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Finances of Housing


Finances of Housing Chapter 7 – PowerPoint PPT presentation

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Title: Finances of Housing

Finances of Housing
  • Chapter 7

Lifestyle and Choice of Living
  • How you spend your time and money will affect
    where you live
  • Ask yourself
  • How close do you want to live to work?
  • How long you plan to stay in one place?
  • How much privacy would you like to have?

Opportunity Costs of Housing Choices
  • Housing decisions require trade-offs or
    opportunity costs
  • Consider what you might be giving up
  • Buying a handymans special
  • Building a new house
  • Renting an apartment or house

Renting vs. Buying
  • Based on your lifestyle young, single, couple
    with children, retired
  • Housing for Different Life Situations
  • Based on financial factors
  • Renting
  • Young adults, mobility, little maintenance,
  • Buying
  • Stability, privacy, freedom, tax advantages,
    long-term investment
  • Advantages/Disadvantages of Renting/Owning

On-Campus Housing
  • Dormitories
  • have roommate, or to self for extra charge
  • lounges for TV and laundry
  • convenient location, eating facilities
  • small rooms
  • Sororities and Fraternities
  • may require certain GPA or community service
  • must be invited
  • Housing Cooperatives
  • available on large campuses
  • share in cleaning, cooking, maintenance
  • rent less than regular dormitories

Central Michigan University
One Semester Year Out of State
Tuition 5,475 10,950 23,670
Room and Board 4,188 8,376 8,376
Total 9663 19,326 34,096
Based on 30 credit hrs, unlimited meal plan, 100
flex money
Does not include books, supplies, personal items
Carey, Cobb, Troutman, Wheeler
  • Coed by room
  • 7 floors elevators
  • 1-bedroom suite shared
  • by 4 people
  • Private bathroom
  • Single beds

Campbell, Kesseler, and Kulhavi
  • Movable bedroom furniture that may be lofted
  • No university furniture in shared living room
  • Air conditioned
  • 30 additional room charge
  • First-year students are not eligible for this
  • Coed by room
  • 5 floors elevators
  • 4 person, 4 bedroom, 2 bathroom suite
  • Tobacco-Free
  • Accessible accommodations available

  • Expanded Occupancy Rooms
  • There is a possibility that a residence hall may
    have five students assigned to a suites at
    beginning of year. If a student is assigned to a
    five-person room, a daily rebate of 20 of the
    room charge will be credited to each student's
    account, until the fifth person is offered the
    opportunity to move to a four-person room.
  • Reduced Occupancy Rooms
  • If space is available, reduced occupancy may be
    an option at an additional charge. The rates for
    2004-2005 were 1 ¼ to 1 ½ times the base rate
  • A very limited number of rooms have been
    designated for single occupancy. These rooms are
    rented at the single room rate of one and
    one-half times the regular room rate.

Year (28 credits)
Tuition 7,312
Room and Board 8,000
Books 1,200
Total 16,512
Michigan State University
In State Out of State
Tuition (15 credits/semester) 12,674 32,632
FM Radio Tax 6 6
Undergrad Tax 36.00 36.00
State News Tax 10 10
Housing 8,526 8,526
21,200 41,158

Your Lifestyle.
  • Finances
  • How it affects housing
  • How close to work you want to live
  • How long you plan to stay in one place
  • How much privacy you would like to have

