Exam 2 (Chapters 6-10)

What is mediation when it comes to complaints?

A process of settling a dispute. Both sides employ a third party to find "common ground" to resolve the dispute.

What is an interest only loan?

Borrower pays only the interest on the loan - people who flip houses would use this type of loan b/c they are expecting to flip it and make a lot of money back on it

What is warranty of merchantability?

Buying something from a store, noticing it doesn't work how it was advertized and returning it.

What is chapter 13 bankruptcy?

Called the "Wage-Earner's Plan." It proposes a plan to the bankruptcy court for paying off your debts over a period of time. You will make regular payments to the Chapter 13 trustee who pays your bills. You get to keep all of your property

What is the most important "C?"

Character!

What is another word for pledge?

Collateral

What is a conventional mortgage?

Considered a "fixed rate conventional mortgage" because its common characteristics are a fixed rate, fixed payments, and fixed period of time

__________ is defined as an arrangement to receive cash, goods, or services now and pay for them in the future.

Credit

What is an example of open end credit?

Credit card, you charge, pay off, then charge and pay off. You can continue to use it, so its open.

What is the "Truth in lending law 1969?"

Creditors are required, by law, to state the cost of borrowing as a dollar amount so that the consumers would know exactly what the credit charges will be. This is done with APR or annual % rate.

Cosigning a loan can _______ your credit

DESTROY

What is the most important factor in selecting a home?

Location

What is the definition of a mortgage?

Long term loan for a piece of property

What does jumbo loan mean?

Most states have a limit of around $510,400 and if you want to take out a loan for greater than that amount, its considered a higher risk so your interest rate will go up

Can a creditor threaten your credit rating while resolving a billing dispute?

NO

Does your monthly debt payments include your mortgage?

NO

Is an appraisal a home inspection?

No

Who can obtain a credit report?

Only people you sign permission for

What are some examples of credit?

Smart cards, debit cards, smart phones, Home Equity loans, Line of Credit, HELOC, or Second Mortgage

What is a dual agent?

Someone who you hire to sell your house and then someone hires that person to buy your house for them. (not idea because they know your weakneses and how low you'll go)

What is another government financing program that is for service veterans only and what are some characteristics of the loan?

Veteran Administration or VA loans - no down payment, and rate is based on credit score

What is a home inspection?

When you pay for an individual to take a detailed look at the house you want to buy and they basically tell you everything wrong with the house (code violations).

If you cosign a loan, and the person stops making payments, who has to pay off the loan?

YOU, the cosigner

Can cosigning keep you from getting your own loan?

Yes, it counts as your debt as well and you could very well get denied on getting a loan for yourself

If you cosign a loan, can it effect your credit?

Yes, it goes on your credit history as well as the person you are cosigning for

If your credit application is denied, do you have the right to know why?

Yes, you can get a free copy of your credit report within 60 days

What is the only debt that is considered "GOOD" debt?

Student loan debt

The credit Card act of 2009 effects annual percentage rates, fees, and disclosures. TRUE OR FALSE

TRUE

What is an adjustable rate mortgage?

You agree to a mortgage with an adjustable interest rate that could potentially start at 3% for the first year but slowly increase every year with a max of 8% (no more than a 5% increase from starting interest rate) interest.

When you refinance your house, what does that mean?

You are literally buying your house from yourself

What is an example of a sellers agent?

You are selling your house and you hire someone as your real estate agent

What is a contingency cause?

You are stating you will "buy a house contingent upon an inspection and appraisal" meaning if there is any type of unexpected dilemma, you can back out. They work both ways

What is arbitration when it comes to complaints?

stays between the parties until a voluntary settlement is met. This is what most businesses have in their contracts.

can a car warranty be transferred to someone else if you sell the vehicle?

yes, there may be a transferring fee though

What is a buyers agent?

you want to buy a house and hire someone as your real estate agent

Credit used for personal needs is defined as ......

consumer credit

Obligating future earnings is a definition for __________

credit

What is full warranty?

promise to the customer that the seller or manufacturer will fix item for free during warranty period

What are zoning laws?

restrictions on how the property in an area can be used

For open end credit, what are some methods of calculating interest?

1. Adjusted balance method 2. Previous balance method 3. average daily method

What does the Equal Credit Opportunity Act (ECOA) stand for?

1. All applicants start off on the same footing 2. You cannot discriminate against race, color, age, sex, marital status

What are the 5 Cs of Credit management?

