Presentation on theme: "Family Economics and Financial Education Take Charge of your Finances"— Presentation transcript:
1 Family Economics and Financial Education Take Charge of your Finances Renting vs. OwningFamily Economics and Financial EducationTake Charge of your Finances
2 Introduction Housing is the largest personal expenditure. About 1/3 of a person’s income.Choosing where to live is based upon a person’s goals, values, needs, and wants.Places to live include:House, apartment, condo, mobile home, etc.
3 Reasons for making a housing choice Personal and financial goalsPersonal values, needs, and wantsAmount of money available for housing costsFinancial resources and readinessCredit historyReal estate pricesLocation preferenceExpected length of stay in particular place
5 RentingA lease is legal contract between the tenant and the landlord, specifying the responsibilities and rights of both parties.Identifies the rent amount, security deposit amount and specifications, payment for utility bills, late payment penalties, length of lease, eviction terms, etc.This is between the landlord and the tenantLandlordOwner of the rental property.May perform management duties or hire a property manager.Property manager - may charge a fee to the landlord to perform the management taskDuties may include:May collect rent and deposits, pay utility bills, complete repairs and maintenance, watch over the property, respond to tenant complaints, assign new tenants, etc.
6 Renting continued Tenant (renter) Renters are generally The person who rents the property.Renters are generallyPeople who choose not to own a home.People who cannot afford to own a home.The tenant pays rent to the landlord which allows them to live in the rental property.RentThe cost of using someone else’s property.
7 Moving into a rentalUpon moving into a new place, people are usually required to pay a security deposit and sign a lease.Security depositAn advance payment to cover anything beyond normal wear and tear on the unit.
8 Advantages of renting Low move-in costs Fixed monthly expenses Easy to moveLocation choices (may be close to work or school)Less maintenance and repair workFewer responsibilitiesMay offer extra amenities such as a tennis court or poolLess expensive than home ownershipMay be able to save for other wants or needs if renting a less expensive apartmentOther expenses may be included in rent payment such as electricity, water, sewer, and/or garbage
9 Disadvantages of renting Subject to terms of a leaseRent may change with little noticeLess privacy and transient neighbors.Restrictions on noise level, pets, etc.Fewer opportunities to upgrade apartment such as new carpet, paint, or wallpaper.When leaving a property, no equity is returned as it would be if selling a home.No tax deductionsMay lose rental if the property is sold.
10 Costs of ownership Monthly mortgage payments Down payment (one time cost)Closing costs (one time cost)Utilities – electricity, water, garbage, etc.Homeowner’s insuranceReal estate property taxesMaintenance
11 Home ownershipHome ownership - the buyer has purchased a housing unit as propertyGoal of many AmericansA large financial decisionOwning a home is an investment because if a person sells a home for more than what it was bought for, the person makes money. This is called equity.Financial planning and savings can assist a person in planning for the benefits of home ownership later in life.
12 Purchasing a home 90% of buyers take out a mortgage A home loan in which the real estate is the collateralCollateral is an item promised to the lender if the borrower does not pay back the loan, usually the home.Down paymentAmount of money paid on the home at time of purchaseTypically 10 – 20% of the purchase price of the homeRecommended purchase price amount an individual should pay for a home2 ½ times their annual household income
13 Advantages of ownership Build equity which can be borrowed against if necessaryPride of ownershipFeel more comfortable and have more privacyStable mortgage paymentsMore room and storageImprovement of buyer’s credit ratingIncome tax deductions for property taxes and mortgage interestPotential for property to increase in valueFree to make home improvements and have pets (items typically not allowed in rentals)
14 Disadvantages of ownership Large down paymentMove-in costsInsurance costsPossible for property to decrease in valueTime, money, and energy commitmentRepair and maintenance costsProperty taxes can raise substantiallyMoney is tied up in the homeMay take several months to sell a home if trying to relocate
15 People are always paying Keep In mind. . .People are always payingfor a home. It’s just amatter of whether it isfor themselves ortheir landlord.