAL PORTFOLIO (p231)  Buy your dream home