Chapter 6 Owning a Home or

Car

Chapter 6 (Owning a Home)

6-1 Home buying (usually)requires:

Down payment – usually a given % amount of cash….this shows the bank you really want this house and are willing to pay for it.

(Usually represented as a %)

The balance of the purchase price (after the down payment) is usually borrowed through a mortgage loan taken with a bank or other lender.

To calculate loan amount: Purchase Price- Down PaymentMortgage Loan/Borrowed Amt

To calculate loan amount: Purchase Price- Down PaymentMortgage Loan/Borrowed Amt

Ex: House costs $60,000, bank requires 10% down, what is the loan amount?

Purchase Price = $60,000Down payment = - $6,000 ($60,000 * 10%)

Loan Amount = $54,000

ExampleDorris wants to purchase a mobile

home for $56,000. Her bank requires a 15% down payment. What amount of money does she have to have for a down payment AND how much will her loan amount be for?

$8,400.00 AND $47,600

When you finish the last page of a book, what do you

usually do?The actual transaction to

purchase a house is called a Closing…however…

There are other costs involved than just paying

the down payment and getting the loan for the

balance.

These are called closing costs.

Please look at the situational questions in

your folders on your tables.

Situational Cards:Who will ensure the contract is correct?

Who/what will ensure a long lost relative won’t claim the house is theirs?

Who/what will ensure your property is exactly 2 acres?

Who/what will guarantee the cellar walls won’t leak?

Who/what will charge to “put your paperwork” through and/or keep a record of your transaction?

Legal Fees

Property survey

Title Insurance

Inspection Fees

Recording/Processing Fees

Still need closing costs defined better?

Closing Costs & Title Videos: 

http://youtu.be/UgFQtmAHsbw (4:08)

Closing Costs :these are fees and expenses paid to complete the transfer of ownership of a home. Closing costs range from 3% to 6% of the purchase price of the home and include:

legal fees title insurance appraisal fees inspection fees land surveys, …etc.

Closing costs can be listed individually OR it can be estimated as a percentage.

Where do closing costs come in?When you need to calculate how

much cash you must bring with you to the “closing”

To calculate cash needed to buy a home: Down Payment + Closing Costs Cash Needed to Buy a Home

At this “closing” is when you sign the bank papers for the loan.

Look try these examples:Hilda is buying a home for $74,000. She

will make a 20% down payment and estimates closing costs as:

1. What amount of money will she need to borrow for her mortgage loan?

$74,000 * .20= $14,800

$74,000-$14,800 = $59,200

Look try these examples:Hilda is buying a home for $74,000. She

will make a 20% down payment and estimates closing costs as:

Legal fees $950

Title insurance $140

Property survey $250

Inspection $175

Loan processing fee $ 84

Recording fee $740

1. What amount of cash will she need when she buys the house?

$14,800 (down payment) +

$2,339 (closing costs) = $17,139.00

Ricky Alberts’ lender requires him to make a 25% down payment to get a mortgage on a home that costs $86,000. What amount will Ricky have to borrow to purchase the home?

$86,000 *.25 = $21,500 – down payment$86,000 - $21,500 = $64,500 Loan AmountIf closing costs are 4% of the purchase price what

is the total closing costs? $86,000 *.04 = $3,440 = closing costsHow much money does Rick need to bring to

close the transaction?$24,940 ($21,500 + $3,440)

Terri Wilburn will be able to purchase a condominium by making a 5% down payment on its $64,000 purchase price. She estimates her closing costs to be 3.5% of the purchase price. What amount of money will Terri need to pay the down payment and closing costs?

$64,000 * 5% = $3,200$64,000 * 3.5% = $2,240$6,425 + $2,240 = $5,440

Why do you think a bank would required a larger %

for down payment OR a higher interest rate?

Looking at the closing costs, what would make a

closing costs increase?

Workbook…page 71 #1-4

Can you explain?? How do you calculate a loan amount

with a down payment? What kind of items are included in

closing costs? How do you calculate how much cash

you need to bring with you to “close” on a house.

Mortgage Rates:1. Fixed Rate Mortgage – your interest

rate stays the same over the time period of the loan.

