Chapter 6Buying 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

ADVANTAGES DISADVANTAGES

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 15-30 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 ▫http://

www.move.com/apartmentsforrent-search/bismarck_nd?source=web

▫http://www.showmetherent.rentlinx.com/Listings.aspx?State=ND&City=Mandan&PropertyType=Apartments

•Various Cities▫http://stpaul.apartments.com/

Buying and operating an AutomobileLesson 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