CH 6 1 Renting vs buying a home a Two factors affecting potential financial gains i Location ii How long you plan to live in house b Most people rent before buying c Rent cost or payment for using a property d Main cost prior to moving in is security deposit i Security deposit is required by the landlord in advance to cover wear and tear of the unit beyond what is normally expected If the rent is 1000 a month and the renter pays 1000 for first month he she would also pay 1000 for security deposit which totals 2000 before moving in ii 1 May also be a nonrefundable pet deposit of 100 300 e Lease legal document bw the renter and landlord defining the rights and obligations of both Sublease property can be leased by original tenant to another f i Very common in a collegetown g Tenant rights vary but are about fair treatment and landlords responsibility to provide a habitable property i If rental unit is left clean and undamaged then tenants have a right to a prompt return of their security deposits h In the short term renting is more economical in long term owning is more economical i This is cause of tax deductions on mortgage interest tax free capital gains and appreciation 1 Appreciation is increased value in the homes value a Dropped in 08 09 then leveled out 2 May be offset by maintence and repairs i People buy homes cause they are tired of paying rent tax advantages and the desire for a larger home j You can afford usually 25 40 of income for housing i Typical is 32 ii Depends on circumstances career and other expenses k Questions to ask for renting vs owning i What do you like and what can you afford l Median house prices i Tallahassee 156 000 national median ii South florida 206 000 iii Nebraska 235 000 iv Housing didn t go down much in DC or some Midwest places m Housing prices were at the highest during 2007 dropped in 2008 2009 and remained steady in 2010 n Single family homes kept their value better than condominiums o Image of a house rules and wants i windows cost more than walls should have a minimum of 10 ft of kitchen counter 3 steps must have a railinglook for more cabinetry and countersaverage house ceiling is 8 ft 9 ft ground floor and 8 ft up in bedroom most want 9 ft luxury is 10 to 12 ft average bathtub is 5 ft longmust have 3 exits in a house p The kitchen is the most expensive room in a house q When people say the what a 1600ft home they mean the size of the living indoor space r Pros and cons of renting i pros apartment extras like pool and gym few responsibilities no maintenance and repairs no yard work low moving in sots mobility less commitment close neighbors give sense of security manger to turn to for repairs ii cons no tax deductions transient neighbors no gain from rising value of property little storage most alterations can t be made usually no garage usually no laundry hook ups in unit rents go up with little notice s Pros and cons of buying i pros build equity pride of ownership monthly payments remain stable can borrow against equity more room storage yard and garage income tax deduction for mortgage interest and property taxes stronger credit rating laying down roots in a community ii cons tied down down payment and move in costs costs of repairs and maintenance limited liquidity commitment on time energy and money year work homeowner association fees property taxes t Renting is fine for 2 5 years u Security cash cd s savings bonds enough insurance v Real estate involves more risk but maybe a greater return over time w Building a down payment normally 10 of the price of the home i involves building savings for a down payment and how much someone can afford 1 to get a general idea multiply annual household income by two and one half times a If dual career brings in 50 000 they can afford to spend 125 000 on a house 2 Beter way is to estimate mortgages loans to purchase real estate in which it serves as collateral a Two ways to do this b Buyer must be able to handle monthly payments of principal interest taxes and insurance PITI 2 Steps in buying a home a 1 determine financial readiness c Have an adequate down payment 3 Use 28 36 qualifying ratio Monthly gross income is multiplied by 28 or 36 to show range that lenders would consider appropriate to determine monthly mortgage payments a Helps potential buyers see how much house they can afford ii Buyer also needs money up front in the form of a down iii payment as well as proven ability to meet monthly payments 1 Typical down payment is 10 20 of purchase rate In 1999 the median price for a home was 132 000 but they vary depending on the area Fastest rising home prices are in the west b 2nd step determine preferences i type of housing desired 1 single family dwellings houses detached from other units 2 multi units duplexes and townhouses 3 condominiums individually owned units in a building with several other units with monthly fees called homeowner s fees for operating the building and common areas like pools and lobbies the owner has title to the unit 4 cooperative housing co ops units that are usually apartments in cities that are owned by the co op not the buyer but buyer will own shares in the building as a whole with the right to lease a certain unit also have monthly operating fees 5 manufactured housing units fully or partially assembles in a factory and moved to the living site aka mobile homes commuting distance service availability taxes size and quality zoning laws and covenants like what can and cannot be done to and at home a whether or not business can be conducted b what improvements can be made such as fences and additions c what schools are zoned for that home c 3rd step finding a home making an offer i Finding a home use a real estate agent or broker who offers services of showing homes presenting offers negotiating final prices assisting in the obtaining of financing and represent the buyer at closing to buyers and sellers of property seller pays their commission around 6 of house selling price allows buyer to use agent s services without any cost ii iii use a buyer s agent to represent the buyer not the seller agent asks for a retainer fee upfront for showing a large selection of homes and negotiating and closing ask about a home warranty which provides additional protection to the buyerthat can be purchased from insurance companies or arranged by a realtor or buyer s agent iv Certified home inspector assess condition of home by checking mechanical systems interior spaces
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