Chapter 6 Housing and transportation 1 Renting a Rent payment for use of property b Security deposit payment required in advance to cover wear on unit i Usually same or slightly lesser amount than a month s rent Lease legal document between renter and landlord c d Sublease property can be leased to another e Tenant rights i Vary by state and community ii iii Make lists of all damages and defects before moving in and out and have landlord Landlord s responsibility to provide a habitable property sign it 2 Renting vs Owning a Renting Owning Security cash cd s savings bonds enough insurance b Renting is fine for 2 5 years c d Real estate involves more risk but maybe a greater return over time e Building a down payment normally 10 of the price of the house 3 Owning a Reasons why first time buyers purchase i tired of paying rent tax advantages ii iii desire for larger home iv First time buyers make up 40 of homebuyers market i Housing is 32 of income and transportation is 18 Build budget around them b Appreciation increase in value c Budget items d Formulas i 25 to 40 of your take home pay ii Depends on circumstances career other expenses 4 Layouts of housing and pricing a 2 2 is average b 2 3 exists c Kitchen is most expensive room in house i Cabinets most expensive part of kitchen ii Usually 10 ft of cabinet iii Sink is mostly used build kitchen around it iv Parallel kitchen vs L shaped kitchen d Bathroom is second most expensive e Windows cost more than walls 5 Steps in Buying a Home a Step 1 Determining financial readiness i Down payment ii Be able to afford PITI Principal Interest Taxes Insurance iii One can determine if they can afford a home by the 2 times income rule iv Mortgage loans to purchase real estate 1 28 36 qualifying ratio monthly gross income is multiplied by 28 or 36 to show the range that lenders would consider as appropriate in order to determine monthly mortgage payments v How much do homes cost 1 Tallahassee 156 000 2 Miami Ft Laud MiamiBeach 206 000 3 South is less expensive than mid west b Step 2 determining preferences i Condominiums homeowner has title to his unit and jointly owns common areas ii Cooperative housing co ops units owned by the co op not the homeowner who owns shares in the building Step 3 Finding a home making an offer c i Real estate agent offers services to buyers and sellers of properties 1 6 commission of selling price of home ii Binder security deposit by the buyer as evidence of a serious offer d Step 4 getting financing i Average Down payment 10 20 of cost ii The higher the down payment the lower the amount of the loan and subsequently the lower the monthly payment iii Title legal right of property of ownership iv Abstract written history of property s ownership v Deed document that transfers property of ownership vi Types of loans 1 Fixed rate conventional fixed rate term payments Usually carried for 15 30 yrs Popular Choice 2 Adjustable rate mortgages ARM Interest rate fluctuate with economy 3 Convertible mortgage adjustable loans that can be converted to a fixed 4 Two step loans adjustable loans with a built in rate increase after 5 or 7 rate at certain times yrs 5 FHA Federal housing administration or VA Veteran administration government backed loans that one must qualify for Low down payment and no down payment for VA loan 6 Owner financing offered by property owner who will take all or part of the mortgage at a rate higher than average and for 2 3 yrs 7 Assumable mortgages allow buyer to assume the original mortgage from e Step 5 The Closing the seller of the home i Closing meeting in which real estate is transferred from seller to buyer 1 Documents are signed 2 Title is passed 3 Set aside money for closing costs ii Points fees paid to the lender at the closing 6 Owning a home a Property Taxes i Fair market value what a willing buyer would pay a willing seller for property ii Assessed value percentage of fair market value iii Before buying land or home contact tax assessor to find out typical yearly tax rate b Refinance revising a payment schedule to reduce monthly payments and to modify interest charges i Best work when there are at least 2 points difference between old and new loan c Paying off mortgages early d Second mortgages and home equity loans i 2nd mortgages Get money in a lump sum for home improvements or other expenses such as children s college education or new car ii Home equity loans variation of 2nd mortgages may be used as a line of credit e Reverse mortgages provide tax free income in the form of a loan that is paid back with interest when the home is sold or the homeowner dies 7 Selling a home a Mortgages are held on average only 5 7 yrs b Setting price i Find sale process of homes that were recently sold in their neighborhood ii Compare house size condition appeal and other features that affect desirability iii Appraisal estimate of home s current value c Marketing i Advertisements d Seller or real estate i About 10 of home sales are made by owners each year ii Not unusual for homeowners to try selling the house by themselves for a few months and then turn it over to a realtor iii Real estate agents charge about 6 of house selling price 8 Transportation and vehicles a Leasing contractual agreement outlining monthly payments security deposit and terms of lease i 3 types of leases 1 Closed end or walk away leaser returns car at the end of the lease period and pays any additional fees for damage and mileage most common 2 Open end or finance lease may require the leaser to pay the difference between the expected value of the leased automobile and the amount for which the leasing company sells it May be an end of lease payment 3 Single payment lease allows customer to obtain discount on the car rental b Buying a car agreement i Price bargaining ii Financing 1 Invoice price car cost to dealer 2 Sticker price price listed on the car 3 Trade in value may reduce cost enough to make the new price attractive or it may be better to sell the old vehicle oneself 1 Cheaper to finance through banks and credit unions 2 Credit unions have offered especially low APRs on car loans 3 Dealer financing last resort 4 Foreclosure impacts a person s credit score taking away 100 160 points on a scale where 850 is the top score and it may take seven years to recover c Buying used care i Depreciation loss of the vehicle s value due to time and use Chapter 7 Costs of providing care 1 Costs of childbirth a 6 5000 10 000 for vaginal
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