1. Character (attitude towards loan) 2. Capacity (financial ability to meet obligations) 3. Capital (assets or net worth) 4. Collateral 5. Conditions (economic conditions that can affect ability to repay loan)

What are the two types of credit?

1. Closed end credit 2. Open end credit

If you are experiencing identiy theft, what should you do?

1. Contact the fraud department of each of the 3 credit bureaus 2. Contact the creditors for any accounts that have been tampered with or opened fraudulently 3. File a police report

What are the two definitions of title insurance?

1. Defines the boundaries for the property and conducts a search to make sure the property is free of claims 2. protects the owner and lender against financial loss resulting from future defects in the title and unforseen claims

What is included in phase 2 of buying a vehicle?

1. Evaluating alternatives

What are the three main Credit Bureaus and how often can you use them?

1. Experian Information solutions 2. TransUnion 3. Equifax You can check credit every 3 months

What are the characteristics of the "Vantage score?"

1. Features a common score range 2. Does not count debt collections paid off 3. Allows consumers with short credit history eligible for credit reports 4. Ignores negative history if affected by natural disaster

Closed credits have these 3 *VERY IMPORTANT FACTORS*

1. Fixed period of time 2. Fixed Interest rate 3. Fixed Payment (ex: Your car payment is $300 a month, for 5 years with a 5% interest rate)

What is including in phase 1 of buying a vehicle?

1. Problem identification 2. information gathering

What are second mortgages?

1. Home Equity loan (HELOC) 2. Line of credit (you are basically taking out a loan through the money that you paid on your house)

What are the three quantitative questions car salesman will ask you?

1. How much were you thinking of spending? 2. How much can you afford per month? 3. How much were you looking to get for your trade?

What are the three most common types of Closed End Credit?

1. Installment sales credit 2. Installment Cash credit 3. Single Lump Sum credit

What are the two types of interest rates?

1. Lock - you stick with the % interest today and have anywhere between 30, 60, 90 days to close and keep that rate 2. Float - you get whatever rate there is at the time of close

What are two types of sales techniques?

1. Low balling - added cost later 2. High balling - high amount trade in, but higher new car price

What is the Bankruptcy abuse prevention and consumer protection act of 2005 ?

1. Made it more difficult for people to file bankruptcy 2. Must wait 8 years between bankruptcies 3. Those who can pay must pay part of their debt back

What are some disadvantages of leasing a vehicle?

1. No ownership in vehicle 2. need to meet same financing requirements 3. possible additional costs: - extra mileage - certain repairs - turning car in early - even a move out of state

If you notice incorrect information on your credit report, you must.....

1. Notify the credit bureaus in writing 2. Send certified letter requesting a receipt 3. Follow up

What are two main disadvantages of credit?

1. Overspending 2. Credit costs MONEY

What are the 4 main purposes of a real estate agent?

1. Presenting your offer to the seller 2. negotiating a settlement price 3. Assisting you in getting financing 4. representing you at closing

What are some factors you should consider when determining the home price?

1. Recent selling prices in the area 2. current demand for housing 3. length of time the home has been on the market 4. owners need to sell 5 features and condition of home

What is the "Fair Credit Billing Act (FCBA)"

1. Sets provedures for correcting billing mistakes 2. Refusing to make payments for defective goods 3. Promptly crediting your payment s

What are some advantages of leasing a vehicle?

1. Smaller cash outflow vs large down payment 2. lease payments are lower than monthly payments 3. lease provides detail records for business purposes 4. usually you can obtain a more expensive vehicle

What happens when you file bankruptcy?

1. Your credit gets destroyed 2. It may be difficult to find employment 3. You have to pay for court cost, attorney feeds, and trustees fees and cost

What is in your credit bureaus file?

1. Your employer, position, income 2. Former address 3. Former employer 4. Spouse's name, SS #, income 5. If you rent or own your own home 6. Returned checks

What is included in phase 3 of buying a vehicle?

1. determining purchase price 2. used car price negotiations (kelly's blue book, edmunds used car prices)

What are some advantages of credit?

1. enjoy goods and services NOW 2. You don't have to carry CASH 3. Points, rebates, sky miles (etc) on purchases 4. May extend a manufacturer warranty, provide some insurance (some credit cards give you extra benefits), roadside services 5. Accidental death and dismemberment insurance when you travel on common carrier 6. Worldwide auto rental collision damage waiver 7. roadside dispatch referral service for roadside assistance 8. damage and theft purchase protection

What are three sourvces of consumer credit?

1. inexpensive loans: From family members 2. Medium Price loans: From banks, credit unions. others 3. Expensive loans: Finance companies, retailers, credit cards, payday loans, check and go

What are some characteristics of the FHA loan?

