Finance Final
purchase location
location, price, selection, services
mortgage
long-term loan on a specific piece of property usually 10, 15, 20, 25, or 30 years
lowballing
low price quote but add-ons increase price
sales techniques to avoid
lowballing highballing "how much can you afford per month?" never leave a deposit unless ready to buy "your price is only $100 above our cost"
government-guaranteed financing programs
lower down payment than conventional veterans administration (VA) federal housing authority (FHA)
interest-only mortgage
lower payments for the first few years
higher living costs
maintenance, repainting, repairs, and home improvements rising real estate taxes
exterior construction
material quality and condition of building, construction and condition of foundation, condition of bricks, wood, or other siding, condition and quality of windows, roof and gutters, and type and condition of chimney
closing
meeting including buyer, seller, and lender document signing last-minute details closing costs = settlement costs (2-3% of home price to buyers) seller: 5-6% commissions and 1%-3% other fees
get a tune-up
new spark plugs and air filters every 12,000-15,000 miles
financial uncertainty
obtaining money for the down payment and mortgage home values could drop
highballing
offer high trade-in but high new car price
what are the 4 phases in purchasing an automobile?
phase 1 - pre-shopping activities phase 2 - evaluating alternatives phase 3 - determining purchase price phase 4 - post-purchase activities
"points"
prepaid interest as a % of loan amount each point = 1% of the loan amount premium paid to obtain a lower mortgage rate
determine the home price
price affected by selling prices in the area current demand for housing time home has been on the market owner's need to sell financing options features and condition of the home
timing purchases
price variations with the time of the year
brand comparions
private, store brands vs. national brands
AUTO phase 1 : pre-shopping activities
problem identification information gathering from personal contacts, advertisements, media information, independent testing, or government agencies.
AUTO phase 2 : evaluating alternatives
purchase alternatives selecting vehicle options comparing used vehicles leasing a motor vehicle
making extra payments
reduces payoff time & interest paid
apartment: financial
rent, deposit, length, utility, other costs, renter's insurance
what is another name for chapter 13 bankruptcy?
reorganization bankruptcy - your property will not be sold and if you fulfill the court-mandated repayment plan, you keep your property
real estate settlement procedures act
requires buyers be given closing costs estimate before the closing
AUTO phase 4: post-purchase activities
servicing (repair) options automobile operation costs
types of housing available
single-family dwelling multi-unit dwelling condominium cooperative housing manufactured homes mobile homes custom home
interior design
size and arrangement of rooms, amount of closet and storage space, door sizes for moving furniture, counter space and layout of kitchen, condition of kitchen appliances, ventilation for cooking, adequate laundry area, location of bedroom relative to other areas, accessibility to attic and basement, and adequate electrical outlets
apartment: inside
size, closet, bath, kitchen, heat/air, door
legal options for consumers
small claims court class action suits using a lawyer other legal alternatives: legal aid society or prepaid legal services
evaluate home ownership
stability of residence - american dream/norm financial benefits - deduct property tax and mortgage interest, potential increase in value of your home and building an equity in your home lifestyle flexibility - express your individuality
sticker price
suggested retail price includes base price + accessories
cooperative housing
unites owned by a non-profit organization shareholders purchase stock for the right to live in a unit in a building with multiple units
other counseling services
universities, local county extension agents, credit unions, military bases, and state and federal housing authorities provide nonprofit counseling services
express warranty
usually written full warranty or limited warranty
consumer protection for a new-car buyer
warranties state lemon laws
implied warranty
warranty of title: guarantee seller has the right transfer warranty of merchantability: assume functioning
warranties
written guarantee from manufacturer or distributor specifying the conditions under which the product can be returned, replaced, or repaired
communication with the company
"contact us" on firm's website and use e-mail or letter
determine what you can afford
- consider both price and quality - look at your incomes, your current living expenses, and how much you have for a down payment - have a loan officer prequalify you and purchase what you can afford - buy a "fixer-upper" at a lower price, if you have the time, skills, and money to fix it up
price comparison
- consider coupons and rebates too - more store convenience = higher prices - ready-to-use products = higher prices - large is not always the best buy - check unit prices - "sale" prices are not always a savings
chapter 13 bankruptcy
- debtor with regular income proposes a plan to eliminate debts over time - information provided to the court the same as under chapter 7 - plan may last up to five years - debtor makes payments to a court-appointed trustee
three main phases of mortgage
1. complete application and meet with lender to provide evidence of qualification 2. lender obtains credit report and verifies application 3. mortgage is approved or denied: approval usually locks rate for 60-90 days
