1. Housing Deciding between Renting and Owning a House

2. 1.9.3.G1 © Family Economics & Financial Education – Revised April 2005 – Housing Unit – Renting vs. Owning a Home Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 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. 1.9.3.G1 © Family Economics & Financial Education – Revised April 2005 – Housing Unit – Renting vs. Owning a Home Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Housing Housing, on average, is 30% of an households net income Calculate what 30% of your families net income is

4. 1.9.3.G1 © Family Economics & Financial Education – Revised April 2005 – Housing Unit – Renting vs. Owning a Home Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Reasons for Making a Housing Choice Personal and financial goals Personal values, needs, and wants Amount of money available for housing costs Financial resources and readiness Credit history Real estate prices Location preference Expected length of stay in particular place

5. 1.9.3.G1 © Family Economics & Financial Education – Revised April 2005 – Housing Unit – Renting vs. Owning a Home Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Costs of Renting Monthly rent Security deposit Utilities – electricity, water, garbage, etc. Renter’s insurance

6. 1.9.3.G1 © Family Economics & Financial Education – Revised April 2005 – Housing Unit – Renting vs. Owning a Home Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Costs of Ownership Monthly mortgage payments Down payment (one time cost) Closing costs (one time cost) Utilities – electricity, water, garbage, etc. Homeowner’s insurance Real estate property taxes Maintenance

7. 1.9.3.G1 © Family Economics & Financial Education – Revised April 2005 – Housing Unit – Renting vs. Owning a Home Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Advantages of Renting Low move-in costs Fixed monthly expenses Easy to move Location choices (may be close to work or school) Less maintenance and repair work Fewer responsibilities May offer extra amenities such as a tennis court or pool Less expensive than home ownership May be able to save for other wants or needs if renting a less expensive apartment Other expenses may be included in rent payment such as electricity, water, sewer, and/or garbage

8. 1.9.3.G1 © Family Economics & Financial Education – Revised April 2005 – Housing Unit – Renting vs. Owning a Home Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Disadvantages of Renting Subject to terms of a lease Rent may change with little notice Less 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 deductions May lose rental if the property is sold

9. 1.9.3.G1 © Family Economics & Financial Education – Revised April 2005 – Housing Unit – Renting vs. Owning a Home Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Home Ownership Home ownership - the buyer has purchased a housing unit as property – Goal of many Americans – A large financial decision Owning a home has long been considered 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. As current housing markets have shown, earning “equity” in your house is not guaranteed.

10. 1.9.3.G1 © Family Economics & Financial Education – Revised April 2005 – Housing Unit – Renting vs. Owning a Home Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Purchasing a Home 90% of buyers take out a mortgage – A home loan in which the real estate is the collateral – Collateral is an item promised to the lender if the borrower does not pay back the loan, usually the home Down payment – Amount of money paid on the home at time of purchase – Typically 10 – 20% of the purchase price of the home Recommended purchase price amount an individual should pay for a home – 2 ½ times their annual household income

11. 1.9.3.G1 © Family Economics & Financial Education – Revised April 2005 – Housing Unit – Renting vs. Owning a Home Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Advantages of Ownership Build equity which can be borrowed against if necessary Pride of ownership Feel more comfortable and have more privacy Stable mortgage payments More room and storage Improvement of buyer’s credit rating Income tax deductions for property taxes and mortgage interest Potential for property to increase in value Free to make home improvements and have pets (items typically not allowed in rentals)

12. 1.9.3.G1 © Family Economics & Financial Education – Revised April 2005 – Housing Unit – Renting vs. Owning a Home Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Disadvantages of Ownership Large down payment Move-in costs Insurance costs Possible for property to decrease in value Time, money, and energy commitment Repair and maintenance costs Property taxes can raise substantially Money is tied up in the home May take several months to sell a home if trying to relocate

13. 1.9.3.G1 © Family Economics & Financial Education – Revised April 2005 – Housing Unit – Renting vs. Owning a Home Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Keep In Mind... People are always paying for a home. It’s just a matter of whether it is for themselves or their landlord.

14. 1.9.3.G1 © Family Economics & Financial Education – Revised April 2005 – Housing Unit – Renting vs. Owning a Home Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Housing for your LIFE in US Identity Where will you live? Guided Spending Plan Question #5 – Figure 30% of your Net income or 2 ½ times your gross annual salary – Determine whether to rent or buy Unless indicated in the profile, you have a choice – Select which housing and amenities options was chosen – Record all housing expenses

15. 1.9.3.G1 © Family Economics & Financial Education – Revised April 2005 – Housing Unit – Renting vs. Owning a Home Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Housing Purchase Assume a 20% down payment has been made on a 30-year mortgage with a 6% interest rate Must include all of the following items in your spending plan: – Mortgage – Insurance – Property taxes – Repairs and maintenance Rent Assume a deposit has been made Must include all items in red in your spending plan – Rent – Laundromat (when applicable) If you have a pet, your rental unit must allow for them and applicable fees paid Renter’s insurance is not required, but recommended – $15.83/mo. for $25,000 coverage Only choose a house available for the type of location in which you live!

16. 1.9.3.G1 © Family Economics & Financial Education – Revised April 2005 – Housing Unit – Renting vs. Owning a Home Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Housing Amenities Required amenities – Power – Water/sewer – Garbage Some rentals include all or some of the required amenities Optional amenities – Internet – Cellular phone – Home phone line – Cable/Satellite – Recycling

17. 1.9.3.G1 © Family Economics & Financial Education – Revised April 2005 – Housing Unit – Renting vs. Owning a Home Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Housing Select additional housing expenses – Consult the “Average Expenditures” Page at the back – Select the level of expenses that match your gross annual income – Record cost(s) in the “other” section Calculate your housing sub-total – Is it approximately 30% of net income?