Chapter 9: The Housing Decision: Factors and Finance

Joe Smith earns $72,000 per year. His bank uses a rule that PITI must be equal to or less than one third of gross monthly income. If his home owner's insurance is $100 per month, roughly how much of a monthly payment can Joe afford including taxes over and above the $100 for insurance?

$1,900

What are the disadvantages of owning a condominium?

Assessment fees Less privacy Uncertain demand affecting property value

Making needed repairs, painting the interior and exterior of the home and cleaning all rooms are strategies that can lead to a fast and financially favorable sale.

True

The monthly payment amount will be higher on a 15-year loan that on a 30-year loan, but the total amount repaid will be less.

True

When you are finding and evaluating a property to purchase, you should:

select a location. conduct a home inspection. consider using a real estate agent.

The most popular form of housing is:

single-family dwelling.

Which of the following factors have an impact on the amount you can spend to acquire a home of your own?

your current living expenses the amount of the down payment you can make your income (salary, wages, investment income, etc.)

Which of the following can affect mortgage affordability?

your down payment the length of the loan mortgage rates the amount of income you earn

Interest rates drop, and by refinancing you can save $110 a month. If the closing costs on the new mortgage are $2,090, how long will it take you to recover your closing costs (as a result of the savings)?

19 months

Private mortgage insurance (PMI) is required when the down payment is less than:

20%

The Homeowner Protection Act requires that a PMI policy be terminated when the equity reaches ______ of the property value at the time the mortgage was executed.

22%

Which of the following are the common terms (years) of home mortgages?

30 15 20 10

Many mortgage companies and banks will prequalify you for a mortgage loan by determining how much you can _____ for a home mortgage payment. This is a one-word answer.

Blank 1: afford, pay, or spend

The common areas of condominiums are not owned by the condo owner but by the condominium _____.

Blank 1: association

When you _____ on a home purchase, you arrange for a date to sign papers, obtain funds and the necessary documents, and request clarification on any unclear issues. This is a one-word answer.

Blank 1: close

Many states require that your security deposit be returned within a _____ time.

Blank 1: reasonable, specified, certain, limited, month's, month, fixed, or specific

While most mortgage payments are fixed, _____ can be subject to increases over which the tenant has no control.

Blank 1: rent or rents

A _____ deposit provides the landlord with funds to cover the cost of any damages done to the rental unit during the lease period.

Blank 1: security

Buying decisions make a(n) _____ about your lifestyle.

Blank 1: statement

True or false: A condominium is a type of building structure and not a legal form of ownership.

False

True or false: Home ownership can limit your mobility as it might be difficult to sell your home when interest rates are low and when the economy is doing well.

False

How could the tax benefit and risk of a home equity loan best be described?

Interest is tax deductible, but default could mean you lose the home.

When it comes to mobile homes, which of the following statements are true?

It may be difficult to sell in the future. Financing may be difficult to obtain.

Which of the following are possible disadvantages of owning a previously owned home?

Significant financial commitment Possibility of significant repairs Limited mobility

What are the advantages of owning a condominium?

Tax benefits Fewer maintenance responsibilities when compared to a house

Which of the following are advantages of owning a previously owned home?

Tax benefits Pride of ownership

Which of the following are advantages of home ownership?

The ability to borrow against the equity in the home. Income tax savings because of mortgage interest. Stability of residence and a personalized living location.

As a general rule, it may be wise to refinance when the interest rates on mortgages drop at least 1 percentage point below your current mortgage rate.

True

Being aware of zoning laws and restrictions on how a property in an area can be used can be useful in making your real estate buying decision.

True

True or false: A security deposit covers the cost of damages that may be done to a rental unit.

True

True or false: After you vacate a rental unit, your security deposit should be refunded within a reasonable time.

True

True or false: Banks, savings and loans, credit unions, and mortgage companies are common sources of mortgage loans.

True

True or false: Some of the factors to consider when determining a price for a home include the owner's need to sell, the time the home has been on the market, and the features and condition of the home.

True

True or false: Tenants are often subjected to restrictions regarding pets, decorating, and remodeling.

True

The benefits of a conventional 15-year or 20-year mortgage usually include:

a lower rate than a 30-year mortgage. a faster equity buildup than a 30-year mortgage. a quicker payoff of the loan than a 30-year amortization.

Payments of anywhere from 10 to 30 years are ______ for mortgages.

common

Renting increases mobility by:

decreasing the amount of time one is required to be financially liable for housing. decreasing financial investment in a home. making it easier for people to get up and move.

Potential home owners without children should evaluate school systems of the municipalities where they might live because:

good schools translate to rising property values.