legal details of a lease
- description and address of property - name and address of the owner/landlord (lessor) - name of tenant (lessee) - effective date and length of the lease - amount of security deposit - amount and due date of rent - date and amount for late rent payments - list of included utilities, appliances, etc. - restrictions on certain activities - the right to sublet the unit; transfer clause - conditions under which landlord may enter the rental unit
renting vs. buying
- lifestyle - financial factors - mobility vs. permanence - minimum maintenance vs. all - minimum financial commitment vs. a lot - renting = less costly in short-run - buying = long-term financial advantage - traditional financial guidelines: 28/36
AUTO phase 3: determining purchase price
- negotiation may lower price or add features - have all the necessary information about current price - edmund's used car prices/kelly blue book - deal with a person who has the authority to give you a lower price or additional features - the more new cars sold the more used cars there are for sale, keeping the prices down
AUTO comparing used vehicles
- new dealers vs used dealers vs private sales - used-car superstores (carmax) - check major dents, sign of accidents, trunk and spare tire, treat wear, leaking, shocks when pushing down the car, check engine, inside, test drive
AUTO leasing disadvantages
- no ownership interest and must meet requirements - may have additional costs for extra mileage, turning the car in early, or for certain repairs
consumer credit counseling services (CCCS)
- non-profit and supported by contributions from banks, merchants, etc. - provides education about credit and help with spending plan - provides debt counseling services for those with serious financial problems - can develop a debt consolidation plan and negotiate reduced interest rates
AUTO purchase alternatives
- now or later, cash or credit, makers, dealers, lease or buy - price analysis (price vs. quality) - comparison shopping
what happens after chapter 7 and 13?
- obtaining credit may be more difficult - cannot file bankruptcy for 8 years - credit could be easier for chapter 13 filers than chapter 7 filers
warning signs of debt problems
- paying only the minimum balance each month - trouble even paying the minimum balance - total balance increases every month - missing loan payments or paying late - using savings to pa for necessities - getting second or third payment notices - borrowing money to pay old debts - exceeding the credit limits on your credit cards - denied credit due to a bad credit report
AUTO selecting vehicle options
- performance options: engine size, transmission, antilock brakes - comfort and convenience options: power seats, ac, stereo systems, power locks - aesthetic features: special trim, leather interior, sunroof
declaring personal bankruptcy
- personal bankruptcy is a procedure to distribute some or all of your assets among creditors - chapter 7 = straight bankruptcy - chapter 13 = wage earner plan - bankruptcy should be the last resort, because of the damage to your credit rating
find and evaluate a home
- select a location: be aware of zoning laws, assess the school system if you have children - services of real estate agents (commission paid by seller, seller's agent, dual agent, or buyer's agent): show homes that meet your needs, present your offer, negotiate the price, assist in obtaining financing, and represent you at the closing - the home inspection: conduct a home inspection or hire an inspector
ways to protect your credit from theft or loss
- shred any papers that contain personal information - close your accounts immediately if you suspect an identity thief has accessed the account - keep a record of credit card numbers - notify your credit card company immediately if your card is lost or stolen
AUTO leasing advantages
- small deposit and lower monthly payments than buying - lease provides detailed records - helps if you use your car for business purposes - able to obtain a more expensive car more often
chapter 7 bankruptcy
- submit a petition to the court that lists assets and liabilities, and pay a filing fee - many, but not all, debts are forgiven - assets sold to pay creditors - can keep some assets (home, vehicle) - intent = fresh start - most personal filings are chapter 7 - you may no longer owe (retail store charges, bank credit card charges, unsecured loans, unpaid hospital or physician bills) - you still may owe (certain taxes and fines, child support and alimony, educational loans, debts from willful or malicious acts)
what are some of the strategies for effective consumer purchases?
- timing purchases - purchase location - brand comparison - check label information - price comparison - warranties
what is another name for chapter 7 bankruptcy?
liquidation bankruptcy - your property will be sold to pay
personal consumer protection
1. do business only with reputable companies 2. avoid signing contracts you do not understand 3. if it seems to good to be true, it probably is 4. compare the cost of using credit vs. cash 5. avoid rushing to a good deal (impulse buying)
steps to resolving consumer complaints
1. initial communication 2. communication with the company 3. consumer agency assistance 4. take legal action
suppose your gross annual income is $52,000 and you have $24,000 to put down on a house. your lender allows 38% of monthly gross income for PITI. you have other debt payments of $540 per month, and you expect monthly property taxes an insurance to be $480. you can get a 30-year mortgage with an interest rate of 4.5%. you do not want to pay PMI, so you would like to finance 80% of the house. what is your affordable home purchase price?
