Chapter 6: Housing and Transportation• 67% of Americans own their own home (most people own their home)• Consumers drive 70% of US economy (housing, transportation, everything we buy)• Housing should be 32% of your budgetRenting vs. Owning• Rent : cost or payment for using propertyo Security deposit: required by the landlord before you move in, usually 1 months rent, if you give them back the property in the same condition, you get the money backo Lease: legal contract to document between the landlord, rights and obligationso Sublease: Property can be leased to another Sublease conditions should be stated in the leaseo Tenant rights: landlord has to let you know pluming and electric etc. all works• Budget:• Don’t own if you think you’ll only be there 3 years or less (hesitate before you buy)o Easy to buy a house, selling is very hard• Pros of renting:o Pools, services, landlord to take care of maintenance and repairs, no lawn care, low move in cost o People like renting for the security and community• Cons of renting:o No tax deduction, property goes up in value – you do not benefit, you have no control over the cost of rent , no garage/no storage, laundry may or may not be in your apartment• Pros of owning a houseo Build equity – o You have an asset - o Pride of ownership - o Monthly payments are stable – fixed mortgageo After a couple of years – you can borrow money against the equity, no interest or low interesto Yard, more room, do anything you want to the home(inside), basically do what you wanto Stronger credit rating when you own a house (makes you look good)o Laying down roots in the community • Cons of owning a houseo Down payment (typically 20%)o Tied down to a location o Cost of repairs – you own it, you fix it o Home owners association fees – could be $0 or very expensive, you pay it once a year, to keep the community pool, planting and treeso Property tax• Budget items:o Biggest: housing and transportation• Pg 136-137 math difference of what it would be like to rent or own• What do you like? o Style, location, HGTV (housing likes and dislikes on TV)• What can you afford?o Formulas: 2 ½ times = multiple your income by 2 ½ times 25-40% of your take home pay (40% is pushing it, places like LA, Washington, NYC, etc) Typically is 32% (KNOW!!!) Depends on circumstances, career, other expenses• Median House Priceso Tallahassee 156,000o Miami-Ft Laud-Miami Beach – 206,000 US average is 169,000 (Tallahssee is lower, Miami little higher) MW – 132,000 (Best housing values are in the Midwest)(KNOW) SO – 146,600 WE – 237,600 (Expensive)• Certain urban areas within these places will be higher (like Chicago)• DON’T worry about the numbers for test, just the idea••• Typical house, what makes it more expensive?o Windows cost more than wallso An extra gable on roofo Square heat means the heated and cooled area, not garage or porch, etc.o Curve into the garage is more expensive than straighto Tubs are 5 fto House should have 3 exitso Vaulted entry (vaulted ceiling)o 9’ ceilings o kitchen is the room that will sell the houseo more cabinet/shelving the bettero Shapes of kitchens U shape (best L shape 2 wall 1 wallo Storage cost money • Owningo Appreciation – increase in valueo Reasons for buying:• Types of Housing (pg. 139)o Single Family Dwellingo Duplex/Multi-unitso Town house (cheaper because share of walls, smaller roof)o Condominiums (individually own your unit, pay home owners fee for the area around you), monthly feeo Cooperative housing(CO-OP) – cooperative housing, you buy a share in the building, bigger your apartment the more shares you own, if someone buys or sells it’s discussed amongst everyone. Monthly feeo Manufactured housing – assembled in a factory and then moved to the site, could be deluxe or could be a trailero And othersSteps In Buying a Home• Step 1 – Determining Financial Readinesso Determining Financial Readiness How much house you can afford? Bank and lender will do it for youo PITI Principle, Interest, Taxes, and Insurance Monthly paymentso Median price of a house See aboveo Mortgage • Step 2 – Determining Preferenceso Renting is fine for 2-5 yearso Security: cash, cd’s. savings bonds, enough insuranceo Real estate involves more risk but maybe a greater return over timeo Building a down payment, normally 10 (now 20) % of the price of the house• Step 3 – Finding a home, making an offero Making an offer Done directly, through real estate agent, realtor, or buyer’s agent Haggling over price/counteroffers Binder: Security deposit by the buyer as evidence of a serious offer. If the offer is not accepted – the check is returned. If accepted the check will come off the price of the house“ “Going to contract” – buyer/seller outline the terms of the sale, includes closing date and down paymento Real estate agents Seller pays the real estate broker’s commission - Typically makes 6% of the sold home Buyers agent – in a market with few choices, you pay them 1-2% Some agents will over price the houseo Binder You got a buyer, earnest money, write check to hold house while the background check, check will come off the price of the house, or give it back and rip it upSTAGING HOUSES – FILLING HOUSES WITH FURNATURE TO SELL IT. TRICK – PUT IN SMALL FURNITURE • Step 4 – Getting Financing (pg 141 – know “title”… Title – legal right to owning the property• Have to transfer the title from one person to another Abstract – written history of previous owners No claims by any other owner Deed – Document that transfers property ownership• issue a deed that transfer ownership to youo Getting Financing Mortgage loan• Want the best deal Down payment• 5-20%, typically 10% Sources of loans• Come from banks, brokerage firms, credit unions, mortgage finance companies, insurance companies, private investors, pension plans, savings and loan associations• In person, through toll-free phone calls, internet• loans can be transferred Types of loans• Fixed rate, also called conventionalo 15-30 years, same fixed payment every month• Adjustable rate mortgages (ARMS)o High interest rates that fluctuate with the movement of the economyo Payment cap – interest cannot increase past a pointo Low initial teaser rate interest consumers, but they need
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