  2. Variable/Adjustable Rate Mortgages –

interest rates can change during the time period of the loan.

** Usually the initial interest rate is lower than fixed, however, the lender is allowed to increase or decrease the rate at specified intervals.

Amortization TablesMost mortgages are repaid gradually,

or amortized, over the life of the mortgage in equal monthly payments. Each payment pays off part of the principal plus the interest due each month.

Look at the top of page 211..note how little principal is paid in the first few months compared to the last few.

ExamplesUsing the table on page 211, what is my

monthly payment for a $45,000 mortgage taken out for 30 years at 6% interest?$ 269.80…how many times(months) did you make this payment?12 * 30 = 360How much did you pay for this $45,000 loan at the end of the term?269.80 * 360 = $97,128.00

Examples..Page 212

C and D…

C.$620.24; $68,857.60D.$257.72; $37,316E.

Refinancing a Mortgage – when you take out a new mortgage and use that money to pay off the old mortgage. You must also pay new closing costs that are incurred.

Look at page 213 ExampleE. $748

F. $71

Homework:

Page 71-72 - all questions(this will be graded on Monday)

6-2 Renting or Owning a Home

Cost of Ownership…Owning a home comes with expenses:

Property taxes Repairs Maintenance Utilities Insurance Trash pick up…etc

Two less obvious expenses:

1. Depreciation

2. Loss of Income on the money invested in the home.

Depreciation

1. The loss of value of property caused by aging and use….ex: roof, heating costs, not updating

Most housing depreciates slowly at about 1% to 4% of its original value per year.

Amount of depreciation can’t be calculated until a house is sold

Loss of Income on the money invested in the home.

1. Occurs because the money initially invested in buying the property (down payment and closing costs) could have been deposited in a savings account and earned interest.

Then why own? …people can include the interest they pay on their home mortgage and property taxes they pay on their tax return….this reduces taxable income…you pay less taxes and have equity in a house.

EquityThe difference between what is owed on

a home and its value.

$5,244 mortgage interest

$2,350 property taxes

$360 Insurance

$1,240 depreciation

$1,710 utilities

$1,535 maintenance, repairs

$1,270 loss interest

$13,709 total expenses

$1,428 tax reductions

$12,281 net cost for the first year

Look at page 217

Example 1

Look at page 218

Example 1

A. $16,572.00

B. $12,629.00

C. Now do page 71 in your workbook.

Costs of Property RentalSome people can’t afford to buy or don’t want

the hassle of maintenance…so they rentRenters:1. Usually pay a one time security deposit in

addition to their first month’s rent…this covers any damage done while living there…if there is no damage, the money is returned.

2. Sign a lease or rental agreement that they will be there for a stated period of time.

Look at page 218

Letters C and D

A. $16,572.00

B. $12,629.00

C. Now do page 71 in your workbook.

Homework:

Page 73 in your workbook

Compare Renting and Owning Homes

When you rent, you consider the monthly rent as an expense, however when you pay your mortgage, that is not considered an expense, but the interest, utilities and everything else is.

6-3 Property Taxes

Property taxes – taxes on the value of real estate such as homes, business property, or farm land.

Usually collected annually or semiannually by the tax department of the town or city you live in.

Services paid for by taxes: Schools Government operations Fire protection Police protection Parks Road maintenance

What does the word assessed mean?

Taxes are paid based on the assessed value…

An assessed value is usually calculated by local tax assessors and is usually a percentage of the actual value of your house…

Ex:Bill Watson’s home is valued at $150,000.00. It is assessed at 40% of its market value or $60,000.00.

Taxes are then calculated on the assessed value of $60,000.00

Local tax districts determine the tax rate needed to pay for the services they provide.

They estimate their expenses for the coming year and prepare an expense budget. They also estimate income from sources other than property tax, such as licenses, fee, fines, rents, state aid and so on.

The difference between the total budget and the income from other sources is the amount that must be raised by the property tax.

Local tax districts then determine the decimal tax rate, which is the tax rate at which property is to be taxed.

