chapter 10 outlined

chapter 10 outlined - Chapter 10 Homeownership-Majority of...

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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 18% Housing Choice : -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 expression. 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…. Front-end Ratio 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. Back-end Ratio
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3. The difference between the two ratios is 8% of the monthly income;
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chapter 10 outlined - Chapter 10 Homeownership-Majority of...

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