Possible Housing for Different Life Situations Possible Housing for Different Life Situations
Life Situation Possible Housing Types
Young/Single Rent and apt. or house because of mobility and finances are low Buy small home for tax advantages and possible increase in value
Possible Housing for Different Life Situations Possible Housing for Different Life Situations
Life Situation Possible Housing Types
Single Parent Rent apt. or house b/c time for maintenance is at a premium and playmates for children may be nearby Buy home to build long-term financial security
Possible Housing for Different Life Situations Possible Housing for Different Life Situations
Life Situation Possible Housing Types
Young Couple, no children Rent apt. or house b/c mobility important and finances are low Buy home to build long-term financial security
Possible Housing for Different Life Situations Possible Housing for Different Life Situations
Life Situation Possible Housing Types
Couple with children Rent apt. or house b/c time for maintenance is at a premium and playmate may be nearby Buy a house to build long-term financial security and to provide more space and privacy
Possible Housing for Different Life Situations Possible Housing for Different Life Situations
Life Situation Possible Housing Types
Retired Person Rent an apt. or house to meet financial, social, and physical needs Buy a home that needs little maintenance, offers convenience, and provides services
Evaluating Housing Alternatives
Advantages Disadvantages
Renting an Apartment Easy to move Low maintenance rsp Low financial commitment No tax advantage Limitations on activities Less privacy
Renting a House Easy to move Low maintenance rsp Low financial commitment More space Higher utility expenses Limitations on activities No tax advantage
Owning a House Pride of ownership Plenty of space Tax benefits Financial commitment High living expenses Limited mobility
Evaluating Housing Alternatives
Advantages Disadvantages
Owning a House Pride of ownership Fewer maintenance costs than house Tax benefits Access to recreation Financial commitment Less privacy Need to get along with others Typically small and limited space May be hard to sell
Owning a Mobile Home Less expensive than other ownership options May be hard to sell Possible poor construction quality

Housing Information Sources
  • Libraries
  • Newspapers
  • Internet
  • Friends and family
  • Real Estate agent
  • Government agencies

Selecting a Rental Unit
  • Size - bedrooms, bathrooms, closets, storage
  • Cost rent, security deposit, utilities, length
    of lease
  • Location schools, work, shopping, public
    transportation, recreation
  • Facilities amenities, pool, washer/dryer,
    storage units
  • Conditions appliances, windows, floors, locks,

Section 7.2
  • How to assess the advantages and disadvantages of
  • How to identify the costs of renting

Selecting an Apartment
Location Finances Building Layout/Facilities
Near school/work Near church Near shopping Near public transportation Near recreation Amount of rent Amount of security deposit Cost of utilities Length of lease Condition of building Parking Recreation Security Condition of hallways, stairs, elevators Access to mailboxes Size and condition of unit Type and controls of heating and cooling systems Plumbing and water pressure Type and condition of appliances Condition of doors, locks, window, closets, and floors
Advantages of Renting
  • Greater mobility dont have to sell house which
    could take months
  • Fewer responsibilities maintenance, property
    taxes and insurance
  • Low initial costs no large down payment, only
    deposit and first and last months rent

Disadvantages of Renting
  • Financial restrictions no tax deductions,
    nothing to show for over time, rent could go up
  • Lifestyle restrictions - limited on what can be
    done in house parties, noise, redecorating
  • Legal issues sign a lease, legally binding
    contract need to understand and agree with

Landlord/Tenant Responsibilities
  • Landlord
  • Exterior is water and weather proof
  • Floors, walls, ceilings, stairs, railings are in
    good repair
  • Fire, safety, plumbing, electrical, heating, etc.
    regulations are met
  • Adequate door and window locks
  • Adequate water supply
  • Buildings and grounds are clean and sanitary
  • Tenant
  • Read, understand, and follow lease
  • Pay the rent on time
  • Give 30-60 days notice
  • Keep premises in good and clean condition
  • Use premises for only what is intended
  • Allow landlord access to make repairs or
  • Obey the rules of the complex or living area

Rental Inventory
  • Done to assure that you are not accused of
    breaking, damaging, or taking inventory
  • Inventory should list and describe the conditions
    of the property
  • Take inventory with landlord when you move in and
    when you move out each get a copy
  • Rental Inventory

Cost of Renting
  • Location the closer you are to conveniences the
    more expensive
  • Living space larger means more , may have to
    get a roommate
  • Utilities some included in rent
  • Security deposits pay when move in, get back if
    there are no damages or unpaid rent
  • Renters insurance cheap, covers the cost of
    property damages by fire, flood, etc not
    covered by the landlords insurance

Home Buying Process
  • Step 1 Determine your needs
  • Step 2 Find and evaluate a property to purchase
  • Step 3 Price the property
  • Step 4 Obtain financing
  • Step 5 Close the transaction

Advantages of Owning
  • Stability no landlord to raise rent, sell, or
    make you leave
  • Sense of pride
  • Freedom can decorate, entertain how you want
  • Financial benefits tax deductibles for interest
    charges and property tax
  • Investment build equity, can always sell

Disadvantages of Owning
  • Financial have to save for down payment and
    property value can go down
  • Limited mobility may take a long time to sell
  • High expenses house payment, insurance, taxes,
    maintenance and repairs

