Personal Finance Chapter 7

Approval usually locks rate for _________________ days

60-90

Automatic PMI termination when equity equals?...

>22%

How is the commission paid by the seller?

It is built into the price

What is an appraisal?

It is not an inspection; it is an assessment of market value

Home ownership includes ____________ ____________ financial advantage

Long-term

Types of Mortgages

Fixed-rate/payment mortgages Adjustable-rate mortgages Government-Guaranteed financing programs Interest-only mortgage Buy-down Second mortgage

Fixed-rate, fixed payment mortgage is

amortized

Home =

collateral

For second mortgage, interest may be tax ___________.

deductible

Before buying a house you must...

determine what you can afford

When an individual obtains financing they must determine...

down payment account

When selecting location, be aware of ___________ laws.

Zoning

Second mortgage is also known as

home equity loan

Your lifestyle and your choice of housing depends on...

how you spend your time and money

Adjustable Rate Mortgage (ARM) is also known as

flexible rate or variable rate mortgage

Every buying decision =

financial factors

How much must you put down for a fixed-rate mortgage?

5%, 10% or 20%

Condominium does not equal...

a type of building structure

(Adjustable Rate Mortgage) Payment cap

restricts amount of change in payment

Fixed Rate Mortgage

A mortgage in which the interest rate does not change during the entire term of the loan.

Second Mortgage

A mortgage that has a lien position subordinate to the first mortgage.

Any deductions in the lessers security deposit must be?

Documented

Advantages of renting a home?

Easy to move Minimal financial commitment Fewer responsibilities for maintenance

Manufactured homes

Fully or partially assembled in a factory, and then moved to the housing site

Whether you should rent a house or buy a house is based on...

Lifestyle Financial factors Mobility vs. permanence

Interest-only mortgage have ______ payments for the first few years

Lower

Loan for which you qualify will be greater when rates are _________.

Lower

PMI

Mortgage insurance if <20% down

Buy a ______________ special at a lower price, if you have the time, skills, and money to fix it up

handyman's

Adjustable Rate Mortgage

has a interest rate that increase or decreases during the life of the loan

What must you look at when determining what you can afford?

income current living expenses how much you have for a down payment

Condominium

individual ownership of a unit in a building A form of homeownership

buy down mortgages _________ payments for the first few years

reduces

Disadvantages of buying a home

Financial commitment Higher living expenses than renting Limited mobility

Who is meeting together for closing?

buyer, seller and lender

Real estate settlement procedure act requires...

buyers be given closing cost estimate before the closing

For interest-only mortgages, payments go towards ______ only

interest

When selecting location, be sure to assess the _________ ___________ if you have children

school system

For buy-down, interest rates are...

subsidy

What are the three main phases of a home-buying process

1) Complete an application and meet with lender to provide evidence of qualification 2) Lender obtains credit report and verifies application 3) Mortgage is approved or denied

What are the 5 steps to the home buying process?

1) Determine homeownership needs 2) Find and evaluate the home 3) Price and property 4) Obtain financing 5) Close the purchase transaction

As a home owner, you are responsible for paying ___________ tax.

Property

What does renter's insurance cover?

contents of rented property

What are common in negotiation of the purchase price?

counteroffers

For Adjustable Rate Mortgage, interest rates varies of the _______ of a loan

life

buy down mortgage

paying interest in advance to reduce monthly payments

Points

prepaid interest charged by the lender Prepaid interest as a % of loan amount

Have a loan officer _________ you

prequalify

What is stability of residence?

the american dream/norm

Cooperative housing

units owned by a non-profit organization A shareholder purchase stock for the right to live in a unit in a building with multiple units

Reverse mortgages

when a homeowner borrows against the equity in their home and obtains monthly, tax-free payments from the lender

How many years will one be paying for fixed payments?

15, 20, 30 years

Multi-unit dwelling

2 homes (duplex) Townhouse (2,4, or 6 units)

A mortgage company will require an ______________.

Appraisal

What is required by homeowner's protecting act?

