90.2K

Verified Solution

Link Copied!

What are the benefits and costs associated with home ownership?

Purchasing a home is an investment. It should be made with the same knowledge, objectivity, and deliberation that you would apply to the purchase of stocks, bonds, or life insurance policies. Knowledge of the general costs and benefits associated with owning a home is necessary to make an informed investment decision.

What are the benefits associated with homeownership?

Owning a home offers physical and psychological as well as financial benefits. Among the physical benefits are shelter and security, while the psychological benefits include:

Peace of mind and pride of ownership

A feeling of impermanence and a lack of control over ones environment

Homes also provide financial benefits, including serving as a hedge against inflation and a shelter from taxes. The hedge against inflation occurs, because the price of houses generally increase at a rate equal to or than the rate of inflation, while the tax shelter results from the of the:

Insurance premiums paid to protect the home and your contents

Interest paid on the mortgage

Down payment paid to purchase the home

Home maintenance and repair expenses

This treatment on your federal and, in most states, state income taxes results in a taxable income and tax obligation. However, to realize the full value of this benefit, you must .

What are the costs of homeownership?

The five types of costs associated with homeownership are:

	the down payment
	closing costs, including the _________ required by the lender;
	the _______________
	the property taxes and insurance premiums
	the maintenance and operating expenses

With regard to these costs:

	Mortgage lenders vary in the types and characteristics of the mortgage loans offered. However, virtually every mortgage lender requires a prospective homebuyer to invest some of his or her own money as a down payment. The funds contributed by the homebuyer are called ______ and depend on the lenders loan-to-value ratio. The relationship between the lenders required down payment (DP) and its loan-to-value (LTV) ratio can be expressed as .
	The non-interest-related lender fees, which increase with borrower demand, are equal to 1% of the amount borrowed, and are included in the borrowers closing costs, are called _____ . Lenders use different combinations of these fees and loan rates to generate additional income for themselves and additional financial choice for their borrowing customers. However, these fees _______ the mortgages effective interest rate.
	The standard monthly mortgage payment usually includes PITI, in which P stands for _______ , I stands for , and T stands for _______. The cost of the final I, which stands for_______, depends on the houses age, location, construction, and geographic location.
	A houses expenses, which include its electricity, gas, sewage, and water utilities, are a large and recurring cost. To better anticipate the total cost of possible target homes, it is important that you obtain prepurchase estimates of these costs.
	Homeowners insurance is by the mortgage lender and covers the replacement value of the home and its contents. An important limitation of the homeowners policy is that it does not protect the insureds .

Answer & Explanation Solved by verified expert

See Answer