1. your monthly gross income x 38%: 52,000/12 = 4,333.33 2. 4,333.33 x 38% = 1,646.67 3. subtract other debts & tax = 1,646.67-540 = 626.67 4. the answer is mortgage payment. N = 30 x 12 I% = 4.5%/12 PMT = -626.67 FV = 0 PV = 123,680 home price: 80% is the loan > 123,680/0.8 = $154,600
mortgage insurance if <___% down (PMI)
20%
automatic PMI termination when equity ___%
22% required by homeowners protection act
flush radiator and service transmission every...
25,000 miles
you should spend no more than _____% of gross income on housing expenses and _____% on total debt expenses
28% and 36%
mortgage monthly payment
30-year, 7%, $223,000 mortgage N = 30 x 12 I% = 7%/12 PV = 223,000 FV = 0 PMT = $1,483.62 excel = PMT(7%/12, 30*12,223000,0)
fixed rate, fixed-payment mortgage
5%, 10%, or 20% down, 15, 20, or 30 years of fixed payments
consumer agency assistance
BBB provides pre-purchase information file a complaint online mediation (third-party negotiates, nonbinding) arbitration (decision is binding) state consumer protection office or agency
mobile homes
a type of manufactured home, often < 1,000 sq. ft. same features as a conventional house but safety is debated
AUTO unethical actions
an attendant cuts a fan belt or punctures a hose and tell you need a repair and puts an unneeded patch on the tire and lets you replace the tires more often, put an oil under the car to say the car's oil is leaking
exterior facilities
appearance of neighborhood, condition of streets and sidewalks, driveway and garage, outdoor lighting, patio or porch, location of street lights, fire hydrants, quality of landscaping, trees, shrubs, and appropriate drainage system
initial communication
calm, rational, persistent approach
limited mobility
can take time to sell your home
apartment: location
church, school, shopping, recreation, transportation
interior construction
condition of electrical fixtures and wiring, plumbing fixtures, stairways, water heater, adequate water pressure, type and condition of heating unit, floor covering, quality and condition of walls, floors, and doors, cracks or potential ceiling problems, ease of operation of windows, and condition and potential use of basement
apartment: building
condition, parking, mailbox, security, exit
refinancing
consider costs of refinancing in decisions
negotiate the purchase price
counteroffers are common earnest money deposit as evidence of good faith contingency clause: offer dependent on certain events - obtaining financing, sale of current home
building a custom home
custom contractor architect, suppliers, electricians, plumbers, carpenters, and others
invoice price
dealer's cost consumer reports edmund's new car prices
AUTO fixed costs
depreciation (new car > 20% for 12 mo.) interest on loan insurance license, registration, & taxes
home-buying process
determine home ownership needs > fine and evaluate a home to purchase > price the home > obtain financing > choose the purchase transaction
until the price of the new car is settled...
do not mention any trade-in or dealer financing
multi-unit delling
duplex (two homes) townhouse (2, 4, 6 units)
oil changes
every 3 months or 3,000 miles check fluids (brake, power steering, transmission) and lights
what are the 2 types of warranties?
express implied
conducting a home inspection
exterior facilities exterior construction interior construction interior design
drawbacks of homeownership
financial uncertainty limited mobility higher living costs
AUTO comparing financial alternatives
financing sources - banks, credit unions, finance companies & get pre-approved for a certain amount check the apr and any rebates
what are the 2 types of automobile operation costs?
fixed variable
types of mortgages
fixed rate, fixed payment mortgage government-guaranteed financing programs adjustable rate mortgage (ARM)
adjustable rate mortgage (ARM)
flexible-rate or variable-rate mortgage interest rate varies over the life of the loan rate cap restricts amount of change in rate payment cap restricts amount of change in payment
check tires
for wear, condition of breaks rotate tires every 7,500 miles
manufactured homes
fully or partially assembled in a factor, and then moved to the housing sites mass production under factory conditions keeps costs lower than site built homes
AUTO variable costs
gas & oil tires maintenance and repairs parking and tolls
reverse mortgages
home equity conversion mortgage provides homeowners who are 62+ with tax-free incme based on home equity
second mortgage
home equity loan home = collateral interest may be tax deductible
qualifying for a mortgage includes
income debts credit history (620+ score) down payment amount length of the loan and current mortgage rates
conodominium
individual ownership of a unit in a building not a building structure type but homeownership
make arrangements for a walkthrough
last-minute items for negotiations