Types of Housing
  • Single-family homes most popular in US, most
    private, most expensive
  • Multiunit dwellings duplexes and townhouses
  • Condominiums apts. or townhouses that are
    owned, pay a monthly fee for maintenance,
    improvements, and insurance
  • Cooperative housing apt style building owned by
    nonprofit group, monthly fee covers rent and
    operating expenses
  • Prefabricated homes manufactured and partially
  • Mobile homes fully preassembled, very cheap,
    maybe unsafe, and do not increase in value

Affordability and Your Needs
  • Price and Down Payment
  • Down payment 10-20 of cost of house
  • Amount depends on interest rates and economic
  • Taxes and insurance
  • Size and Quality
  • May have to start small and lower quality
  • Trading Up
  • Experts say buy what you can afford, not
    necessarily what you want, later after building
    equity trade up

Find and Evaluate Purchase
  • Select location country, city, neighborhood,
    recreation, school system
  • Hire a real estate agent help you find home,
    negotiate price, arrange financing, usually
    represent seller on a 3-6 commission
  • Conduct a home inspection required in some
    states, check for problems, may also get an
    appraisal that does a value estimation of house
  • Repair/Replacement Costs

Top 10 Defects
  • Roof leaks due to flashing and valley problems
  • Water penetration in the basement or crawlspace
    Electrical safety issues due to age of home
  • Deterioration of the wall material or substrate
    behind ceramic tile in shower and tub areas
  • Roof material failure due to age and
  • Heating unit and distribution system inequities
    due to age and workmanship or system compromises
  • Structural issues due to improper construction
    and/or alterations, or excessive unbalanced load
    (ie. Failing concrete block foundation wall)
  • Fire safety issues related to fireplace chimneys
  • Termite and other wood destroying organisms
  • On-site waste (septic) system failures usually
    due to lack of maintenance

Determine Price of Home
  • How long house has been on market?
  • What have similar homes in area sold for?
  • Is it a sellers market or buyers market?
  • Do the current owners have to sell in a hurry?
  • How well does the home fit your needs?
  • How easily can you get good financing?

Negotiate Price
  • Offer a price, owner may counteroffer always
    make first offer lower than what the most you
    would pay is
  • Sign a purchase agreement
  • May have to pay earnest money to show that
    offer is serious

Determine Amount of Down Payment
  • 10-20, may come from savings accts, sales of
    investments or assets, or gifts
  • Pay less than 20 down payment will pay PMI
    insurance to protect lender if buyer cannot make
  • PMI is dropped once 20 25 of purchase price is

Qualifying for a Mortgage
  • House loan paid back in 15, 20, or 30 years
  • Lenders take your debt, income, and savings and
    put it in a formula to see if and for how much
    you qualify for
  • Mortgage size can depend on interest rates which
    will affect the amount of your monthly payment

Mortgage Payments
  • Payment was 739.02
  • Payment 1 - 646.88 went to interest, 53.14 to
    principal, and mortgage insurance is 39.00
  • Payment 180 - 700.02 - 508.50 in interest,
    191.52 to principal , and mortgage insurance is
  • Payment 359 - 700.02, 9.84 to interest and
    690.18 to principal, no mortgage insurance

Mortgages Payments
  • Greatest financial obligation most people make in
  • Amount of payment first applied to interest owed,
    then to principal
  • Can pay off early paying an extra 25 per month
    on a 30 year, 10 percent mortgage of 75,000 will
    save more than 34,000 in interest and will repay
    the loan in 25 years

Fixed-Rate Mortgages
  • Also called a conventional mortgage
  • Interest rates charges never vary over time
  • Offer the peace of mind that monthly payments
    will always stay the same

Adjustable-Rate Mortgages
  • These interest rates will vary according to
    economic factors so loan payments will change
  • Rate caps available to prevent rates from rising
    or falling to far
  • May get convertible ARMs which could allow you to
    convert to a fixed rate for an added fee

Government Financing Programs
  • FHA Federal Housing Administration and VA
    Veterans Administration help buyers obtain
    low-interest, low down payment loan
  • They do not lend money but help qualified buyers
    get loans and guarantee repayments

