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 “handyman’s 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 Based on 30 credit hrs, unlimited meal plan, $100 flex money Does not include books, supplies, personal items $1,500+

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

9. Expanded Occupancy Rooms • For a variety of reasons, there is a possibility that a residence hall may have expanded occupancy at the beginning of the fall semester. This means that five students may be assigned to suites. 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 were:3 people in a 4 person suite: $1047.20 per academic year2 people in a 4 person suite: $1540.00 per academic year • 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 http://www.svsu.edu/housing/cost-payment-schedule.html

11. Michigan State University

12. Housing Information Sources • Libraries • Newspapers • Internet • Friends and family • Real Estate agent • Government agencies

13. 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

14. Advantages of Renting • Greater mobility – don’t 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

15. 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

16. 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 Landlord/Tenant Responsibilities

17. 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

18. 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 landlord’s insurance

19. 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

20. 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

21. 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

22. 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

23. 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”

24. 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

25. 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

26. Determine Price of Home • How long house has been on market? • What have similar homes in area sold for? • Is it a “seller’s market” or “buyer’s 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?

27. 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

28. 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

29. 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

30. 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

31. 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

32. 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

33. 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

34. 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

35. 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

36. 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

37. Closing • Closing costs: • Title insurance to insure no problems with ownership and estate taxes • Survey • Deed which transfers ownership to you • Appraisal • Credit report • Lender’s fee • Real estate commission

38. 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

39. 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

40. 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

41. 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

42. 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.

43. 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

44. 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 Walton’s farmhouse • No. 1 factor in next home purchase is a “spacious, modern kitchen”

45. 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

46. 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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49. What You Get For $100,000 in

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