FIN 250 Chapter 7: Auto and Home Loans
under what circumstances would you NOT have to pay capital gain tax?
1. you have lived in the house for two out of the last five years 2. The gains are less than $250k for a single 3. The gains are less than $500k for a couple
List 3 cons of leasing a car
1. you have to decide what to do when the lease ends 2. limit on miles 3. fees for excess miles, excess wear and tear, and early termination of lease
Acceptable offers for new cars range from ___% to ___% above the dealer cost
2-5
Most lenders require a down payment of ______ of the purchasing price of the home
20%
Most new cars depreciate on average ____% in the first three years of ownership with an average depreciation of _____% over the first year of ownership
35, 20
How much are real estate brokers typically paid in comission?
5%-7% of the selling price (divided between the listing broker and the selling broker)
It is important that if you are buying a used car you
hire a mechanic to put it on a lift and check it out (around $100 but could save you thousands)
a long-term rental agreement with a limit on the number of miles that can be driven without penalty that requires an initial security deposit then monthly payments and at the end of which you must return the car
lease
You may have had only _________ insurance on your old paid for car, but if you have a loan, the lender will require__________ insurance
liability, full-coverage
seller chooses this person to advertise their house. They help determine the listing price based on recent sales of similar properties
listing agent
ratio expressing the amount of your mortgage as a percentage of the total appraised value of the property
loan-to-value (LTV) ratio
What are two advantages of choosing an adjustable-rate mortgage (ARM)?
lower closing costs less stringent credit criteria since the loan is not sold in the secondary market
Most homes _____ or ______ in value in the long term
maintain, increase
a type of long-term loan used to buy property, where the property is held as collateral until the loan is paid in full; a legal document used to allow a lender to use real property as collateral
mortgage
The stickers on the windows of new cars list
options and the MSRP (Manufacturer Suggested Retail Price)
the initial fee charged by the lender in exchange for a lower interest rate; each point is equal to 1% of the amount of the loan
points
A _______________ links buyers with sellers, works for the seller and is paid submission on the sale of the property
real estate broker (agent)
This person helps you if you are looking to buy a new house
selling agent
the transfer of a lease agreement to a new tenant
sublease
Although at first, purchasing a new car may have higher monthly payments than leasing a car, this is only until
the car is paid off
Good Faith Estimate includes
total finance charges and APR
Under what condition is it advantageous to choose a balloon-payment mortgage and why?
when interest rates are high and you know you will not be in the home longer than the term of the balloon payment; Your hope is that if rates are high when you take out the loan, they will have decreased by the time you have to pay the big balloon payment
under what conditions is it best to choose a Fixed-rate/fixed-term mortgage?
when interest rates are low
The MSRP is NOT the dealers cost. Where can we find the dealer cost?
www.consumerreports.org
What is the main disadvantage of selling without a real estate agent?
you could expose yourself to liability issues and fail to maximize your home price
What is the main advantage of selling without a real estate agent?
you don't lose the 5%-7% of the sale price that a real estate agent would have recieved as comission
1 point on a $10,000 loan is equivilent to
$100
List 4 benefits of purchasing a new car
1. possibly lower interest rates than used cars 2. eligible for gov rebates and incentives 3. warantees (can amount to reduced maintnence costs compared to used cars) 4. latest safety features can lower insurance costs
financial institutions usually charge ______ % to ____ % of the loan amount in points and fees
1-3
What are the three options for financing your home purchase?
1. Fixed-rate/fixed-term mortgage 2. Adjustable-Rate Mortgages (ARMs) 3. Balloon-Payment mortgages
List three benefits of buying rather than renting a home
1. Increase in equity 2. tax advantage 3. personal ownership
List 4 conditions in which it is advantageous to choose an adjustable-rate mortgage (ARM)?
1. Interest rates are high and you think they will decrease 2. you plan to be in the home only for the initial adjustment period 3. You don't have good credit 4. you don't have 20% of the purchasing price to make the down payment
List the 8 steps of purchasing a car
1. analyze needs versus wants 2. determine what you can afford 3. do your homework 4. comparison shop 5. negotiate the deal 6. shop for financing 7. close the deal 8. complete after-sale activities
What are two advantages of HELOC
1. ease of access to the equity of home 2. tax advantage (the interest you pay on your home equity loan is usually deductable from your income tax)
When trading in a car, what are two things you should do to get credited the maximum value?
