Test 2 study guide Chapter 6 Typical family purchases housing represents 32 of expenditures transportation 18 and utilities 5 Sublease property can be leased by the original tenant to another Pros of renting apartment extras fewer responsibilities no maintenance no yard work low move in costs sense of security Cons of renting no tax deductions transient neighbors little storage no gain from rising value can t make alterations rent can go up Mortgages loans to purchase real estate PITI principle interest taxes and insurance 28 36 qualifying ratio monthly gross income is multiplied by 28 or 36 to show the range the lenders would consider an appropriate for mortgage payments Condos home owner has title to their unit and jointly owns common areas Co op housing units owned by the co op not the home owner who owns shares in the building Manufactured housing units assembled at a factory and moved to a building site Deed document that transfers property ownership Buyers agent represents the buyer Binder or earnest money security deposit by the buyer as evidence of a serious offer Escrow earnest money held by the mortgage lender until closing Abstract written history of property ownership Amortization process of paying off a loan through a series of payments Fixed rate conventional mortgage are fixed rate fixed term fixed payment load usually for 15 or 30 years Adjustable rate mortgages they have interest rates that fluctuate with the movement in the economy FHA and VA loans offered if lender determines that a person qualifies for federal housing admin or veterans admin government backed loans Convertible mortgages adjustable loans that can be converted to a fixed rate at certain times Two step loans adjustable loans that with a built in rate increase after five or seven years No income check no asset check loans rare and may be a choice selected by people with an uncertain or poor credit Points fees paid to the lender at the closer Fair market value what a willing buyer would pay a willing seller for property Assessed value a percentage of fair market value Refinance revising a payment schedule to reduce monthly payments and to modify interest charges 125 loans home equity loans that allow the home owner up to 125 of the home s value Reverse mortgages arrangement wherein owner borrows against home equity Appraisal estimate of homes current value About 10 of home sales are made by owners each year Invoice price car cost to dealer Sticker price price listed on car o 67 of Americans households own their homes o 25 40 of your take home pay should go to housing normal is 32 o Median house price for Tallahassee is 156 000 Steps to buying a house financial readiness build a down payment make an offer get financing and closing Chapter 7 costs Cost of vaginal delivery 6 500 10 000 and 5 000 6 000 on top of that for cesarean It costs 300 000 430 000 to raise a child from birth to age 18 A baby will use 1 750 diapers per year 400 Dependent care assistance plan employer sponsored plan to reimburse parents for child care o Families pay an average of about 7 5 of annual pretax o Average American family spends 4600 each year for the care of one child Au pair young Europeans who live in and provide child care Kiddie tax tax filed by parents for the investment income of children under age 14 Uniform transfer to minors act provide simple ways to transfer wealth to minors without a formal trust Age of majority age when young adults can access accounts in their name 18 or 21 Time horizon factor number of years before money is needed Marriage penalty effect of a tax code that makes married people pay more than 2 single people o Average wedding costs 18 000 mostly spent on the reception o 3200 3800 spent on honeymoon 1 year at public college 6585 and 25 143 at private college 1st time brides average age is 25 and grooms are 27 When divorcing 3 decisions need to be made how much is there to be divided what portion is liquid and income producing and how should it be split 15 16 of divorced wives get alimony and of that 25 never see any of it Family support child support and alimony combined in one payment Child support gap difference between what the parents receives and how much it costs to raise a child Guidelines to surviving a divorce o Know what is rightfully yours o Take precautions before the crisis strikes o Take it slowly get advice o Adjust your lifestyle o Protect assets o Update benefits will and insurance o Create a new life Medicare federal health insurance program for elderly and many people with disability Medicaid federal health care program for low income people Independent living parents stay in their own home and take care of their own needs or move into a retirement community where health retirees live independently Home care parents live in their own home with friends or children but require care Assisted living live independently in a facility that provides some additional support Adult day care parents go to a community based program for a part of each day Intermediate skilled care facility provides round the clock professional care o Nursing home care can cost as much as 60 000 per year o Americans donate nearly 6 billion dollars a year o Salvation army receives the most o Up to 10 000 can be given to a child tax free o Reduced ss benefits are available and full benefits start at 65 Chapter 8 Insurance financial arrangement between individuals and insurers to provide protection from loss or injury Premiums payments to an insurer Actual risk risk an insurance underwriter takes in exchange for premiums Personal risk management process of identifying and evaluation risk faced by individuals and families Pure risk risk that has a threat of loss without possibility of gain Speculative risk risk that has the possibility of gain and loss Exposures sources of risk Perils events that cause financial loss Property risks individuals that own rent or use property are exposed to risk Liability claim on the assets of a business organization or individual Pooling spreading of loss of a few overran entire group 5 basic parts of insurance contracts o Declaration description of what is insured o Agreements description of extent of coverage o Exclusions items insurers will not pay for o Conditions obligations imposed on policy holder and insurer o Endorsement amend or add to a policy Deductable amount policy holder pays toward a loss before insurance coverage begins 4 steps to insurance management o
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