Finances of Housing

1
Finances of Housing

• Chapter 7

2
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?

3
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

4
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,
  cheaper
• Buying
• Stability, privacy, freedom, tax advantages,
  long-term investment
• Advantages/Disadvantages of Renting/Owning

5
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

6
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
2,000
7
Carey, Cobb, Troutman, Wheeler

• Coed by room
• 7 floors elevators
• 1-bedroom suite shared
• by 4 people

• Private bathroom
• Single beds

8
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
  hall

• Coed by room
• 5 floors elevators
• 4 person, 4 bedroom, 2 bathroom suite
• Tobacco-Free
• Accessible accommodations available

9

• 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 were1 ¼ to 1 ½ times the base rate
• SINGLE ROOMS
• 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.

10
SVSU
Year (28 credits)
Tuition 7,312
Room and Board 8,000
Books 1,200
Total 16,512
http//www.svsu.edu/housing/cost-payment-schedule.
html
11
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

12
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

13
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
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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
15
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
16
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
17
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
18
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
19
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

20
Housing Information Sources

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

21
Selecting a Rental Unit

• Size - bedrooms, bathrooms, closets, storage
  space
• 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,
  doors

22
Section 7.2

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

23
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
24
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

25
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

26
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
  improvements
• Obey the rules of the complex or living area

27
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

28
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

29
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

30
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

31
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

32
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
  assembled
• Mobile homes fully preassembled, very cheap,
  maybe unsafe, and do not increase in value

33
Affordability and Your Needs

• Price and Down Payment
• Down payment 10-20 of cost of house
• Amount depends on interest rates and economic
  conditions
• 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

34
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

35
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
  deterioration
• 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

36
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?

37
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

38
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
  payments
• PMI is dropped once 20 25 of purchase price is
  paid

39
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

40
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
  none
• Payment 359 - 700.02, 9.84 to interest and
  690.18 to principal, no mortgage insurance

41
Mortgages Payments

• Greatest financial obligation most people make in
  lifetime
• 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

42
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

43
Adjustable-Rate Mortgages

• These interest rates will vary according to
  economic factors so loan payments will change
  also
• 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

44
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

45
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

46
Refinancing

• 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

47
Closing

• 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

48
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

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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

50
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
  upfront
• 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
  afford
• Maintenance Costs Set aside money for repairs

51
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

52
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.

53
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

54
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

55
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

56
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
  rake
• 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

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