Unit 4 Test Review

cost of living

cost of living

how much the expenses of food, housing, and healthcare cost by location

steps to make a spending plan

1. know you income

2. write down your expenses

3. make a savings plan

amount that should be put into savings each month

20% of your income

amount that should be saved for emergencies

6 months worth of expenses

factors that lead to housing scarcity

• consumer demand

• limiting laws

• lack of land

utilities provided in most apartments

• water

• garbage collection

• internet service

positive of renting

landlord has to fix broken items

negatives of renting

• can’t make basic changes

• at end of lease: landlord can raise rent or ask you to move

income and employment (application process)

make sure rent can be paid

credit check (application process)

make sure you have a good record of paying bills

background check (application process)

see if applicant has been convicted of any crime

references (application process)

to see if applicant has good character

age to sign a lease in NC

18

amount renters usually pay at the beginning of a lease

first month’s rent and previous month’s rent

security deposit

amount that acts as a savings to pay for any damages by tenants

reasons why a tenant might be evicted

• paying rent late

• not paying rent at all

• damaging the property

down payment

small percent of purchase price upfront (2-5%)

usual time to get approval for a home loan

10 days

what does it mean to be pre-qualified or pre-approved

lender has already approved or qualified the buyer for a certain amount of money

buyer’s market

market with more sellers than buyers

seller’s market

market with more buyers than sellers

home equity

amount the house is worth minus how much is owed

benefits of owning a home

• valuable financial asset

• generates wealth

responsibilities of owning a home

• must maintain home

• pay all utilities

collateral

property that the lender has the right to take if the borrower doesn’t pay the loan

car lease

• usually 3-4 years

• person with lease makes monthly payments

• limited number of miles that can be driven

• at end of lease: can buy car or get different one

a car depreciates by how much once you drive it off the lot

10%

earnest money

usually 1-10% of house price written as a personal check used for part of down payment or to help pay for closing costs

appraisal

Makes sure the house if worth what the buyer is willing to pay

Home inspection purpose

To look for any problems with the house that might need repair the seller should pay for or that could affect the value of the home

Loan term

Length of loan, date of monthly payment, interest rate

Principal

Amount of money that has been borrowed

Credit score

Number based on credit history, record of how you repaid loans in the past (800 is excellent, lowest score is 300)

Simple interest

Interest rate applied only to the value of the principle

Compound interest

Interest applied to both the principal and the interest rate as it accrues over time

Mortgage points

Part of the interest paid up front

Annual percentage rate (APR)

Interest rate plus other fees and charges associated with the loan

Fixed-rate mortgage

Amount of the mortgage payment remains the same throughout the loan

Variable rate

Can change and is usually tied to an index rate, such as the federal funds rate

Adjustable rate mortgage (ARM)

Fixed interest rate for the first few years and then changes to a variable interest rate

Conventional mortgage

Loan from a private lender (banks credit unions, mortgage companies), backed by the stock market, insured through Fannie Mae and Freddie Mac

Private mortgage insurance (PMI)

Protects the lender if the buyer stops making mortgage payments

Jumbo loans

Exceeds limit for mortgages that can be mortgage-backed securities, often requires a 20% down payment and has a higher interest rate

Interest-only mortgage

Homeowner only pays interest for first 5-10 years

Balloon mortgage

5-7 years, low payments until the end where it must be paid in full

Federal housing administration (FHA)

Accepts application with poorer credit than typically required, 3.5% down payment, limits on the amount of mortgage loan

US department of agriculture (USDA)

Loans for people who have lower income and live in rural areas, doesn’t require a down payment

Veteran administration (VA)

Loans for people who have served in the military, doesn’t usually require a down payment

Purpose of government homeownership programs

Generates wealth, encourages stable communities, buyers take better care of property than renters

Second mortgage loan

Mortgage on equity a homeowner has built up, pay off high interest debt like credit cards