LESSON 8 -- BUYING A HOME

Transcription

1 LESSON 8 -- BUYING A HOME LESSON DESCRIPTION AND BACKGROUND This lesson uses the Better Money Habits video Is Buying a Home Right for You? ( to help students compare the costs of renting or buying a place to live. While the lesson examines the personal as well as the financial reasons for making that choice, the video focuses primarily on the financial costs of buying a home, the costs of a mortgage, and the affordability of buying vs renting. The lesson can be used as an introduction to Lesson16: Shopping for a Mortgage in Financial Fitness for Life, Grades 9-12 to increase student awareness of the costs of home ownership. It could also be used an extension of Lesson 3: Decision-making with students creating a decision making grid for renting vs buying. The video is about 7 minutes, and the time needed to complete this activity is one 45 minute class period. BETTER MONEY HABITS VIDEO Home Buying and Renting: Deciding to Buy or Rent: Is Buying a Home Right for You? (7:19) FINANCIAL FITNESS FOR LIFE CONNECTION, GRADES 9-12 Lesson16: Shopping for a Mortgage Lesson 3: Decision-making ECONOMIC AND PERSONAL FINANCE CONCEPTS Homeownership Closing costs PMI Down payment Insurance Mortgage Decision-making BETTER MONEY HABITS: HIGH SCHOOL 1

2 NATIONAL STANDARDS FOR FINANCIAL LITERACY Standard 2. Buying Goods and Services, Benchmark: Grade Consumer decisions are influenced by the price of a good or service, the price of alternatives, and the consumer s income as well as his or her preferences. 3. When buying a good, consumers may consider various aspects of the product including the product s features. For goods that last for a longer period of time, the consumer should consider the product s durability and maintenance costs. 5. People incur costs and realize benefits when searching for information related to their purchases of goods and services. The amount of information people should gather depends on the benefits and costs of the information. Standard 4. Credit, Benchmark: Grade Loans can be unsecured or secured with collateral. Collateral is a piece of property that can be sold by the lender to recover all or part of a loan if the borrower fails to repay. Because secured loans are viewed as having less risk, lenders charge a lower interest rate than they charge for unsecured loans. 4. People often make a cash payment to the seller of a good called a down payment in order to reduce the amount they need to borrow. Lenders may consider loans made with a down payment to have less risk because the down payment gives the borrower some equity or ownership right away. As a result, these loans may carry a lower interest rate. 11. People often apply for a mortgage to purchase a home. A mortgage is a type of loan that is secured by real estate property as collateral. OBJECTIVES At the end of this lesson, the student will be able to: Identify the costs and benefits of renting. Identity the costs and benefits of home ownership. Explain the guidelines for purchasing a home. Define down payment, closing costs, and PMI. TIME REQUIRED One 45 minute class period MATERIALS Handout 8.1: Renting vs Buying BETTER MONEY HABITS: HIGH SCHOOL 2

3 PROCEDURE 1. Ask students if they should buy a place to live or rent a place to live. Encourage them to discuss the reasons for their answers to that question. Tell students that the best answer to that question is It Depends! because sometimes buying a place is the best choice and sometimes renting a place is the best choice. Remind students that every choice has costs (disadvantages) and benefits (advantages), and those costs and benefits will vary depending upon the situation and the people involved. 2. Distribute copies of Handout 8.1. Explain that this handout and the video will help them identify the costs and benefits associated with buying and renting. Have them complete the table provided in Part A of Handout 1 based on their discussion of the information provided in the video. Tell them you will be stopping the video about halfway to allow for that discussion. 3. Show the video. Pause at the 2:50 mark. Have students add the costs (cons) and benefits (pros) presented in the video to the table in the appropriate spaces. Discuss their answers before continuing the video. 4. Restart the video. After finishing the second part of the video, have students complete Part B of Handout 8.1. Discuss their answers once they have completed writing. CLOSURE To summarize this lesson, review the information included in the video and discuss any additional questions they have about buying versus renting a place to live. ASSESSMENT Ask students to identify what they plan to do after graduating from high school (get a job, go to college, etc.). Have them create a list of reasons to buy or rent a home that best meets their needs based on their plans. Have students share their ideas with the class. Refer to Lesson 16. EXTENSION Refer to Lesson 16. View additional videos from Better Money Habits, including How to Set a Budget and Stick to It; Building Credit and Keeping Yours Healthy; Easy Ways to Save on Everyday Expenses, and Create a Safety Net for Life s Unexpected Events. BETTER MONEY HABITS: HIGH SCHOOL 3

4 HANDOUT 8.1 RENTING VS BUYING A PLACE TO LIVE Part A Complete this table showing the costs and benefits of renting vs buying based on the information in Better Money Habits: Is Buying a Home Right for You? RENTING BUYING BENEFITS COSTS BENEFITS COSTS BETTER MONEY HABITS: HIGH SCHOOL 4

5 Part B Answer the following questions based on the information in Better Money Habits: Is Buying a Home Right for You? 1. What is meant by the 20% down rule? 2. What is PMI? 3. List at least two questions you should consider if you are ready to buy a home? 4. Why is owning vs buying a personal decision instead of just a financial decision? BETTER MONEY HABITS: HIGH SCHOOL 5

6 HANDOUT 8.1 ANSWERS PART A RENTING BUYING BENEFITS COSTS BENEFITS COSTS Rent may be easier to afford than mortgage Less control over living environment Control over living environment: can decorate how you like Repairs and maintenance are your responsibility and can be costly No maintenance expenses Rent can go up Could be more affordable Less flexibility if have to move Insurance is less expensive No ownership and not building equity Can deduct interest payments on taxes Down payments expensive Could be less expensive and allow you to save for other things Build equity and home can be yours May have to pay PMI Greater flexibility if moving Have to pay closing costs Part B 1. What is meant by the 20% down rule? You need to put down 20% of the cost of the home you are buying or you may not get the best interest rate on your mortgage and you will have to pay PMI. 2. What is PMI? Private Mortgage Insurance - usually required if you put less than 20% down on a home to protect the lender in case you default on the loan. 3. List at least two questions you should consider to know if you are ready to buy a home? Do you have less than 20% down? How is your job security? Do you want to deal with home repairs? Would a mortgage prevent you from saving for other important things? Do you need to build your credit? Are you planning to stay in area for less than 3-5 years? 4. Why is owning vs buying a personal decision instead of just a financial decision? People need to find a place that best suits their individual needs and wants as well as their budget. BETTER MONEY HABITS: HIGH SCHOOL 6