Decimal tax rate = amount to be raised by property tax

Total assessed value

Example 1 from page 224:$6,000,000 - $1,800,000 = $4,200,000(property tax needed)

$39,999,000

= .107692

Tax rates per $100 or $1,000

To find the tax due on property when the rate is in $100 or $1,000, first find the number of $100 units or $1,000 units in the assessed value. Then , multiply the numbers of units by the tax rate to find the tax due.

Read Example 2 on page 225

Look at page 225

Example 1

C. $1,569.12

D. $4,953.60

Page 226

E. $3,380.40

F. $348.71

Homework:

Page 75 &76 in your workbook – due Tuesday

6-3 Property Insurance

Homeowners insurance – covers your home and protects you against other risks.

Dwelling – the home in which you live Other structures – garage Personal property – contents of home

Additional living expense – pays for the extra cost when you can live at home

Personal liability – protects you against lawsuits by person injured on your property

Medical payments to others

Replacement costs policies – pays to replace at current value

Premiums – the money paid to an insurance company…this is your bill.

Renters Insurance – same coverage as a home, but if you rent.

Deductible – the amount you pay before your insurance company pays.

Homework…

Page 77-78 #1-9

6-5 Buying a Car

MSRP – Manufacturer’s Suggested Retail Price….also known as sticker price

Car buyers usually do not pay this price…they negotiate a price to pay based on trade in, rebates, and loan options.

Purchase Price –refers to the price negotiated by the dealer and the buyer. This price includes the car and any options installed by the dealer

  Delivered Price – also called “out the door”

price…this includes purchase price, sales tax, registration fees less the rebate.

  Balance Due – what the customer has to pay for

their car….less discounts, rebates, down payments or trade-ins..

Words to know…

Base price – price for a model with just the standard features.

Warranty – this comes on all new cars and usually covers things that break 36 months or 36,000 miles…this doesn’t include maintenance.

Extended warranty – provides extra coverage for a number of months and mile

Purchase Price

Sales Tax

Registration Fees

Non-taxable items

Rebates

Delivered Price

Down Payment

Balance Due

Look at page 241

Letters C and D

C. $21,354.87 $15,354.87

D. $17,398.28 $15,774.48

E. workbook.

6-6 Car Purchases and Leases

The delivered price of a car purchase may be paid in cash, however, most people make a down payment and take out installment loans.

6-6 Car Purchases and Leases

The delivered price of Sue’s car is $23,560. She makes a $2,000 down payment and pays the balance in 48 monthly payments of $560. What total amount did Sue pay for the car, AND what was the finance charge?

1. $2,000 + $26,880 (560 x 48) = $28,880..paid for

2. $28,880 - $23,560 = $5,320…finance charge

Let’s Solve…Steve Rubin bought a used truck for

$9,650. He paid for the truck with a $2,650 down payment and 36 monthly payments of $234.30. What total amount did the truck cost?

$11,084.80

Let’s Solve…Angie bought a luxury car for $47,851

and made a $4,500 down payment. She got a special loan rate of 2.1% for 60 months. Her monthly payments were $761.74. What was her finance charge on this car?

$2,353.40

Cost of LeasingA lease is a contract between the car

company and the customer. Similar to renting a car for a long period of time.

Conditions: Return in good condition Usually within a stated # of miles Payment and time frame is agreed to Required down payment You must still pay for registration and

processing fees. You usually have the option of buying the

car at the end of the lease period. (Residual Value)

Compare Leasing and Buying

When comparing the two, you must add the residual value to the cost of leasing since you assume you will buy at the end.

Wilbur and his dealer negotiated a price of $27,400 for a new car. He can lease the car for $496 for 36 months and buy it at the end of the lease for its residual value of $16,200. If he buys the car now his month loan payment will be $822 for three years after making a $2,000 down payment . What is the total cost of purchasing the car under each plan? Which is less expensive?

Lease: 36 x $496 = $17,856 $17,856 + $16,200 = $34,056..cost

of leasingBuy: 36 x $822 = $29,592$29,592 + $2,000 = $31,592…cost of buying Difference ….34,056 – 31,592 = 2,464****Buying is less expensive!!!!