1. lower down payment 2. slightly higher rates due to increase risk 3. fee for insurance

What are the two main parts of a mortgage payment?

1. principle 2. Interest

For closed end credit, what are the two types of methods to calculate interest?

1. simple interest formula on the declining balance (ex. multiply the daily interest by the principle left and then by the days remaining before next pay interval 2. Add-on interest method (ex. interest is calculated on your home loan and then added to your principle)

With Chapter 7 straight bankruptsy, most debts are forgiven. Most assets are sold to pay off creditors. Which assets are protected though?

1. social security payments 2. unemployment payments 3. limited equity in your home, car, truck, household goods, trade tools, books etc are protected

What does the Fair Credit report act do?

1.It regulates the use of credit reports 2. Requires the deletion of obsolete information 3. Gives consumers access to their files 4. Gives you the right to have erroneous data corrected

What are some other payments that you may have in addition to your mortgage?

1.Termite inspection/bond 2. HOA fees and restrictions 3. CL 100 - termine inspection report

What is an ideal down payment on a house?

20%

Your debt to income ratio should never exceed ________

20%

How long does a creditor have to acknowledge your letter regarding a billing error?

30 days

Credit scores are generally between ______-______

300 - 850

Most information on your credit report is held for _____ years. Bankruptcy is held for _______ years

7, 10

What is an escrow account?

A bank account held for you in which you pay monthly (Homeowners insurance, flood insurance, property taxes) but they pay in full when payments are due. This is a better option rather than saving up the money yourself and making huge payments

What is a payday lender loan?

A borrower writes a post dated check to the lender for his/her payday amount but receives some of that sum in immediate cash from lender. VERY HIGH INTEREST RATES

What is earnest money?

A check the buyer makes to the seller basically showing that they are serious about the contract. "Shows good faith with the contract."

What does prequalification mean?

A complete application with income, assets, debts in which the lender will indicate the maximum mortgage for which you qualify - THIS DOES NOT MEAN YOU CAN AFFORD THE LOAN

What is a single lump sum credit?

A large sum that is paid in one single payment rather than broken up into installments

What is an expressed warranty?

A warranty that covers any additional terms the seller will honor. (if something breaks, seller will repair)

What is a warranty?

A written guarantee from the manufacturer or distributor that specifies the conditions under which the product can be returned, replaced or repaired.

Define Collateral

An asset that you "pledge" to a financial institution to obtain a loan. In other words, if you don't make payments, they get to take it

What is an appraisal?

An estimate of the current value of the property. (If this value is more than the amount your loan was approved for you will have to make a deal with the seller or pay the rest out of pocket)

What is the origination fee?

An extra fee that is charged during the application process, its basically a fee for filling out the applicatioin (usually about 1% of loan)

what is credit insurnace?

Ensures the repayment of your loan in the event of death, disability, or loss of property

What is warranty of title?

Even if you buy something, if the item is not free and clear of taxes or any type of holdings, then it does not have a warranty of title

What should you NOT do if you are refinancing your loan?

Extend it to be a 30 year loan again. DO not do that!

The APR is always lower than the interest rate. TRUE OR FALSE?

FALSE, the APR is always higher than the interest rate because APR adds in additional fees charged by the lender such as, underwriting fees, document prep fees, loan processing fees, etc.

What is the name of the loan for low to middle income family?

Federal Housing Authority (FHA) - Government financing program

What is the biggest advantage of credit?

Grace Period, or "Float Period"

How do you determine how much you can afford to spend on a home?

Have a loan institution prequalify you. A free service

Consumer credit is everything you spend money on except for your ________

House

How long can a mortgage be?

However long you want, most people do 30 years

What does it mean to "assume a VA or FHA loan if buyer is qualified?"

If a person with a VA loan on a house is selling to someone (you) who also is qualified for a VA loan, you can take over their loan

What is a buy down loan?

If someone wants to get you to buy a house they will offer a certain amount off your closing or a certain amount as an upgrading gift when really they could just raise the price of the house and you wouldnt know the difference

What does amortization of the loan mean?

Its the amount of principle and interest paid each month over the course of your loan

What is a short sale?

If you are purchasing a "short sale," a family is selling a home for 475k but its only worth 450k because the market took a turn so you offer 450k, the bank takes the hit and is responsible for that 25k lost. Be careful to make sure the bank doesnt come after you in the future for that remaining money.

What is an example of a quick claim deed?

