Chapter 6 Buying the Necessities: Housing and Transportation

Housing Information Average American Family spends ¼ of income on home 60% of housing units are owned by the people living on them

Section 1 Types of Housing Single-Family Houses ▫House separated by neighboring homes  Most expensive to buy and maintain  Real Estate Taxes: Taxes paid on land and buildings  Symbolizes the “American Dream” Town Houses ▫Home with individual front and back yards, but common side walls  Usually cheaper  Size and noise can be issues

Types of Housing (Cont.) Condominiums ▫Single unit in a complex that is individually owned  Monthly fees are paid for “common area” upkeep Mobile Homes ▫Least expensive to buy and maintain ▫Suffer greater damage during storms ▫Depreciate: Decline in value

Single-Family Houses

Town Houses

Condominiums

Mobile Homes

Sharing an Apt. or House Pros? ▫Someone to share Responsibilities ▫Cheaper  Rent  Utilities  Cable/Internet  Furnishing Cons? ▫What if the roommate is irresponsible?  They do not pay their share of the rent  They do not help clean/help with other responsibilities

Lesson 2 To Rent or Buy Greater Mobility Only have to pay small deposit No direct maintenance costs Good Credit Rating (if rent is paid on time) No home renovations No freedom of use No return on rental money Often Less Privacy No collateral Maintenance comes at convenience of owner Freedom of Use More Privacy Good Credit Rating Use of collateral Less Mobility Have to pay large down payment Maintenance Costs Less money for other purchases Serious commitment RENT BUY ADVANTAGESDISADVANTAGES

Lender’s Buying Rules Purchase Price/Annual Income = 2.0 or less Mortgage Payment/Monthly Take-Home Income = Less than 33% Loan Amount/Value of the Home = 95% or less

Types of Mortgages Standard Fixed-Rate Flexible Rate Federal Housing Administration (FHA) Graduated Payment (GPM) Veteran’s Administration (VA)

Standard Fixed Rate Interest Rate and Monthly Payments remain the same over the term of the mortgage ▫Term is fixed  Usually years Interest Rate, Monthly Payment, and Term all stay the same

Flexible Rate Interest Rate and Monthly Payments change with interest rates in general ▫Can only increase by a few percentage points over the course of the mortgage ▫No limit on the amount of decrease Monthly payment, term, and interest rate can all change

Federal Housing Admin. (FHA) The FHA insures entire amount of its mortgages ▫Allows buyers to obtain a larger loan than they could with an uninsured mortgage Interest Rate, Monthly Payment, and Term all stay the same

Graduated Payment (GPM) Interest rate and Term are usually fixed Monthly Payments are small at the beginning and increase gradually over the years ▫GPMs are used for people to expect their income to increase steadily year to year

Veteran’s Administration (VA) Can be obtained only by qualified veterans or their widows Interest Rate is generally lower VA guarantees a large percentage of the loan Loans with no down payment are possible under the VA program

Other Costs of Buying a Home Down Payment ▫Money paid up front ▫Putting more money down can have benefits  Better Rates  More you put down = better rates and terms from the lender  Less Interest  By lowering the amount of the loan you will pay less interest in the future  No extra cost for insurance  If you put down 20% you will not be required to buy Private Mortgage Insurance

Other Costs of Buying a Home (cont.) Closing Costs ▫Miscellaneous fees charged by the lender for processing the loan  Title, paperwork, Inspections, Application fees, etc. Taxes ▫Property Taxes

Renter’s Rights & Responsibilities Tenant Rights ▫Privacy Tenant Responsibilities ▫Pay rent on time ▫Care for property/notification of problems ▫Follow leasing limits ▫Give notice Landlord Responsibilities ▫Minimum services required ▫Safety laws followed

Costs of Renting Bismarck/Mandan ▫ search/bismarck_nd?source=webhttp:// search/bismarck_nd?source=web ▫ partmentshttp:// partments Various Cities ▫

Buying and operating an Automobile Lesson 3

Questions What are the costs of owning a car? Do you automatically think that you “need” a car? How much insurance does a car owner need? How much does a car depreciate? What are the alternatives to using a car?

Important Car Buying Trade-Offs The smaller the engine, the less gas it burns ▫Give up better acceleration and power Newer Automobiles Cost more ▫Require fewer repairs Smaller vehicles are more energy efficient; easier to move and park ▫Larger vehicles protect people better

Costs of Buying an Automobile Opportunity Costs of Buying ▫Money and Time spent shopping  That money could be used on other things Opportunity Costs of the Car Loan ▫The loan with interest added

Costs of Operation Registration Fee ▫Annual fee paid to state government to run a vehicle  Costs depends on many factors Maintenance/Repairs ▫Minor Maintenance: Oil Changes  Frequent service=longer lasting vehicle ▫Major Maintenance  HIGH COST!! Extended Warranty ▫Can help protect against the high costs of major maintenance

Costs of Operation (cont.) Depreciation ▫Decline in value over time  Age, obsolescence, wear and tear Insurance ▫Liability Insurance: Insurance if YOU cause the accident  This insurance will pay the other party’s bills ▫Full Coverage: Covers Everything

Factors Affecting Insurance Type of car you drive Where you drive What you use the car for Marital Status Safety Record Number of Drivers

Making the Best Choice Talk to Friends Read Consumer Reports Comparison Shop between Dealers Warranty Comparison Test Drive Safety Features Get Used Cars Inspected