Homework

Workbook Page 81

6-7 Depreciating a Car

A car loses value as it grows older…the loss of value is called deprecation. The total depreciation on a car is the difference between its original cost and its resale, or trade-in value.

Depreciation = Original Cost – Trade-in or Resale Value

6-7 Depreciating a Car

When you buy a car, you can only estimate what the depreciation will be. The actual amount of depreciation will be known only when the car is sold or traded in.

6-8 Cost of Owning a Car

Car Insurance:

There are 4 basic types of insurance or coverage for motor vehicles that protect you against the risk of financial loss:

6-8 Cost of Owning a Car1. Bodily Injury – covers your liability for

injury to others.2. Property damage – covers damage to

other people’s property including their vehicles.

3. Collision – covers damage to your own motor vehicle.

4. Comprehensive damage – covers damage or loss to your vehicle from fire, theft, vandalism, hail, and other causes.

6-8 Cost of Owning a Car

Read page 256 in your textbook

Page 257…

A. $664.85

B. $1,064.50

C.

Costs of Operating Cars…

The total operating cost for a car is the sum of all the annual expenses of using the car.

These expenses include:•Insurance

•Gas

•Oil

•License

•Inspection fees

•Tires

•Repairs

•Garage rent

•Parking fees

•Taxes

•Depreciation

•Interest lost on down payment

6-8 Costs of Operating a Car

Page 257…

C. $4,705.00

D. $ 2,158.00

E.

Workbook Page 83 and 84

Please get this out….

Page 83 Answers…

Page 84 answers…2.

a. $1,422.90 b. $1,160.56c. $262.34 saved

3. a. $1,006.97 b. $907.18

4. a. $1,032.32b. $154.85c. $877.47

Page 84 answers…5.

a. $786.46 regular annual premiumb. $1,415.63 premium Blanche must pay

6. $3,176.36

Task…you now have the option of a vote for the test

on Chapter 6…

Test Options:

1. Open textbook test to be done by yourselves.

2. Review work done with a partner, followed by an in class test.

Test Options:

1. Open textbook test to be done by yourselves.

2. Review work done with a partner, followed by an in class test.

After finding your partner, the two of you are to work on the following

problems:

Page 261:

1-12

Page 262:

15, 17,19, 21, 27, 29, 31, 36-38

(you must SHOW work for ALL odd numbers)

Open your textbook to the following pages and do the following problems:

Test Questions..

Page 261:

1-12

Page 262:

14, 16, 18, 21, 27, 28, 30, 36, 38

(you must SHOW work for ALL odd numbers)

Page 261 Vocabulary Answers:

1. Premium2. Lease3. Bodily injury4. Closing costs5. Depreciation6. Assessed value7. Renters policy8. Collision9. Security deposit10. Property taxes

Page 261 and 262 Answers:

11. $89,845.00 / $18,280

12. $255,434.4013.

14.

15. $21,44216.

17. 0.0007418.

19. $18,721.80

Questions: 11, 12, 15, 17,19

Page 261 and 262 Answers:

21. $72822. 23. 24. 25. 26.

27. $32,553.72 / $25,053.7228.

29. $9,368.64 / $1,241.6430.

31. Buying is $2,410 less expensive36. $892.6337. $3,17638. $832.75

Questions: 21, 27, 29, 31, 36-38

Good Luck !!!

Page 261 Vocab Test Answers

1. Premium2. Lease3. Bodily injury4. Closing costs5. Depreciation6. Assessed value7. Renters policy8. Collision9. Security deposit10. Property taxes

Page 261 and 262 Test Answers

11. $89,845.00 / $18,280

12. $255,434.40

14. $12,67715.

16. Buying is $4,860 less17.

18. $8,883.0019. 20.

21. $728

Questions: 11, 12,14, 16, 18, 21

Page 261 and 262 Test Answers:

27. $ 32,553.72 / $25,053.72

28. $6,655.10 / $029.

30. $31,460.0031.

32.

33.

34.

35.

36. $892.6337.

38. $832.75

Questions: 27, 28, 30, 36, 38