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Taxes, Insurance and Repairs. Another downside of homeownership is the cost of insurance, property taxes , and maintenance . Homeowners are required by the mortgage lender to have homeowner’s insurance , which insures the property against loss from fire, damage and other types of destruction. They also pay property taxes which vary from state to state, and the costs of maintenance. If the roof leaks, or the plumbing backs up, the homeowner is responsible for the cost of repairs. Depreciation. As you’ve learned, the opposite of appreciation is depreciation, which is a decline in value . While depreciation is less common than appreciation in the U.S. housing market, there is no guarantee that a home will go up in value. In fact, in recent years many places in the U.S. have experienced a substantial loss of home value and many homeowners saw their equity completely wiped out. Reflect on Learning: Can you list the challenges of homeownership? The high buy-in costs, responsibility for paying property taxes, insurance and making repairs, the possibility of loss of equity through depreciation, being tied to one location. Finding the Right Home. When you are looking for a home to rent, affordability is important. That is the dollar amount you can afford to pay for monthly rent and utilities. The rule of thumb regarding affordability for renters is that no more than 30% of your monthly net income (take home pay) should be spent on housing costs . For example, if your take home pay is $1500 per month, your housing costs, including rent and utilities, should not exceed $450. Other things to consider when you are looking for rental housing are location, number of bedrooms and bathrooms, and length of time you want to rent. Also consider access to public transportation, grocery stores, on-site parking, laundry facilities, neighborhood quality, the school district if you have kids, and the condition of the building. Rentals are usually not hard to find, although in some areas where the rental market is tight, there can be few rentals available. Apartment buildings often have an on site management office. A home for rent is usually listed through a local rental agency or advertised on line. Some properties have “for rent” signs posted with the phone number of a person to contact for information. The Rental Application. The person who rents a property is called the tenant . The owner of the property is the landlord . A rental application is like a resume for a prospective tenant. Generally, anyone over the age of 18 who will be living in the unit must complete the rental application which screens personal information including their name, previous addresses, rental history, employment and employment history, income, and credit PRODUCT PREVIEW That’s a lot of Yuan! The most expensive city in the world for renters is Beijing, China. The average cost of renting is equal to 122.9% of the average Beijing worker’s salary. Fin Lit Trivia Fin Lit Trivia Fin Lit Trivia IV. Renting a Home The Rental Process Since 2005, homeownership has been in decline in America as more and more people choose to rent. According to the Joint Center for Housing Studies of Harvard University, 43 percent of all U.S. households rented in 2013 , up from 35 percent in 2012. The number is expected to rise substantially by 2023. Based on statistics, it is likely that one day you may rent your home. As a financially literate person, there are some things you should know about renting:
THE 21st CENTURY STUDENT’S GUIDE TO FINANCIAL LITERACY 159
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