What are some of the disadvantages of new home ownership?

higher living expenses than renting limited mobility when compared to renting significant financial commitment

The one drawback of a conventional 15-year or 20-year mortgage when compared to a 30-year mortgage is:

higher monthly payments.

The expenses covered by a condominium monthly fee include:

insurance for common areas. improvements. maintenance and repairs.

Which of the following are disadvantages of renting a house or an apartment?

limitation regarding remodeling no tax benefits

The benefits of a FHA/VA fixed-rate mortgage include:

low down payment. no prepayment penalties. fully assumable.

As a home owner versus a renter, you must be prepared to pay additional costs of home ownership, such as ___.

maintenance real estate taxes home improvements

Which of the following are the advantages associated with renting an apartment?

minimal financial commitment easy to move (mobility) less maintenance than owning

Which of the following are common sources of home mortgages?

mortgage companies banks credit unions savings and loans

The advantages of owning a newly built home include ___.

no previous owner, so you know the history of the home pride of ownership tax benefits

Common sources of down payment funds to purchase a home include:

personal savings. the sale of investments. assistance from relatives.

The one drawback of a FHA/VA fixed-rate mortgage is ___.

possibility of additional processing time

The step in the mortgage application process that involves completing the mortgage application is ___.

prequalification

Single-family homes can be ______ or ______.

previously owned; new

Which of the following are main services offered by a real estate agent?

recommending other advisers to help you with the process of buying or selling a home helping you negotiate a price for a home

Approximately 35 percent of U.S. households live in ______.

rental units

Renters have fewer ______ than homeowners since they usually do not have to be concerned with maintenance and repairs.

responsibilities

Which of the following are the most important three considerations when evaluating a local school system?

school funding achievement level of students program variety

Renters have fewer responsibilities than home owners because:

tenants are not responsible for maintenance or repairs.

Which of the following captures the main factor to consider when refinancing a loan at a lower rate?

the cost of refinancing versus the benefits (savings) of lower monthly payments

Just before closing on a house, you often do a ______ before accepting the property.

walk-through

An adjustable-rate mortgage usually has a rate cap and a _____ cap.

Blank 1: payment

Home equity loan interest is only tax deductible as long as the proceeds are spent on education with the risk being that a default on the equity loan could mean foreclosure.

False

When obtaining a mortgage, it is important to investigate ______ and ______ of mortgages.

rates; conditions

The main services of a ______ are to present your offer to the seller, negotiate a settlement price, assist in obtaining financing, and attend the closing.

real estate agent

Tenants are usually ______ in the types of activities they can pursue in their home.

limited

The Homeowner Protection Act requires that a PMI policy be terminated when the equity reaches _____% of the property value at the time the mortgage was executed.

22

Your _____, needs, desires, and attitudes are reflected in your choice of a home.

Blank 1: lifestyle or wants

One of the reasons why renting offers fewer financial benefits than home ownership is that rent is not _____ deductible, while the interest on mortgage payments is.

Blank 1: tax

The opportunity costs and common trade-offs of a housing decision include which of the following?

Cost to commute to work when you live in area that offers less expensive housing. Interest lost on money used for down payment. The loss of home-buying tax advantages and equity growth when you rent an apartment to be close to your work.

True or false: The drawback of an ARM mortgage is that monthly payments could rise in the future.

True

True or false: The importance of preparing your home for sale is that it can make for a fast and financially favorable sale.

True

True or false: Two external (market) factors that affect the price of a home are the current demand for housing and the financing options (i.e., interest rates) available.

True

Which of the following are advantages of renting a house?

easy to move (mobility) minimal financial commitment

Personal preferences are the foundation of a housing decisions, but ______ factors will modify the final choice.

financial

When selecting an apartment, rent, length of lease, security deposit, and utilities are some of the ______ people should consider.

financial aspects

Selecting a location, considering a real estate agent, and conducting a home inspection are steps you take when you are:

finding and evaluating a home purchase.

The main benefit of a conventional 30-year mortgage is (found in discussion of types of mortgage loans):

fixed payments.

Like many financial decisions, when making a housing decision, you should consider what you give up in time, _____, and money as a result of the decision.

Blank 1: effort, energy, or interest

The benefit of an interest-only mortgage is that the monthly payments are _____ than a conventional mortgage and therefore easier to _____.

Blank 1: lower, less, or smaller Blank 2: afford, payback, repay, or pay

An old adage that the three most important factors to consider when buying a home are location, location, and location means that the _____ plays an important part in determining market value.

