Chapter 13 Housing: renting vs. owning, loans, etc.

Learning Outcome
At the end of the chapter the student must have:
1. compare and contrast the advantages and disadvantages of renting
versus buying housing.
2. appreciated the difference of housing in terms of renting, owning, and loans.

Some Renting Vocabulary

Renting: Paying money to live in a dwelling that is owned by someone else.
Landlord: The person who owns the dwelling.

Tenant: The person who is renting the dwelling.

One can rent anything from a small efficiency apartment to a single-family house.
The dwelling can be either furnished or unfurnished.

Advantages of Renting

Predictable Housing Costs

Usually nothing is unexpected
Limited Maintenance
Yard work, snow removal, painting, household repairs are usually the responsibility of the
landlord. (Single-family dwellings may differ.)
Mobility
Renters don't have to commit for a long period of time. There is flexibility to move due to
work, income level, etc.

Disadvantages of Renting
Limited Control and Freedom
Don't have much say over décor, such as paint. Restrictions over number of tenants,
children, or pets, etc.
Lack of Permanence
Don't feel a sense of community.
Financial Disadvantages
Money spent is not applied toward ownership. No tax savings. Rent may increase after
the period of the rental agreement. Renter must pay it or move.

Some buying information

 Most common type of purchase is a freestanding, single-family house set on its
 own lot.
 Units in multi-family dwellings can be purchased.

Advantages of Home Ownership

Feeling of Belonging
Homeowners develop a sense of stability, community, and are more likely to participate
in local government.
Independence
Can renovate or redecorate as you would like or need. This can also add value.
Investment Value
Money put into maintenance is not lost. Cash value is traded for real estate. A
homeowner can usually sell the house for more than it was purchased.
Other Advantages of Owning a Home

Good Credit Record

Making regular monthly loan payments helps one build good credit.
Tax Advantages
Interest is tax deductible. It can be deducted from the income amount used to figure taxes.
Property tax payments are also deductible.
Disadvantages of Buying a Home
Unexpected Expenses
Maintenance is the homeowner's responsibility. Insurance may pay for part of the
expense if due to an accident. It depends what happens!
Limited Mobility
The cost of buying or selling a home can be expensive. Buying should be considered a
long-term investment.

Renter's Initial Costs

Application Fee : a fee when filling out an application. Helps ensure the renter is serious
about taking the unit.
Credit Check fee: the landlord may charge this to renter. It's the process of finding out if
a renter pays bills on time or has any large outstanding debt.
Security deposit: covers the cost of any future damage the renter might cause to the
unit. May be equal to 1-2 months' rent.
Pet’s owners may have to pay a pet deposit. Is usually returned when the reneter
leaves if the unit Is in good condition.

Further Renter's Initial Costs 

 Advance on Rent: One or more month's rent that is paid in advance before
moving in.
 The landlord considers it a type of "insurance" if the renter moves out
unexpectedly.
 Moving and Other Costs
 Expense depends on if you use a moving company or if you pack and move
yourself. There may also be a one-time startup fee for certain services
(telephone, electricity, cable, Internet)
Renter's Continual Costs
Monthly Rent: Depends on space, age of building, neighborhood, services provided.
Renter's Insurance: A policy that covers their personal property against loss by theft,
fire, or other hazards.
 The landlord's insurance does not cover the tenant's belongings.
Utilities: Sometimes it's included in the rent, sometimes the tenant pays for some or all.
Parking: There may be an additional fee for garage space, especially in the city where
there is little parking space.

Buyer's Initial Costs

 The initial costs of buying are usually much higher than those of renting.
 Earnest Money: A deposit that a potential buyer pays to show that he or she is
serious about buying a home.
 If the deal goes through, this money is applied toward the total price payment. If
buyers can't get a loan, it's refunded.

More Initial Costs for Buyers

 Application and Credit Check Fees
 Inspection Fees: Usually done by a professional who checks the structure, such
as electrical or potential problems, such as termites.
 Down Payment: A partial payment of cash, at the time of purchase. May be
from 5-25%     More money put down=Lower monthly payment.
 Closing Costs: fees due at the time the purchase is finalized.
 Moving and Connecting Utilities
 Possibly also appliances and home maintenance tools
Buyer's Continual Costs

 Mortgage: home loan. Usually long term, 15-30 years. Includes two components
a. Principal: The original amount of the loan
b. Interest: The fee the lending institution charges the buyer to borrow money.
 Taxes: based on the value of the home. Called property or real estate. Often
added to the mortgage.
 Insurance: Should include property and liability
 a. liability: covers claims filed against homeowner by person's injured on the
property
 Utilities
 Maintenance

What Can You Afford?

Analyze Your Finances
 Income-determine monthly and yearly
 Expenses-what are fixed and what are flexible.
 Savings

Strengthening Your Finances

  Make a budget
 Set aside savings first, not what's left over
 Reduce flexible expenses
 Reduce current debt
 Limit impulse buying Continue keeping records

Activity No. 8

Shopping for a Mortgage

Using the Internet, obtain information on the costs and rates for a mortgage. Have at least five
websites of a house for rent or home for sale. Do some documentation (pictures, screenshots
etc.), paste it into Microsoft office, and send. If you don't have a laptop, please paste it in bond
paper, have some pictures, and then send it to google classroom.

2. Discuss the differences that may be present among different financial institutions.