factor & finance, housing

8/18/2019 Factor & Finance, Housing

1/34

Chapter 09

The Housing Decision:Factors and Finances

9-1

SAJID MEHMUD


2/34

Learning Objectives

1. Evaluate available housing alternatives

2. Analyze the costs and benefts associated with renting

3. Implement the home-buying process

. !alculate the costs associated with purchasing a home

". #evelop a strategy $or selling a home

9-2


3/34

%ousing Alternatives by li$estage

9-3


4/34

Housing Alternatives

Evaluate available housing alternatives &our li$estyle and your choice o$ housing

– %ow you spend your time and money' a(ectsyour housing choice.

– )ersonal pre$erences are modifed by fnancial$actors.

*raditional fnancial guidelines suggestyou spend no more than 2"-33+ o$ ta,e-home pay on housing' or no more than 212 times your annual income.

9-4


5/34

%ousing Alternatives continued/

0pportunity costs o$ housing choices

Interest earnings lost on money used $or a downpayment or the interest on a security deposit $oran apartment

*ime and cost o$ commuting to live in an areathat o(ers less costly housing or more space

9-5


6/34

%ousing Alternatives continued/

0pportunity costs o$ housing choicescontinued/

enters lose ta advantages and euitygrowth

*ime and money you spend to repair andimprove a lower-priced home

*ime and e(ort when you have a home

built to your personal specifcations

9-6


7/34

enting-the process

9-7


8/34

Renting our Residence

Objective 2: Analyze the costs andbenefts associated with renting

*he search

4elect an area and rental cost $or yourneeds

!ompare costs and $acilities between units

*al, to current and past residents

9-8


9/34

Renting our Residence

Advantages o$ renting

Easier to move

5ewer maintenance and repairresponsibilities

6ower initial costs

9-9


10/34

enting your esidence continued/

#isadvantages o$ renting

7o ta benefts

6imitations regarding remodeling

estrictions regarding pets and otheractivities

6egal concerns o$ a lease !osts including a security deposit' utilities

and renter8s insurance

9-10


11/34


L!"AL D!TA#L$ OF A L!A$! #escription and address o$ property

7ame and address o$ the ownerlandlord

lessor/

7ame o$ tenant lessee/

E(ective date and length o$ the lease

Amount o$ security deposit

Amount and due date o$ rent

9-11


12/34


L!"AL D!TA#L$ OF A L!A$! %continued&

6ocation where rent is due

#ate and amount $or late rent payments

6ist o$ included utilities' appliances

estrictions on certain activities

*he right to sublet the unit

!onditions where landlord may enter rental unit

9-12


13/34

Ho'e (uing )rocess

9-13


14/34

Ho'e (uing )rocess

Objective *: Implement the home-buyingprocess

4tep 19 #E*E:I7E *%E %0:E0;7E4%I) 7EE#4

Benefts o$ %ome 0wnership

)ride o$ ownership uilding euity in your home

6i$estyle ?eibility - epress your individuality

9-14


15/34


16/34

%ome >uying )rocess continued/

Assess *ypes o$ %ousing Available

4ingle-$amily dwelling

:ulti-unit dwelling #uple' townhomes

!ondominium &ou own your unit in a building o$ units

It is not a type o$ building structure' but rather a $orm o$homeownership

!ooperative housing 7on-proft organization - members own shares and rent a unit

in a building with multiple units9-16


17/34


:anu$actured homes 5ully or partially assembled in a $actory' and then movedto the housing site

)re$abricated type has components built in the $actory andassembled at the site

:ass production under $actory conditions ,eeps costslower than site built homes

:obile homes A type o$ manu$actured home' o$ten @1' s. $t. 0(er same $eatures as a conventional house

4a$ety is debated and they tend to depreciate

9-17


18/34


>uilding a home #oes the contractor have needed

eperienceB

#oes contractor have a good wor,ing

relationship with architect' suppliers'electricians' plumbers' carpenters andothersB

;hat assurance do you have aboutualityB

;hat are the payment arrangementsB

9-18


19/34


20/34


4tep 29 5I7# A7# ECA6DA*E A )0)E*& *0 )D!%A4E

4electing a 6ocation

>e aware o$ zoning laws

Assess the school system i$ you havechildren.