Blank 1: neighborhood, location, or area

The benefits of adjustable-rate mortgages (ARM) include a lower initial mortgage _____.

Blank 1: rate, payment, or interest

Generally speaking, the ______ the credit score the _______ the mortgage rate.

higher; lower

Which of the following are disadvantages associated with renting an apartment?

restrictions on pets (no pets) and certain activities limitations on remodeling no tax benefits

The drawback to interest-only mortgages is that the loan balance does not _____ and therefore the only equity build-up occurs if the home value _____.

Blank 1: decrease, fall, drop, amortize, decline, change, or reduce Blank 2: increases, grows, rises, or appreciates

The financial aspects to be considered when selecting an apartment to lease include monthly rent, length of lease, security _____, and cost of _____.

Blank 1: deposit Blank 2: utilities

The financial uncertainties associated with home ownership include obtaining money for a _____ payment, the difficulty of obtaining mortgage financing due to personal and current economic problems, and fluctuating property values.

Blank 1: down

The most common sources for a(n) _____ payment for a home purchase include personal savings, pension plan funds, sale of investments, and assistance from relatives. (Enter only one word per blank.)

Blank 1: down

To determine how much you can afford to spend on a home, have a loan officer at a mortgage company or other financial institution _____ you.

Blank 1: prequalify, qualify, pre-qualify, pre-approve, pre-select, pre-screen, or preapprove

Renting is a fairly _____ practice in the United States with about 35% of households living in rental units.

Blank 1: prevalent, common, normal, or popular

Once you have determined what you can afford for a down payment, you should investigate mortgage _____ and apply for a loan.

Blank 1: rates, options, or companies

A number of factors can impact the amount you can spend on a home including current mortgage payment _____, Correct Unavailable, the size of the down payment _____, Correct Unavailable you can

Blank 1: rates, rate, payment, or loan Blank 2: payment

The factors that influence the asking price for a home include recent _____ prices of comparable homes in the area, demand for homes in the housing market, and available financing.

Blank 1: selling, sale, or closing

Your budgeted financial obligations help dictate the appropriate amount to _____ on housing.

Blank 1: spend, allocate, pay, or budget

Renting makes job transfers ______.

easier

Private mortgage insurance (PMI) is required when the down payment is less than _____%. This is found in the discussion of determining the amount of your down payment.

Blank 1: 20 or twenty

When calculating the number of months to recover your _____ costs on a refinance of a mortgage, you divide the closing costs by the monthly savings as a result of the new lower payment. This is a one word answer.

Blank 1: closing, settlement, refinance, or refinancing

In addition to showing your home and marketing it to potential buyers, real estate agents can screen potential home buyers to see if they _____ for mortgage financing.

Blank 1: qualify or prequalify

You can save money selling your own home, but it requires an investment in _____ and effort.

Blank 1: time

An important security measure to take when selling your own home is to show the home when _____ or more adults are at home.

Blank 1: two or 2

Place, in the order of occurrence, the following steps of a mortgage loan application process. Place the first step at the top.

Complete the mortgage application. Meet with lender, present evidence of job and income. Lender gets credit report, confirms financial aspects. Mortgage is approved or denied.

Even if you do not use a real estate agent to sell your home, you should use an attorney or title company to close the transaction.

True

Factors that impact the asking price for a home include recent asking prices of comparable homes in your area.

True

True or false: The services that a real estate agent can provide include suggesting an asking price, making potential buyers and other agents aware of your home, and screening potential buyers to determine whether they will qualify for a mortgage.

True

Which of the following home improvements are not among the three that would have the most favorable impact on asking price?

new hot tub

Which of the following home improvements are the three most desirable (i.e., they will have the greatest positive impact on the asking price)?

remodeled kitchen new energy-efficient features remodeled bathroom

Despite the fact that conventional mortgages offer fixed payments, some borrowers will select an adjustable rate mortgage over a conventional mortgage because:

the adjustable rate mortgage has lower initial payments.

When selecting an apartment, which of the following aspects of the building's interior should you consider?

Condition of elevators Exits and security

When calculating the number of months to recover your _____ costs on a refinance of a mortgage, you divide the closing costs by the monthly savings as a result of the new lower payment.

Blank 1: closing, settlement, refinance, or refinancing

Having a place to call your own, the stability of a residence and a personalized living space all contribute to a feeling known as _____ of ownership.

Blank 1: pride or freedom

The advantages of owning a manufactured home (mobile home) include which of the following?

flexibility in the selection of features and appliances less expensive than other options

An adjustable-rate mortgage is also referred to as a ______ mortgage.

flexible-rate