Senior Seminar
Mr. Bernstein
Housing Finance
February 2-4, 2015
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Housing and LifestyleFeatures
Living space desiredAcreageCommutingBudget
Life PhaseRenting vs. buying
Seminar: Timely Topics for Today’s Business World
Mr. Bernstein
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Housing and Lifestyle Advantages DisadvantagesRenting an Apartment Easy to move
Low maintenanceLow financial commitment
No tax advantageLimitations on activitiesLess privacy
Renting a House Easy to moveLow maintenanceLow financial commitment
Higher utilities expensesSome limits on activitiesNo tax advantage
Owning a House Pride of ownershipMore spaceTax benefits
Financial commitment/riskHigh living expensesLimited mobility
Owning a Condominium
Pride of ownershipLower maintenanceTax benefitsAccess to recreation and business
Financial commitment/riskLess privacy than a houseNeed to get along with othersLess space than a house
Owning a Mobile Home
Less expensive than house Lower quality than house
Seminar: Timely Topics for Today’s Business World
Mr. Bernstein
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Renting+ Mobility+ Fewer Responsibilities+ Low upfront costs- Lifestyle restrictions
Rental Agreements and Leases
Seminar: Timely Topics for Today’s Business World
Mr. Bernstein
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Tenant’s Rights and DutiesRight of Possession
Landlords generally do not have right to enter and inspect unless stated in lease
Right to Use PropertyRight to Assign or Sublet
Tenant remains responsible toward landlordDuty to pay rent in timely fashionDuty to take reasonable care of property (record condition before moving
in)Duty to notify landlord of needed repairsTort liability to guests (purchase renter’s insurance)
Seminar: Timely Topics for Today’s Business World
Mr. Bernstein
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Landlord’s Rights and DutiesRight to receive rent in timely fashion
Rent due even if tenant vacates earlyRight to regain possession at end of leaseDuty to maintain common grounds of multi-unit
buildingDuty to maintain housing codeDuty to pay property taxes
Seminar: Timely Topics for Today’s Business World
Mr. Bernstein
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Types of HousingSingle-Family - UnattachedMulti-Family – Duplexes, Townhouse, 4-flats, etc.Condominiums – similar to apartments but owned, not rentedCoops – Apartment building owned by residentsMobile Homes – Inexpensive, popular in some climates
Seminar: Timely Topics for Today’s Business World
Mr. Bernstein
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Mortgage FinancingLong-term collateralized loanMost common lengths are 15 and 30 yearsFailure to make payments can result in foreclosure, or
taking possession of property by lenderAmortization is the amount of principal paid each month; small at first and increases over time. Why?
Seminar: Timely Topics for Today’s Business World
Mr. Bernstein
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Mortgage FinancingInterest Rates, Points and APR (Annual Percentage Rate)$100,000 loan with 1 point and 5% interest rate
Amount borrowed is $99,000; APR is 5.09%$100,000 loan with 4 points and 4.5% interest rate
Amount borrowed is $96,000; APR is 4.85%Which is the better deal?...
Over 30 years, the latter deal has lower APR…but…If you move in 5 years, the points are spread over fewer
years and the APRs are 5.41% and 6.12%!!
Seminar: Timely Topics for Today’s Business World
Mr. Bernstein
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Mortgage FinancingClosing costs other than Points and misc. lender fees*
Title Search Fee ($300)Title Insurance ($1400)Attorney’s Fee ($500)Property Survey ($700)Appraisal Fee ($400)Termite or other Inspection Fees ($100)Real Estate Agent Commission (paid by seller; 3-6%)
* - Average 2012 New Jersey costs from:http://www.bankrate.com/finance/mortgages/2012-closing-costs/new-jersey-closing-costs.aspx
Seminar: Timely Topics for Today’s Business World
Mr. Bernstein
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Mortgage FinancingARMs: Adjustable Rate MortgagesTypical terms: low rate for 1, 2 or 5 years, then an adjustment to a spread over a common floating rateExample: 2% for 5 years, then LIBOR + 2.5%Rate may be cappedDiscounted rate in early years is paid for by accepting risk of rising rates in later yearsInteresting if you plan to move within a few years…but if not, beware…the adjustment can be dramaticARMs caused many bankruptcies in 2008 crisis
Seminar: Timely Topics for Today’s Business World
Mr. Bernstein
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Mortgage FinancingImportant TermsEquity: Value of home minus amount still owedHome Equity Loan: “Second Mortgage”Refinancing: New mortgage, pays off old mortgage,
often establishes a lower or fixed rateEscrow Account: Many mortgage lenders will require Property Tax money be paid into a trust account with house payments
Seminar: Timely Topics for Today’s Business World
Mr. Bernstein