Finance Chapter 7 Final
The annual rental payments for an apartment are $16,000 plus renter's insurance of $300 and the lost interest on the security deposit of $100. A comparable home mortgage would cost about $22,000 per year. How much will the rental option cost?
$16,400
Common sources of down payment funds to purchase a home include:
-assistance from relatives -personal savings -the sale of investments
The amount of money offered for a home depends on (select all that apply)
-features of the home -recent selling prices of homes in the area -the time the home has been on the market
What are some of the disadvantages of home ownership?
-higher living expenses than renting -limited mobility when compared to renting -significant financial commitment
Which of the following are advantages of buying housing?
-many remodeling or customization possibilities -significant tax benefits
Which of the following are disadvantages associated with renting?
-no federal tax benefits -restrictions on pets (no pets) and certain activities -limitations on remodeling
Place the steps of a mortgage process in the sequence in which they occur:
1. Complete the mortgage application and present evidence of income, etc. 2. Lender gets credit report, confirms financial aspects 3. Mortgage is approved or denied
Which of the following are the common terms (years) of home mortgages?
10, 15, 20, 25, 30
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 is NOT true?
A point equals 5% of the loan amount
Which of the following are main services offered by a real-estate agent?
Helping you negotiate a price of a home; Recommending other advisors to help you with the process of buying or selling a home
Which of them following best describes the rights of residents of cooperative housing?
The right to occupy the unit for as long as the stock is owned
The benefits of a conventional 15-year or 20-year mortgage usually include:
a quicker pay-off of the loan than a 30 year amortization; a lower rate than a 30-year mortgage; a faster equity build-up than a 30-year mortgage
Exterior construction factors include:
conditions of roof and gutters; material quality
Quality of landscaping, trees and shrubs are part of
external facilities of a house
You can sell your own home but you must be prepared to
invest your time and effort
The only way that interest only mortgage benefits the borrower is by
lower payments
An adjustable rate mortgage usually has a rate cap and a __________ cap
payment
The one drawback of a FHA/VA fixed-rate mortgage is:
slow processing time
The annual rental for an apartment is $16,000 with renter's insurance of $300 and an opportunity cost on the security deposit of $100. A home would carry annual mortgage payments of $16,100, property taxes of $3,000, and home owner's insurance of $1,000. The estimated annual cost of repairs and maintenance for the home is $1,500 with an opportunity cost for the down payment and closing costs of $750. You estimate that the growth in equity will be $1,500 a year and the home will appreciate in value by about $2,000 per year. Because the interest and the property insurance are tax deductible, $5,400 of tax savings should be realized each year. How much will it cost to own the house?
$13,450
Joen Smith earns $72,000 per year. His bank has a rule that PITI must be equal to or less than one third of gross monthly income. If his homeowner'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?
$1900
When thinking of buying your first home it is important to
-realize you may not get everything you want in the first house -consider a handy-man's special at a lower price
What are some of the living expenses (other than the rent payment) that you would incur if you were to rent a unit?
-telephone -heat -electricity
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 -your income (salary, wages, investment income, etc.) -the amount of the down payment you can make
Place the steps of the mortgage process in the sequence in which they occur
1. Complete the mortgage application and present evidence of income, etc. 2. Lender gets credit report, confirms financial aspects 3. Mortgage is approved or denied
Traditional guidelines suggest that you should spend no more than ________% of your take-home pay on housing.
25 or 30%
Which of the following is NOT included among closing or settlement costs? One of these is incurred at the beginning of the process and not at the closing
Credit report
Which of the following are the advantages associated with renting an apartment?
Easy to move (mobility); Minimal financial commitment; Fewer responsibilities for maintenance
Who is most likely to benefit form a reverse mortgage?
Elderly homeowners who can take the funds in a form of a tax-free loan to live on and pay back the loan when the home is sold
A condominium is a type of building structure and not a legal form of ownership.
False
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 renting, it is not recommended that one should get insurance coverage on personal property
False
When renting, it is not recommended that one should get insurance coverage on personal property.
False
What are the advantages of owning a condominium?
Fewer maintenance responsibilities compared to a house
How could the tax benefit and risk of a home equity loan be best described?
Interest is tax deductible, but default could mean foreclosure.
Which of the following home improvements are the three most desirable (i.e., they will have the greatest positive impact on the selling price)?
New energy-efficient features; Remodeled bathroom; Remodeled kitchen
Which of the following are the disadvantages of renting?
No tax deduction for property taxes; No tax deduction for mortgage interest; Limitation regarding remodeling
Which of the following are the most important three considerations when evaluating a local school system?
School funding; Program variety; Achievement level of students
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
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.
Which of the following is NOT true?
The government provides mortgage money on VA and FHA loans
When purchasing a home, the buyer (not seller) can expect to pay closing costs such as
Title search fee; Appraisal fee; Termite inspection
Which of the following best describes the role of a home inspector?
To review the interior and exterior construction, facilities, and design of a potential home purchase
After you vacate a rental unit, your security deposit should be refunded within a reasonable time
True
Banks, savings and loans, and mortgage companies are common sources of mortgage loans.
