Personal Finance 3
Chapter 8
Key terms
Consumer Buying Activities:
Preshopping Phases: researching products, comparing features, and setting a budget
Evaluating Alternatives: considering product quality, price, and payment options
Selection and Purchase: negotiating prices, understanding warranties, and finalizing the purchase
Post Purchase Activities: handling returns, servicing, and resolving any issues
Major Consumer Purchases:
Researching Vehicles: assessing needs, fuel efficiency, and safety ratings
Financing Options; understanding loans, leases, and the implications of each
Depreciation Factors: how a vehicle’s value decreases over time and its impact on resale
Resolving Consumer Complaints:
Steps to Resolution: starting with the seller, escalating to consumer protection agencies if necessary
Documentation: keeping records of all communications and transactions
Legal Options for Consumers:
Warranties: understanding express and implied warranties
Consumer Protection Laws: familiarity with laws that safeguard consumer rights
Legal Actions: small claims court and class-action lawsuits as avenues for dispute resolution
Impulse Buying: it is unplanned buying, which often creates financial problems
Cooperative: a nonprofit organization whose member-owners may save money on certain products or services
Open Dating: is information about freshness or shelf life found on the package of a perishable product
Phrases such as “use before may 6, 2023” or “not to be sold after october 8”
Unit Pricing: is the use of a standard unit of measurement to compare the prices of packages of different sizes
To calculate the unit price, divide the price by the number of units of measurement, such as ounces, pounds, gallons, or number of sheets
Rebate: a partial refund of the price of a product
Warranty: a written guarantee from the manufacturer or distributor or a product that specifies the conditions under which the product can be returned, replaced, repaired
Express warranty: it is usually in written form, that is created by the seller or manufacturer and has two forms: the full warranty and the limited warranty
Full warranty: states that a defective product can be fixed or replaced during a reasonable amount of time
Limited warranty: covers only certain aspects of the product, such as parts, or requires the buyer to incur part of the cost for shipping or repairs
Implied warranty: covers the product’s intended use or other basic understandings that are not in writing
Warranty of merchantability: guarantees that the product is fit for the ordinary uses for which it is intended
The Federal Trade Commission (FTC): requires businesses that sell used cars to place a buyer’s guide sticker in the windows of cars for sale
Certified, preowned (CPO) vehicles are nearly new cars with the original manufacturer’s guarantee for quality
Major drawbacks of leasing include: no ownership interest in the vehicle, a need to meet requirements similar to qualifying for credit, and possible additional costs incurred for extra mileage, certain repairs, returning the car early, or even moving to another state
Mediation: the attempt by an impartial third party to resolve a difference between two parties through discussion and negotiation
It is a non binding process, which can save time and money compared to other dispute resolution
Arbitration: the settlement of a difference by a third party whose decision is legally binding
After both sides agree to the arbitration process, each side presents its case to the arbitrator.
Express:
Small Claims Court: a court that settles legal differences involving amounts below a set limit and employs a process in which the litigants usually do not use a lawyer
The maximum varies from state to state, ranging from $500 to $25,000; most states have a limit of between $2,500 and $10,000
Class-action suit: a legal action taken by a few individuals on behalf of all the people who have suffered the same alleged injustice
Legal aid society: one of a network of publicly supported community law offices that provides legal assistance to consumers who cannot afford their own attorney
Prepaid legal services: provide unlimited or reduced-fee legal assistance for a set fee
Chapter 9
Key terms
Lease: a legal document that defines the conditions of a rental agreement
Security Deposit: usually required when you sign a lease.
This money is held by the landlord to cover the cost of any damages done to the rental unit during the lease period
It is usually one month’s rent
Single-family dwellings are the most popular form of housing. They are also referred to as detached homes, which include previously owned homes, new houses, and custom-built houses
Multi Unit dwellings are residence with more than one living unit, which can include duplexes and townhouses
Duplexes are buildings that contains two housing units, with each usually owned by a different homeowners
Townhouses are buildings with two, four, or six-family living units
Planned unit developments are designed communities with varied housing and other land uses, like recreational facilities, a commercial center, shopping areas, and an industrial park
Condominiums: an individually owned housing unit in a building with several such units
Cooperative Housing: a form of housing in which a building containing a number of housing units is owned by a nonprofit organization whose members rent the units
the shareholders purchase stock to obtain the right to live in a unit in the building
Factory-built Houses: living units that are fully or partially assembled in a factory and then moved to the living site
Prefabricated Home: components built in a factory, that is then assembled at the housing site
Modular Home: completed pieces of the house are transported to its location and set on a concrete foundation
Mobile Homes: legally referred to as manufactured homes and sometimes called trailer homes are not often moved from their original sites
typically less than 1,000 square feet
In certain circumstances, you may be willing to buy a handyman’s special which is a home that needs work and that you can get at a lower price because of its condition
Zoning Laws: restrictions on how the property in an area can be used
Real estate agents have information about housing in locations of interest to you.
