Chapter 6: Housing and transportation1. Rentinga. Rent: payment for use of propertyb. Security deposit: payment required in advance to cover wear on uniti. Usually same or slightly lesser amount than a month’s rentc. Lease: legal document between renter and landlordd. Sublease: property can be leased to anothere. Tenant rights:i. Vary by state and communityii. Landlord’s responsibility to provide a habitable propertyiii. Make lists of all damages and defects before moving in and out and have landlord sign it2. Renting vs. Owning a. Renting Owningb. Renting is fine for 2-5 yearsc. Security: cash, cd’s, savings bonds, enough insuranced. Real estate involves more risk but maybe a greater return over timee. Building a down payment, normally 10% of the price of the house3. Owninga. Reasons why first-time buyers purchasei. “tired of paying rent”ii. tax advantages iii. desire for larger homeiv. First time buyers make up 40% of homebuyers marketb. Appreciation: increase in valuec. Budget itemsi. Housing is 32% of income and transportation is 18% (Build budget around them)d. Formulasi. 25 to 40% of your take home payii. Depends on circumstances, career, other expenses.4. Layouts of housing and pricinga. 2/2 is averageb. 2-3 existsc. Kitchen is most expensive room in housei. Cabinets most expensive part of kitchenii. Usually 10 ft. of cabinetiii. Sink is mostly used (build kitchen around it)iv. Parallel kitchen vs. L-shaped kitchend. Bathroom is second most expensivee. Windows cost more than walls5. Steps in Buying a Homea. Step #1: Determining financial readinessi. Down paymentii. Be able to afford PITI: Principal, Interest, Taxes, Insuranceiii. One can determine if they can afford a home by the 2 ½ times income rule iv. Mortgage: loans to purchase real estate1. 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 156,0002. Miami-Ft Laud-MiamiBeach-206,0003. South is less expensive than mid-westb. Step #2: determining preferencesi. Condominiums: homeowner has title to his unit and jointly owns common areasii. Cooperative housing (co-ops): units owned by the co-op, not the homeowner who owns shares in the buildingc. Step #3: Finding a home, making an offeri. Real estate agent: offers services to buyers and sellers of properties1. 6% commission of selling price of homeii. Binder: security deposit by the buyer as evidence of a serious offerd. Step #4: getting financingi. Average Down payment: 10-20% of costii. The higher the down payment the lower the amount of the loan and subsequentlythe lower the monthly paymentiii. Title: legal right of property of ownershipiv. Abstract: written history of property’s ownershipv. Deed: document that transfers property of ownershipvi. Types of loans1. Fixed rate, conventional: fixed-rate, term, payments. Usually carried for 15-30 yrs. *Popular Choice2. Adjustable rate mortgages (ARM): Interest rate fluctuate with economy.3. Convertible mortgage: adjustable loans that can be converted to a fixed rate at certain times.4. Two step loans: adjustable loans with a built-in rate increase after 5 or 7 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 themortgage at a rate higher than average and for 2-3 yrs. 7. Assumable mortgages: allow buyer to assume the original mortgage from the seller of the home. e. Step #5: The Closingi. Closing: meeting in which real estate is transferred from seller to buyer1. Documents are signed2. Title is passed3. *Set aside money for closing costsii. Points: fees paid to the lender at the closing6. Owning a homea. Property Taxesi. Fair market value: what a willing buyer would pay a willing seller for propertyii. Assessed value: percentage of fair market valueiii. Before buying land or home, contact tax assessor to find out typical yearly tax rateb. Refinance: revising a payment schedule to reduce monthly payments and to modify interest chargesi. Best work when there are at least 2% points difference between old and new loanc. Paying off mortgages earlyd. Second mortgages and home equity loansi. 2nd mortgages: Get money in a lump sum for home improvements or other expenses such as children’s college education or new carii. 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 homea. Mortgages are held on average only 5-7 yrs. b. Setting pricei. Find sale process of homes that were recently sold in their neighborhoodii. Compare house size, condition, appeal and other features that affect desirabilityiii. Appraisal: estimate of home’s current valuec. Marketingi. Advertisementsd. Seller or real estatei. About 10% of home sales are made by owners each yearii. Not unusual for homeowners to try selling the house by themselves for a few months and then turn it over to a realtoriii. Real estate agents charge about 6% of house selling price8. Transportation and vehiclesa. Leasing: contractual agreement outlining monthly payments, security deposit, and terms of leasei. 3 types of leases1. 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 common2. 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 agreement. b. Buying a cari. Price bargaining:1. Invoice price: car cost to dealer2. Sticker price: price listed on the car3. Trade in value: may reduce cost enough to make the new price attractive, or it may be better to sell the old vehicle oneselfii. Financing: 1. Cheaper to finance through banks and credit unions2. Credit unions have offered especially low APRs on car loans3. Dealer financing last resort4. Foreclosure impacts a person’s credit score taking away 100-160 points on a scale where 850 is the top
View Full Document
Unlocking...