Chapter 10 Homeownership
-Majority of US households own their housing units- in second quarter 2004, 69.2%
-Housing cost is often the largest component of a household budget.
*Renters: rent, property insurance, and utilities.
*Owners: mortgage payments, property insurance, real estate taxes, routine maintenance,
utilities, and association fees
*Renters on average pay 27.5% of incomes for housing expenditures and owners pay
-Homestead act of 1800’s supported idea of homeowning
-Homeowning incentive is financial and psychological
-tax breaks, builds wealth, and reflects status
-personal control and privacy, sense of security and pride, and freedom of
Advantages and Disadvantages of Homeownership
-advantages: equity, income tax deductions, and control over housing expenses.
*equity= property value-amount of loan.
*can deduct mortgage interest and property taxes from income taxes.
-Disadvantages: home equity isn’t a liquid asset, home repairs may be
disadvantage, long-term and somewhat risky investment,
The housing Market:
US housing market has been economically strong during the past several years.
Affordability index over 100….meaning median income household has enough to
purchase median priced house.
Home Buying Basics
STUFF BELOW WAS ON A QUIZ
Prequalifying for Homeownership
-A household can afford to purchase a home priced at two and one half times its
combined annual gross income….or can qualify for a loan up to twice its
combined annual gross income.
-More accurate approach to see affordability is to calculate what people can spend
each month based on combined monthly gross incomes:
1. No more than 28% of monthly gross income should be used to cover
house payments, which include mortgage principal and interest, property
taxes, and homeowner’s insurance, and mortgage insurance….
2. No more than 36% of monthly income should be used to cover total
debt payments including credit card obligations, car payments, and student
loans, as well as the proposed home mortgage payment.