factor & finance, housing
TRANSCRIPT
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Chapter 09
The Housing Decision:Factors and Finances
9-1
SAJID MEHMUD
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Learning Objectives
1. Evaluate available housing alternatives
2. Analyze the costs and benefts associated with renting
3. Implement the home-buying process
. !alculate the costs associated with purchasing a home
". #evelop a strategy $or selling a home
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%ousing Alternatives by li$estage
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Housing Alternatives
Evaluate available housing alternatives &our li$estyle and your choice o$ housing
– %ow you spend your time and money' a(ectsyour housing choice.
– )ersonal pre$erences are modifed by fnancial$actors.
*raditional fnancial guidelines suggestyou spend no more than 2"-33+ o$ ta,e-home pay on housing' or no more than 212 times your annual income.
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%ousing Alternatives continued/
0pportunity costs o$ housing choices
Interest earnings lost on money used $or a downpayment or the interest on a security deposit $oran apartment
*ime and cost o$ commuting to live in an areathat o(ers less costly housing or more space
9-5
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%ousing Alternatives continued/
0pportunity costs o$ housing choicescontinued/
enters lose ta advantages and euitygrowth
*ime and money you spend to repair andimprove a lower-priced home
*ime and e(ort when you have a home
built to your personal specifcations
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enting-the process
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Renting our Residence
Objective 2: Analyze the costs andbenefts associated with renting
*he search
4elect an area and rental cost $or yourneeds
!ompare costs and $acilities between units
*al, to current and past residents
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Renting our Residence
Advantages o$ renting
Easier to move
5ewer maintenance and repairresponsibilities
6ower initial costs
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enting your esidence continued/
#isadvantages o$ renting
7o ta benefts
6imitations regarding remodeling
estrictions regarding pets and otheractivities
6egal concerns o$ a lease !osts including a security deposit' utilities
and renter8s insurance
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enting your esidence continued/
L!"AL D!TA#L$ OF A L!A$! #escription and address o$ property
7ame and address o$ the ownerlandlord
lessor/
7ame o$ tenant lessee/
E(ective date and length o$ the lease
Amount o$ security deposit
Amount and due date o$ rent
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enting your esidence continued/
L!"AL D!TA#L$ OF A L!A$! %continued&
6ocation where rent is due
#ate and amount $or late rent payments
6ist o$ included utilities' appliances
estrictions on certain activities
*he right to sublet the unit
!onditions where landlord may enter rental unit
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Ho'e (uing )rocess
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Ho'e (uing )rocess
Objective *: Implement the home-buyingprocess
4tep 19 #E*E:I7E *%E %0:E0;7E4%I) 7EE#4
Benefts o$ %ome 0wnership
)ride o$ ownership uilding euity in your home
6i$estyle ?eibility - epress your individuality
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%ome >uying )rocess continued/
Assess *ypes o$ %ousing Available
4ingle-$amily dwelling
:ulti-unit dwelling #uple' townhomes
!ondominium &ou own your unit in a building o$ units
It is not a type o$ building structure' but rather a $orm o$homeownership
!ooperative housing 7on-proft organization - members own shares and rent a unit
in a building with multiple units9-16
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%ome >uying )rocess continued/
:anu$actured homes 5ully or partially assembled in a $actory' and then movedto the housing site
)re$abricated type has components built in the $actory andassembled at the site
:ass production under $actory conditions ,eeps costslower than site built homes
:obile homes A type o$ manu$actured home' o$ten @1' s. $t. 0(er same $eatures as a conventional house
4a$ety is debated and they tend to depreciate
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%ome >uying )rocess continued/
>uilding a home #oes the contractor have needed
eperienceB
#oes contractor have a good wor,ing
relationship with architect' suppliers'electricians' plumbers' carpenters andothersB
;hat assurance do you have aboutualityB
;hat are the payment arrangementsB
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%ome >uying )rocess continued/
4tep 29 5I7# A7# ECA6DA*E A )0)E*& *0 )D!%A4E
4electing a 6ocation
>e aware o$ zoning laws
Assess the school system i$ you havechildren.
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%ome >uying )rocess continued/
4tep 39 )I!I7 *%E )0)E*&
#etermine the %ome )rice
)rice is a(ected by whether it is a seller8s or abuyer8s mar,et.
7egotiating the )urchase )rice
!ountero(ers are common
Earnest money
!ontingency clauses' such as...
>uyer must be able to obtain fnancing
4ale contingent on the sale o$ the buyer8s currenthome
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The Finances o+ Ho'e(uingObjective 4: !alculate the costs associatedwith purchasing a home
4tep 9 0>*AI7 5I7A7!I7
#etermine the amount o$ the down payment
)rivate :ortgage insurance ):I/ i$ less than2+ down
Investigate the rates' types' F terms o$
mortgages
Apply $or a mortgage and evaluate types o$mortgages. uidelines $or a(ordability o$housing costs are 33+ to 3G+ o$ gross income
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*he 5inances o$ %ome >uyingcontinued/
Huali$ying $or a mortgage includes your income' debts' credit history'
down payment amount' length o$ the loan' andcurrent mortgage rates
4tep 19 )reualifcation
4tep 29 5inding a property' including appraisal
4tep 39 5ee )ayment and commitment
)oints are prepaid interest as a + o$ the loanamount
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*he 5inances o$ %ome >uying continued/
5IE#-A*E' 5IE#-)A&:E7* :0*AE4
!onventional
5ied rate' fed payment' amortized
"+' 1+ or 2+ down
1"' 2 or 3 years o$ fed payments
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*he 5inances o$ %ome >uyingcontinued/
A#KD4*A>6E-A*E' CAIA>6E-)A&:E7*:0*AE4
AdLustable rate mortgages
#uring the li$e o$ the loan the interest ratevaries with the prime rate' but has a ratecap
A payment cap may limit the payment
but' etend the loan
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! i $
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!omparison o$3 and 1" &ear 5ied :ortgages
6oan AmountM N1' Interest ateMO+
Loan Term
(ear!"
# o$
%amen&!
'amen&
amon&
To&a) *o!&
30 360 +600 +216,000
15 180 +843 +151,740
Total Savings=$64,260 9-28
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*he 5inances o$ %ome >uying continued/
0*%E 5I7A7!I7 :E*%0#4
>uy-#owns
Interest subsidy $rom a home builder or areal estate developer that reduces the
mortgage payments $or the frst $ew years 4econd mortgage
%ome is collateral and interest may be tadeductible. %ome euity loans are an
eample
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*he 5inances o$ %ome >uying continued/
0*%E 5I7A7!I7 :E*%0#4 continued/
efnance i$ interest rate drops at least1+
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4tep "9 !604E *%E )D!%A4E *A74A!*I07
#ocuments signedP meeting o$ buyer' seller'and lender
!losing costs include... *itle insurance and search $ee
Attorney8s and appraisers $ees
)roperty surveyP )est inspection
#eed recording $eesP *rans$er taes !redit reportP 6ender8s origination $ee
Escrow account $or ta and insurance reserve
)re-paid interestP eal estate commission
T.e /nan*e! o$ Home n (*on&ne"
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$elling -our Ho'e
Objective 5: #evelop a strategy $or selling
)reparing your home
epair' repaint' and clean
;hen showing home turn on lights and opendrapes. >a,e bread or ma,e co(ee $or awelcoming smell
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$elling -our Ho'e
Objective 5: #evelop a strategy $orselling
#etermining the selling price
Appraiser estimates the current value
eal estate agent mar,ets your home
I$