{"id":264,"date":"2018-11-16T19:51:01","date_gmt":"2018-11-16T19:51:01","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/suny-personalfinance\/?post_type=chapter&p=264"},"modified":"2018-11-16T19:51:01","modified_gmt":"2018-11-16T19:51:01","slug":"identify-the-product-and-the-market","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-personalfinance\/chapter\/identify-the-product-and-the-market\/","title":{"raw":"Identify the Product and the Market","rendered":"Identify the Product and the Market"},"content":{"raw":"
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Learning Objectives<\/h3>\r\n
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  1. Describe the different building structures for residential dwellings.<\/li>\r\n \t
  2. Describe the different ownership structures for residential dwellings.<\/li>\r\n \t
  3. Identify the factors used by lenders to evaluate borrowers for mortgage credit.<\/li>\r\n \t
  4. Identify the components of the mortgage affordability calculation and calculate estimated mortgage affordability.<\/li>\r\n \t
  5. Identify the components of a buyer\u2019s inspection checklist.<\/li>\r\n \t
  6. Explain the potential effects of business cycles, unemployment, and inflation on the housing market.<\/li>\r\n \t
  7. Analyze the effects of the demand for housing financing on the housing market.<\/li>\r\n<\/ol>\r\n<\/div>\r\n \r\n\r\n<\/div>\r\n
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    Renting a Home<\/h2>\r\n

    If you have already decided on a goal of home ownership, you have already compared the costs and benefits of the alternative, which is renting. Renting requires relatively few initial legal or financial commitments. The renter signs a lease that spells out the terms of the rental agreement: term, rent, terms of payments and fees, restrictions such as pets or smoking, and charges for damages. A renter is usually required to give the landlord a security deposit to cover the landlord\u2019s costs of repairs or cleaning, as necessary, when the tenant moves out. If the deposit is not used, it is returned to the departing tenant (although without any interest earned).<\/p>\r\n

    Some general advantages and disadvantages of renting and owning are shown in Figure 9.2 \"Renting versus Owning\"<\/a>.<\/p>\r\n\r\n

    \r\n\r\n[caption id=\"\" align=\"aligncenter\" width=\"1275\"]\"image\" Figure 9.2 Renting versus Owning[\/caption]\r\n\r\n<\/div>\r\n

    The choice of whether to rent or to own follows the pattern of life stages. People rent early in their adult lives because they typically have fewer financial resources and put a higher value on mobility, usually to keep more career flexibility. Since incomes are usually low, the tax advantages of ownership don\u2019t have much benefit.<\/p>\r\n

    As family size grows, the quality of life for dependents typically takes precedence, and a family looks for the added space and comfort of a home and its benefits as an investment. This is the mid-adult stage of accumulating assets and building wealth. As income rises, the tax benefit becomes more valuable, too.<\/p>\r\n

    Often, in retirement, with both incomes and family size smaller, older adults will downsize to an apartment, shedding responsibilities and financial commitments.<\/p>\r\n

    Home ownership decisions vary: some people just never want the responsibilities of ownership, while some just always want a place of their own.<\/p>\r\n

    Finding an apartment is much like finding a home in terms of assessing its attributes, comparing choices, and making a choice. Landlords, property managers, and agents all rent properties and use various media to advertise an available space. Since the rent for an apartment is a regular expense, financed from current income (not long-term debt), you need to find only the apartment and not the financing, which simplifies the process considerably.<\/p>\r\n\r\n<\/div>\r\n

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    Assessing Attributes<\/h2>\r\n

    Once you decide to own your home, you must choose the home to own, considering the different kinds of homes and of home ownership.<\/p>\r\n

    There are single- and multiple-unit dwellings, for example. A multiple-unit dwelling<\/strong>[footnote]A residential building including more than one housing unit, such as a duplex, triplex, or apartment building.[\/footnote] can be used to create rental income or to house extended family members, but this choice imposes the responsibilities of being a landlord and also limits privacy.<\/p>\r\n

    There are previously owned, new, and custom-built homes. Previously owned homes may require some renovation to make them comfortably modern and convenient. New and custom-built homes typically have more modern features and conveniences and require less maintenance and repair expense. Custom-built homes are built to the homeowners\u2019 specifications.<\/p>\r\n

    Sales of existing single-family homes far outnumber sales of new and custom homes. In the month of February 2009, for example, 4.72 million existing homes were sold compared to 337,000 sales of new homes. The average price of a new house in February 2009 in the United States was $251,000.National Association of Home Builders, http:\/\/www.nahb.org\/fileUpload_ details.aspx?contentTypeID=3&contentID=97096&subContentID=153510<\/a> (accessed November 23, 2009).<\/span><\/p>\r\n

    Mobile homes<\/strong>[footnote]A manufactured home, usually under 1,000 sq. ft. in size.[\/footnote] are large trailers fitted with utilities connections, which can be installed on permanent sites and used as residences. A mobile home may also be situated in a trailer park or mobile home community where the owner rents a lot. Mobile homes are often referred to as manufactured homes, and other examples of manufactured homes are prefabricated or modular homes, which are moved to a foundation site by trailer and then assembled.<\/p>\r\n

    In a condominium<\/strong>[footnote]An ownership arrangement where individual housing units are owned by individual owners, while common spaces are owned by the condominium association of unit owners.[\/footnote], the homeowner owns a unit in a multiple-unit dwelling, but the common areas of the building are owned and managed by the condominium owners\u2019 association. Condo owners pay a fee to cover the costs of overall building maintenance and operating expenses for common areas.<\/p>\r\n

    Cooperative housing<\/strong>[footnote]An ownership arrangement where the right to inhabit living space is claimed by the purchase of shares in the cooperative ownership of a multi-unit dwelling.[\/footnote] is a unit in a building or complex owned by a nonprofit association or a corporation for the residents\u2019 use. Residents do not own the units, but rather own shares in the cooperative association, which entitles them to the right to dwell in its housing units.<\/p>\r\n

    Personal factors such as your age, family size, health, and career help you to answer some of the following key questions:<\/p>\r\n\r\n