If you have a deed on a property and want to give it to a family member so they can build a house on it, you take it to get it transfered, both parties sign on it and its transfered rather quickly- cheaper too

What is a gap insurance?

If you total a vehicle, gap insurance will cover the difference between what the vehicle is currently worth. BUT it raises your monthly payments

What is a grace period?

If your purchases on your credit card so far are are due on March 14th, but the cut off date for those due purchases was Feb 10th, and you made a purchase on Feb 11th, that purchase and the ones following wouldn't be due for months later. Meaning you get extra time to pay that off interest free.

What is reverse mortgage loans?

In short, the bank pays you money each month for your mortgage but really its just lowering your equity on the home and raising your loan balance with fees and extra interest. So you still live in the house but its under full control of the bank. You must be 62+

What is a credit arrangement that has no extra costs and no specific repayment plan?

Incidental Credit (ex: dentist appointment, they will bill insurance and wait for it to kick in and the rest will be sent to you)

What is Consumer credit counseling services and what is the purpose?

Is a locan non-profit organization affiliated with the national foundation for consumer credit. The purpose of CCCS is to.. 1. help families with serious debt problems get out of debt 2. Teach people money management skills to stay out of debt

If you dont put 20% down on a house the bank makes you purchase what?

PMI: Private mortgage insurance. PMI is not protecting you, it is the bank protecting themselves in case YOU dont make the payments. Once you hit 20% of your equity, you no longer have to pay PMI

Where is a good place to get a down payment for a house?

Parents giving you cash (lol, hes actually serious)

What is the Credit Card Accountability, Responsibility, and Disclosure Act 2009?

Places new restrictions on credit card lending and eliminates certain fees

What are points? and what does each discount point equal?

Points are prepaid mortgage interest charged by the lender, and each discount point is equal to 1% of the loan amount

How do you calculate interest?

Prinicple x Rate of interest x time (ex: $100 x 6% x 1 year = $6 of interest)

What is the fair debt collections practices act?

Prohibits certain practices by agencies that collect debts for creditors. Note: this act does NOT apply to creditors who collect debts themsleves

If you have complaints about a bank, you shoud......

Report to the federal reserve system

What is a rate cap?

Restricts the amount by which the interest rate can increase or decrease during the ARM (Adjustable rate mortgage) term.

Based on location, what is the most important factor?

School district

What is an installment sales credit?

Seller allows the buyer to make payments over an extended period of time for the good that they bought

What is a warranty deed?

Seller guarantees the title is good

What is the difference between sellers market and buyers market?

Sellers market means there is a higher demand for houses wanting to be bought (usually low interest rates, not many houses available) and a buyers market means there is a low demand for houses so there are many houses available to be bought.

What is another name for closing cost?

Settlement cost

How should you protect yourself from credit card fraud?

Shred everything with your account number on it, and review monthly statements (lol not I)

Whats left for you to do after the car sales man gives you the numbers that are within your range?

Sign the deal

What is the name of the act that requires PMI policy be terminated automatially when a homeowner's equity reaches 20%?

The Homeowners Protection Act

What is an installment cash credit?

The bank allows you to pay them back within a certain time after you go and ask for $5,000 cash to renovate your house

What is a document that transfers ownership from one party to another

The deed

How often is extended warranties used on vehicles?

The majority of buyers never use the coverage

What happens if you cant make the payments on your second mortgage loan that you used to pay for a truck?

They come after your house, not the truck

What is the consumer credit reporting reform act of 1997?

This act places the burden of proof for accurate credit information on the credit report agency rather than you

What is a balloon mortgage?

You don't qualify for a fixed conventional so you lender offers you a balloon mortgage where you pay a smaller amount for 5 years and after that 5 years you have to pay the remaining of your house off (which would be impossible) but you can get around this by refinancing right before that payment. BUT you could potentially not qualify for the loan for your own house due to house market going down and rates going up so you are screwed.

What is an example of a closed end credit?

You go and get a loan on a truck and you finance it, the loan is closed for 5 years b/c you can't open it up again

Open line of credit means what?

You have a certain amount you are allowed to charge up to.

What is a payment cap?

Your monthly mortgage payment does not have to exceed $800 a month (even though your payments are really more than that) - leads to a negative amortization - they just add the amount over the 800 to your loan every month

What is a limited warranty?

a written warranty specified to limited parts

Your payment on a line of credit is .......

always a % of the outstanding principle balance

what is the website where you can calculate your mortgage payments etc...

bankrate.com

If there is a billing error, you should notify the creditor ________ ____________ within ______ days of the error.

in writing, 60