Personal Finance and Investments-Housing

Personal Finance and Investments-Housing - Costs including...

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Personal Finance and Investments FIN 2100 Chapter 9: The Housing Decision: Factors and Finances Evaluating Housing Alternatives o Your lifestyle guidelines suggest housing Traditional guidelines suggest housing payments (PITI) are no more than 33% of gross income, with all debt payments not exceeding 38% of gross income No more than 2 ½ times your annual income Target 10-20% down payment o Opportunity cost of housing choices: Lost earnings on down payment Time and cost of commuting Renters lose tax savings and equity growth Time and money to repair and improve Time and effort when you have a home built to your personal specifications (be careful for risks involved with building a house) o Advantages of renting Mobility Fewer maintenance responsibilities Lower initial costs o Disadvantages of renting Few financial benefits Restricted lifestyle Legal concerns of a lease
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Unformatted text preview: Costs including a security deposit, utilities, and renter’s insurance o Advantages of Owing Pride of ownership • American dream/ norm Reduced income taxes • Deduct mortgage interest/ taxes • Incremental benefit must be > standard deduction Build an equity by paying down the loan or by price appreciation Builds your credit rating Hedge against inflation • Disadvantages of Owning o Financial uncertainty Get down payment and financing Home values could drop Inability to refinance o Limited mobility Can take time to sell o Higher living costs Maintenance, repairs Homeowners insurance Real estate taxes Money Principal: Houses • Money Principal 6: Buying a house is essential to wealth accumulation (and just because a bank will give you a mortgage does NOT mean you can afford to repay it!)...
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This note was uploaded on 09/23/2011 for the course FIN FIN2100 taught by Professor Paul during the Spring '10 term at University of Central Florida.

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Personal Finance and Investments-Housing - Costs including...

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