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