Home Equity Loans
  • Based on the difference of the amount owed on
    mortgage and the current market value of home
  • Can provide money for improvements, education,
    doctor bills
  • Taking out too many can put people in debt for
    much more in the long run

  • Obtain a new mortgage to replace the old one
  • Only an advantage when interest rates fall more
    than 2 and owner is going to stay in for at
    least two years longer
  • Must pay extra fees to do this could be several
    thousand dollars

  • Closing costs
  • Title insurance to insure no problems with
    ownership and estate taxes
  • Survey
  • Deed which transfers ownership to you
  • Appraisal
  • Credit report
  • Lenders fee
  • Real estate commission

My Closing Costs in 2000
  • Loan Origination Fee 400
  • Appraisal Fee 250
  • Credit Report 42
  • Flood Zone Determination 21
  • Hazard Insurance Premium 450
  • Hazard Insurance Reserves 37.50
  • County Tax Reserves 375.00
  • Title Insurance 200.00
  • Recording Fee to Register of Deeds 33.00
  • Total 1808.50

Escrow Account
  • Account where money is held by lender to pay for
    property taxes and house insurance
  • Sometimes optional depending on loan and lender
  • Amount of money to cover escrow is added to the
    mortgage payment
  • Advantage is you do not have to set money aside
    to pay for taxes twice a year or for house
    insurance once a year

Elements of Buying a Home
  • Location Where you buy geographically may
    determine the cost of the house
  • Down Payment How much can you afford to pay
  • Mortgage Rates What are the rates and how will
    it affect your payments
  • Closing Costs May range 2-6 of what you
    borrow, may have to pay upfront
  • Monthly Payments Do not buy more than you can
  • Maintenance Costs Set aside money for repairs

Prepare a Home for Selling
  • Nicer it looks, better it will sell may add on
    extra features (bathroom or deck)
  • Determine a price, set higher than what you want
  • Choose a real estate agent or sell yourself (10
    of homes sold this way) to save money but
    yourself it may be more work to determine selling
    price, attract buyers, show your home, and handle
    financial aspects

What Home Owners Say About
  • Their Neighborhood
  • 80 of Americans believe their own community is
    a great place to raise a family
  • Nearly 50 worry about overdevelopment with chain
    stores and restaurants
  • Home Improvement
  • In last year, 11 spent between 1000 and 1500
    in repairs and upgrades
  • Nearly 1/3 invested more than 5000 in painting,
    buying furniture and landscaping.

What Home Owners Say About
  • The Internet
  • Nearly 66 access info. thru the Internet as
    opposed to a broker
  • Nearly 58 feel the Internet is diminishing their
    reliance on a broker
  • 27 cannot imagine buying or selling a home
    without one

What Home Owners Say About
  • Commuting
  • 63 of homeowners would trade in square footage
    or less time on the road
  • Their Dream House
  • Top of list is beachfront mansion on the OC and
    the Waltons farmhouse
  • No. 1 factor in next home purchase is a
    spacious, modern kitchen

Outlook for 2006
  • Median price for US home rose 13.6 to 213,900
  • Northeast NYC and Boston slow, while Scranton,
    PA and Rochester, NY prices go up 7 to 8
  • West LA slowing and LV prices could slide 8,
    although Albuquerque, NM rises 6.5
  • South Costal Florida homes are taking longer to
    sell, however El Paso and San Antonio see gains
    of 8
  • Midwest Michigan, Illinois, Indiana, Wisconsin,
    and Ohio saw slowest rate of price growth in last
    few years, but certain Midwest areas could
    increase 5 or more

Four Reasons to Downsize
  • Less Financial Stress Family of three sold
    five-bedroom, three story Victorian for 765,000,
    twice what they paid for it
  • Less Maintenance Older couple sold 2,800 sq.
    foot home in country for an 1,800 sq foot home in
    town no more large driveway to shovel, yard to
  • More Freedom Cookie cutter home in development
    that dictated what color blinds could be hung and
    gave tickets when parked on street, traded for
    smaller home with a bigger lot
  • More Comfort Family went from formal ballroom
    and five porches to a home with a comfortable
    family room

What You Get For 100,000 in
What You Get For 100,000 in
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What You Get For 300,000 in
What You Get For 300,000 in
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What You Get For 500,000 in
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