1. go to www.nada.com or www.kbb.com to make sure you are getting fairly credited 2. keep track of maintnence work you have had done
List two benefits of leasing a car
1. lease payments are almost always lower than loan payments because you are paying only for the depreciation for the time you are driving the car 2. new car every 2-3 years
List 6 closing costs
1. loan application fee ($75-$300) 2. Loan origination fee (1% of amount of mortgage loan) 3. points 4. appraisal fee ($350- $700) 5. home inspection ($175-$350) 6. title search ($175-$2000)
What is the main disadvantage of a second mortgage (home equity loan)?
Added risk of losing your home; The interest rate on a home equity loan may be lower than that of a credit card, but if you fail to pay on your credit card, at least you still have your home.
A ______________ is like a secured credit card in which the collateral is the equity of your home. You pay interest only on the amount of money you use on this line of credit
Home Equity Line of Credit (HELOC)
________ protects buyers of used cars by offering reports on specific used vehicles
CarFax
T or F: Once your mortgage is compeltely paid off, you do not have to make any payments
F, you still have to pay property taxes and insurance
a loan with a specified payment amount and a specified repayment schedule
Fixed-rate/fixed-term mortgage
in a _____________ mortgage, loans are sold to investors who take on the risk
Fixed-rate/fixed-term mortgage
If you put down a downpayment of less than 20% of the purchasing price of the home, you usually have to purchase
Private Mortgage Insurance (PMI)
insurance for the lender if it needs to foreclose on the home, and the sale proceeds do not cover the mortgage and the cost of the foreclosure
Private Mortgage Insurance (PMI)
The ______________________ requires your mortgage lender to give you a good faith estimate within three business days of submitting your application for the loan
Real Estate Settlement Procedures Act (RESPA)
If you decide to move before you have payed off your mortgage, what can you use as a downpayment on your next house?
The equity (value of your house minus the amount that you still owe on it) of your current home
the difference between what you own and what you owe
equity
Why should you visit your local financial institution before going to the dealer?
To see about pre qualifiying for a loan; They will perform a credit investigation and tell you what your rate and payments will be so you have that to reference when you go to the dealer
T or F: The more expensive the home, the higher the insurance cost
True
What are FNMA and FHLMC?
government sponsored enterprises that purchase the loans to help make home ownership more affordable
What are the advantages of renting when you are right out of college and starting a new career?
You likely won't have a lot of money for a downpayment and may not know how long you will be living/working there, and with a lease you can easily move at the end of the lease or by terminating the lease early (This usually involves a fee, but you may be able to sublease)
The value of your home will appreciate if
You maintain it properly it is in a desirable location
Under what circumstance can you typically have your PMI dropped from your payments?
Your LTV ratio drops below 80%
What causes the equity of your home to increase and why is this significant?
Your home equity increases when the value of your home appreciates and when you pay down the mortgage. This is significant because increased equity=increased net worth
A home equity loan is also referred to as
a second mortgage
An adjustable-rate mortgage (ARM) is also known as
a variable-rate mortgage or a floating-rate mortgage
the higher the points you pay, the ________ the interest payments on the loan will be
higher
home loan in which the interest rate and payments can change based on the terms of the loan
adjustable-rate mortgage (ARM)
You finance your boat with an amortization over 15 years. You pay a fixed rate over 5 years, the at the end of the fifth year you pay whats left or you decide to refinance the remaining balance of the loan at the current interest rate. This is an example of a
balloon-payment loan
type of loan in which payments are amortized over a longer period than the actual loan period; at the end of the loan period, the remaining balance (the balloon payment) is due
balloon-payment mortgage
Taxes you have to pay of your profit from selling your house came from an investment, like stocks
capital gain tax
profit from selling your house
capital gains
final steps in a home sale where documents are signed and recorded and ownership of the property is transferred
closing
Most people buy their first home in the _______ life stage
early family