9-20


21/34


22/34


4tep 39 )I!I7 *%E )0)E*&

#etermine the %ome )rice

)rice is a(ected by whether it is a seller8s or abuyer8s mar,et.

7egotiating the )urchase )rice

!ountero(ers are common

Earnest money

!ontingency clauses' such as...

>uyer must be able to obtain fnancing

4ale contingent on the sale o$ the buyer8s currenthome

9-22


23/34

The Finances o+ Ho'e(uingObjective 4: !alculate the costs associatedwith purchasing a home

4tep 9 0>*AI7 5I7A7!I7

#etermine the amount o$ the down payment

)rivate :ortgage insurance ):I/ i$ less than2+ down

Investigate the rates' types' F terms o$

mortgages

Apply $or a mortgage and evaluate types o$mortgages. uidelines $or a(ordability o$housing costs are 33+ to 3G+ o$ gross income

9-23


24/34

*he 5inances o$ %ome >uyingcontinued/

Huali$ying $or a mortgage includes your income' debts' credit history'

down payment amount' length o$ the loan' andcurrent mortgage rates

4tep 19 )reualifcation

4tep 29 5inding a property' including appraisal

4tep 39 5ee )ayment and commitment

)oints are prepaid interest as a + o$ the loanamount

9-24


25/34

*he 5inances o$ %ome >uying continued/

5IE#-A*E' 5IE#-)A&:E7* :0*AE4

!onventional

5ied rate' fed payment' amortized

"+' 1+ or 2+ down

1"' 2 or 3 years o$ fed payments

9-25


26/34


27/34

*he 5inances o$ %ome >uyingcontinued/

A#KD4*A>6E-A*E' CAIA>6E-)A&:E7*:0*AE4

AdLustable rate mortgages

#uring the li$e o$ the loan the interest ratevaries with the prime rate' but has a ratecap

A payment cap may limit the payment

but' etend the loan

9-27

! i $


28/34

!omparison o$3 and 1" &ear 5ied :ortgages

6oan AmountM N1' Interest ateMO+

Loan Term

(ear!"

# o$

%amen&!

'amen&

amon&

To&a) *o!&

30 360 +600 +216,000

15 180 +843 +151,740

Total Savings=$64,260 9-28


29/34


30/34


0*%E 5I7A7!I7 :E*%0#4

>uy-#owns

Interest subsidy $rom a home builder or areal estate developer that reduces the

mortgage payments $or the frst $ew years 4econd mortgage

%ome is collateral and interest may be tadeductible. %ome euity loans are an

eample

9-30


31/34


0*%E 5I7A7!I7 :E*%0#4 continued/

efnance i$ interest rate drops at least1+

9-31


32/34

4tep "9 !604E *%E )D!%A4E *A74A!*I07

#ocuments signedP meeting o$ buyer' seller'and lender

!losing costs include... *itle insurance and search $ee

Attorney8s and appraisers $ees

)roperty surveyP )est inspection

#eed recording $eesP *rans$er taes !redit reportP 6ender8s origination $ee

Escrow account $or ta and insurance reserve

)re-paid interestP eal estate commission

T.e /nan*e! o$ Home n (*on&ne"

9-32


33/34

$elling -our Ho'e

Objective 5: #evelop a strategy $or selling

)reparing your home

epair' repaint' and clean

;hen showing home turn on lights and opendrapes. >a,e bread or ma,e co(ee $or awelcoming smell

9-33


34/34

$elling -our Ho'e

Objective 5: #evelop a strategy $orselling

#etermining the selling price

Appraiser estimates the current value

eal estate agent mar,ets your home

I$

factor & finance, housing

Documents