Automatic PMI termination

Prefabricated

Components factory-built and assembled at site.

What are the financial benefits one must consider when evaluating home ownership?

Deduct property taxes and mortgage interest Potential increase in value of your home Building an equity in your home

What happens at closing?

Document signing Last minute details settled Closing costs Real estate settlement procedures act

What can a payment cap result in?

Negative amortization

What must one due when given a purchase price?

Negotiate

If renting a house, ________ utilities are included

No

Disadvantages of renting a home?

No tax benefits Limitations regarding remodeling Restriction on pets and other activities

What is contingency clause?

Offer that is dependent on obtaining financing and sale of current home

What do you take into consideration when selecting and financing housing?

Personal preference and financial factors

When determining what you can afford, consider both _________ and ________.

Price and quality

Advantages of buying a home

Pride of ownership Financial benefits Lifestyle benefits

What must you do when finding and evaluating your potential home? (step 2)

Select a location Hire a real estate agent Home inspection

What are the 3 types of real estate agents?

Seller's agent Dual agent Buyer's agent

Real estate agents will..

Show you homes that meet your needs Present your offer Negotiate the price Assist in obtaining financing Represent you at the closing

Traditional financial guidelines:

Spend no more than 25-30% of take-home pay on housing, or no more than 21/2 times your annual income

What must one consider when evaluating home ownership?

Stability of residence Financial benefits Lifestyle flexibility

What is the "transfer clause"?

The right to sublet a unit

Renting is ________ costly in the short run

less

A ________ is paid to obtain a lower mortgage rate

premium

Closing costs =

settlement cost

In a buy-down mortgage, interest rate is...

stubborn

What happens if there is no damage to the unit at the end of the lease?

the lessee gets their security deposit back

Time frame of a mortgage?

usually 10, 15, 20, 25,30 years

Qualifying for a mortgage includes

-Income -Debts -Credit history (620+ score) -Down payment amount -Length of the loan -Current mortgage rates

How much does a security deposit usually cost?

1 months rent

What does a lease include?

Description and address of property Name and address of the landlord (lessor) Name of tenant (lessee) Effective date and length of lease Amount of security deposit Amount and due date of rent Date and amount for late rent payments List of included utilities, appliances, etc. Restriction of certain activities Transfer clause Conditions under which landlord may enter the rental unit

How can one determine the home price?

Price if affected by selling prices in the area Current demand for housing Time home has been on the market Owner's need to sell Financing options Features and conditions of home Purchase agreement/contract

What is earnest money?

Putting down money to show you're in good faith Potion of the price is deposited as evidence of good faith

Lease

a legal document that defines the conditions of a rental unit

Mortgage

a long-term loan on a specific piece of property such as a home or other real estate

interest-only mortgage

a mortgage that requires the borrower to pay only interest; typically used to finance the purchase of more expensive properties

Government-Guaranteed financing programs have a ___________ down payment than conventional programs

lower

Mass production under factory conditions keeps cost _________ than site-built homes

lower

Contract for a contractor should include...

time schedule cost estimates description of work a payment schedule

Mobile

usually less than 1000 square feet; land can be leased or bought

Types of housing available?

-Single-family Dwelling -Multi-unit Dwelling -Condominium -Cooperative Housing -Manufactured Homes -Mobile Homes -Custom Homes (building a home)

End point

1% of the loan amount

Before closing the purchase transaction, a buyer should?

make arrangements for a walk-through for last minute items of negotiation

What is lifestyle flexibility?

Express your individuality

Questions one should ask when building a home

Does the carpenter have needed experience? Does the carpenter have good working relationships? What assurance do you have about quality? What are the payment arrangements? What delays will be considered legitimate? Is the contractor license or insured? Are there any complaints about this contractor?

What does the lessor do if the lessee damages the property?

Takes the security deposit

What are examples of government guaranteed financing programs?

Veterans administration Federal housing authority

What utility is often covered in apartment rent?

Water

(Adjustable Rate Mortgage) Rate cap

restricts amount of change in rate

What is a purchase agreement?

your legal offer to purchase a home