Their main services include: showing you homes in many areas based on your needs and preapproved mortgage amount, presenting your offer to the seller based on market analysis, and negotiating a purchase price, assisting you in obtaining financing, and representing you at closing
Dual Agent: someone who is working for both the buyer and the seller
Buyer Agent: they represent the buyer’s interests and are paid by either the seller or the buyer
Appraisal: it is used to determine the fair value of the property
An estimate of the current value of a property
Counteroffer: the response given to an offer, meaning the original offer was rejected and replaced with another
Seller’s Market: in times of high demand for housing, negotiating may be minimized
Buyer’s Market: when home sales are slower, then a lower price is likely
Earnest Money: a portion of the price of a home that they buyer deposits as evidence of good faith to indicate a serious purchase offer
Contingency Clause: home purchase agreement often contain this
this contract condition states that the agreement is binding only if a certain event occurs
A large down payment, such as 20 percent or more, makes it easier to obtain a mortgage.
Private Mortgage Insurance (PMI) is usually required if the down payment is less than 20 percent
The coverage protects the lender from financial loss due to default
Mortgage: a long-term loan on a specific piece of property such as a home or other real estate
Payments on a mortgage are usually made over 10, 15, 20, 25, or 30 years
Mortgage brokers can help home buyers obtain financing, since they are in contract with several financial institutions
Collateral: the home you buy serves as security
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Prequalification: involves completing the mortgage application
Provides evidence of employment, income, asset ownership, and existing debt amounts
When applying for a mortgage, the borrower will receive a loan estimate
This form is required by the Consumer Financial Protection Bureau, and it summarizes key information to help borrowers decide among various loans
The Ability-to-repay (ATR)/Qualified Mortgage (QM) rule requires lenders to carefully consider a borrower’s financial situation
ATR accepts lenders to make a “reasonable and good faith determination” of repayment ability based on income, assets, employment status, liabilities, credit history, and debt-to-income ratio
QM limits points and fees, prohibits or restricts certain mortgage features, and imposes a maximum on a borrower’s DTI ratio
Points: prepaid interest charged by the lender
each discount point is equal to 1 percent of the loan amount
Most mortgage lenders allow you to apply online with the three main types being
Retail banks
correspondent lenders also called independent mortgage banks and include recent start-ups such as LoanDepot and SoFi
Mortgage wholesalers and brokers
Conventional Mortgage: a fixed rate, fixed-payment loan with equal payments over 10, 15, 20, 25, or 30 years
It offers certainty about future loan payments
Amortization: the reduction of a loan balance through payments made over a period of time
Mortgage payments are set at a level that allows this
Adjustable-rate mortgage (ARM): a home loan with an interest rate that can change during the mortgage term due to changes in market interest rates; it is also a flexible-rate mortgage or a variable-rate mortgage
they have a lower initial interest rate than fixed-rate mortgages
Rate Cap: a limit on the increases and decreases in the interest rate charged on an adjustable-rate mortgage
The limit prevents the borrower from having to pay an interest rate significantly higher than the original agreement
Payment Cap: a limit on the payment increases for an adjustable-rate mortgage
it keeps the payments on adjustable-rate mortgage at a let level or limits the amount to which those payments can rise
Negative Amortization is the amount of the home equity is decreasing instead of increased
The London Interbank Offered Rate has been the most common base for index setting rates for adjustable-rate mortgages
Interest-Only Mortgage: allows a home buyer to have lower payments for the first few years of the loan
Buy-Down: an interest rate subsidy from a home buyer or a real estate developer that reduces a home buyer’s mortgage payments during the first few years of the loan
Second Mortgage: a cash advance based on the paid-up value of a home; also called a home equity loan
Reverse Mortgage: a loan based on the equity in a home, that provides elderly homeowners with tax-free income and is paid back with interest when the home is sold or the homeowner dies
Provides elderly homeowners with tax-free income in the form of a loan that is paid back
Home Equity Conversion Mortgage: it allows a person to access funds in several ways
A person may take a lump sum, a line of credit, monthly payments, or a combination or a credit line and regular payments
Refinance: the process of obtaining a new mortgage on a home to get a lower interest rate and payment
Closing Costs: fees and charges paid when a real estate transaction is completed; also called a settlement cost
Title Insurance: insurance that, during the mortgage term, protects the owner and lender against financial loss resulting from future defects in the title and from other unforeseen property claims not excluded by the policy
Deed: a document that transfers ownership of property from one party to another
Escrow Account: money, usually deposited with the lending financial institution, for the payment of property taxes and homeowner’s insurance
Implied Warranties: created by state laws may cover some problem areas, but other repair costs can occur
Housing Alternatives
Renting vs. Buying: weighing the pros and cons of each based on personal circumstances
Types of Housing: exploring options like single-family homes, condominiums, and apartments
Renting Your Residence
Lease Agreements: understanding terms, duration, and responsibilities
Rights and Responsibilities: both tenants and landlord obligations
The Home-Buying Process
Preparation: assessing financial readiness and creditworthiness
Finding a Property: working with real estate agents and conducting market research
Making an Offer: negotiating price and terms, and understanding purchase agreements
The Finances of Home Buying
Mortgages: different types, interest rates, and the application process
Down Payments and Closing Costs: calculating initial costs and ongoing financial commitments
Property Taxes and Insurance: understanding additional expenses associated with homeownership
Selling Your Home
Preparing the Property: enhancing curb appeal and making necessary repairs
Setting a Price: conducting market analysis to determine a competitive price point
Marketing Strategies: utilizing listing, open houses, and real estate agents to attract buyers