True
Buying a house is the most expensive decision that most people will ever make.
True
Every buying decision is a statement about your lifestyle
True
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
One drawback of an adjustable rate mortgage (ARM) is that the monthly payment may increase in future years if interest rates increase.
True
One of the reasons renting offers fewer financial benefits than home ownership is that rent is not tax deductible while the interest on mortgage payments is.
True
One of the reasons why renting offers fewer financial benefits than home ownership is that rent is not tax deductible while the interest on mortgage payments is
True
Renting is less costly in the short-run while owning a home usually has long-term financial advantages.
True
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 marker, and the features and condition of the home.
True
Which of the following factors have an impact on the amount you can spend to acquire a home of your own?
Your income(salary, wages, investment income, etc.); The amount of the down payment you can make; Your current living expenses
Which of the following is NOT true about adjustable-rate mortgages?
Your payments are fixed over the life of a loan
An estimate of the current value of a property is known as a
an appraisal
Common sources of down payment funds to purchase a home include:
assistance from relatives; personal savings; the sale of investments
The common areas of condominiums are not owned by the condo owner but by the condominium
association
The common areas of condominiums are not owned by the condo owner but by the condominium _________
association
Interior construction factors include the following:
condition of the water heater; condition of the heating unit; condition of stairways
Although the interest only mortgage has lower interest payments, it does not allow the borrower to
decrease the amount that is owed; build equity unless the home value increases
Interior construction can include all of the following:
ease and operation of windows; condition of plumbing fixtures
What are some of the living expenses (other than the rent payment) that you would incur if you were to rent a unit?
electricity; telephone; heat
Factors such as the material quality and condition of building, the condition of the foundation, roof and gutters, and the type of chimney are part of the:
exterior construction
Factors such as the material quality and condition of the building, the condition of the foundation, roof and gutters, and the type of chimney are part of the:
exterior construction
Factors such as the appearance of the neighborhood, the quality of landscaping, the condition fo the driveway, and the outdoor lighting are part of the:
exterior facilities
The main benefit of a conventional 30-year mortgage is
fixed payments
The benefits of an adjustable rate mortgage include all of the following EXCEPT
fixed rates on loans
Potential home owners without children should evaluate school systems of the municipalities where they might live because:
good schools translate to raising property values
Generally speaking, the ________ the credit score the _________ the mortgage rate.
higher, lower; lower, higher
Homeowners, when selling their own homes, should still obtain information regarding availability of financing because
homeowners can help potential buyers know if a sale is possible
Factors such as the size and arrangement of rooms, layout of kitchen, and the location of bedrooms, closets, and storage space should be considered when inspecting the ________________ of a home.
interior design
When seeking a real estate agent, it is important to consider the agent's
knowledge of the community; willingness to market your property
Your ___________, needs, desires, and attitudes are reflected in your choice of a home.
lifestyle
One of the most important factors when selecting a home (after determining what you can afford to pay) is the
location of the house
The benefits of a VA/FHA fixed-rate mortgage include:
low down payment; may be assumable with no prepayment penalties
The expenses covered by a condominium monthly fee include:
maintenance and repairs; insurance for common repairs; improvements
One of the most important services that real estate agents provide is
marketing your house on various websites
Early in a persons' career renting is advantageous because renting offers
mobility
An adjustable rate mortgage usually has a rate cap and a ____________ cap.
payment
Tenants are often subjected to restrictions regarding ______, and remodeling.
pets
Tenants are often subjected to restrictions regarding __________, and remodeling
pets
It is a good idea for home buyers to go first to a mortgage company and __________
pre-qualify
The tenant is protected from rental increases during the lease term unless the lease contains a __________ allowing for increases.
provision
The tenant is protected from rental increases during the lease term unless the lease contains a(n) ________ allowing for increases
provision
When thinking of buying your first homier is important to
realize you may not get everything you want in the first house; consider a handy-man's special at a lower price
Many states require that your security deposit be returned within a ____________ amount of time.
reasonable
The amount of money offered for a home depends on:
recent selling prices of homes in the area; features of the home; the time the home has been on the market
As part of rental activities it is important that tenants ______________________________ be documented at the end of a lease.
require deductions from the security deposit
A _________ deposit is usually one month's rent that is held by the landlord to cover the cost of any damages to the rented property
security
Previously owned houses, new houses, and custom-built houses are referred to as:
single-family dwellings
The advantages of owning a home include:
tax benefits; personalized living location; stability of residence
Renters have fewer responsibilities than homeowners because:
tenants are not responsible for maintenance and repairs
Despite its fixed payments, some borrowers will select an adjustable rate mortgage over a conventional mortgage because:
the adjustable rate mortgage has lower initial payments
An important security measure to take when selling your own home is to show the home when ______ or more adults are at home.
two
When it comes to the size of manufactured homes, which of the following is true?
typically these homes are smaller than 1,000 square feet
When it comes to the size of manufactured homes, which one of the following is true?
typically these homes are smaller than 1,000 square feet
A drawback of 30 year conventional mortgages is:
you will pay a relatively large amount in interest expense over 30 years
