Personal Finance: Chapters 9-12

On a written lease, who is referred to as the lessor? Who is the lessee? A. Tenant; landlord B. Landlord; tenant C. Tenant; co-signer D. None of the above

B. Landlord; tenant

___ is usually required if the down payment is less than 20 percent. A. A co-signer B. Adjustable-rate mortgages C. A Rate cap D. Private mortgage insurance

D. Private mortgage insurance

Which of the following is the most popular form of housing in the U.S.? A. Condominium B. Cooperative C. Mobile home D. Single-family dwelling

D. Single-family dwelling

Restrictions on how the property in an area can be used are: A. Property laws B. Community laws C. Land laws D. Zoning laws

D. Zoning laws

___ is a chance or uncertainty of loss; also used to mean "the insured." A. Liability B. Risk C. Peril D. Hazard

B. Risk

The reduction of a loan balance through payments made over a period of time is called a(n): A. Discount points B. Amortization C. Both A and B D. None of the above

B. Amortization

___ is the amount that your local government determines your property to be worth for tax purposes (normally lower than the market value, often about half). A. Appraisal B. Assessed value C. Assumed tax value D. Both A and B

B. Assessed value

___ is an independent source of information that reports a five-year history of insurance losses at a property that a home buyer is considering for purchase. A. Federal Housing Authority (FHA) B. Loan report C. Comprehensive Loss Underwriting Exchange (CLUE) D. Purchase report

C. Comprehensive Loss Underwriting Exchange (CLUE)

A portion of the price of a home that the buyer deposits as evidence of good faith to indicate a serious purchase offer is called: A. Down payment B. Offer C. Earnest money D. Premium

C. Earnest money

Which of the following are true regarding a lease? A. Legal document that defines the conditions of a rental agreement B. Includes address, description of property, name/address of landlord, and name of tenant C. Does not include effective date of lease D. Both A and B

D. Both A and B

When you have a home built to your personal specifications, the opportunity cost of a housing decision will vary, but a common trade-off includes: A. Time B. Money C. Effort D. Both A and C

D. Both A and C

This increased loan balance, called ___ ___, means the amount of the home equity is decreasing instead of increasing.

Negative amortization

___ states that the home purchase agreement is binding only if a certain event occurs. A. Zoning Laws B. Contingency Clause C. Insurance policy D. Homeowners' Protection Act

B. Contingency Clause

This type of conventional mortgage allows a home buyer to continue with the seller's original agreement. This is especially attractive if the mortgage rate was lower than market interest rates. A. 30-year B. Adjustable-rate C. Assumable D. Fixed-rate

C. Assumable

___ insurance covers damage caused when driving. A. Personal B. Property C. Automobile D. Life

C. Automobile

A risk-sharing firm that assumes financial responsibility for losses that may result from an insured risk. A. Insurer B. Insurance company C. Both A and B D. None of the above

C. Both A and B

The ___ is a person covered by an insurance policy. A. Risk B. Insured C. Both A and B D. None of the above

C. Both A and B

Which of the following are true regarding pure-risks (insurable risks)? A. There would be a chance of loss if specific events occurred B. Accidental and unintentional risks for which the nature and financial cost of the loss can be predicted C. Both A and B D. None of the above

C. Both A and B

___ allows renters to become homeowners; however, some financial problems can occur. A. Lease-to-purchase B. Rent-with-option C. Both A and B D. None of the above

C. Both A and B

___ insurance replaces income that would be lost if the policyholder died. A. Automobile B. Home C. Life D. Health

C. Life

___ are in contact with several financial institutions and can help home buyers obtain financing. A. Real estate agents B. Mortgage lenders C. Mortgage brokers D. Insurance agents

C. Mortgage brokers

A written contract for insurance is called a(n): A. Premium B. Contingency Clause C. Policy D. All of the above

C. Policy

What is most likely the primary motive of most home buyers? A. Less maintenance B. Attached garage C. Pride of ownership D. All of the above

C. Pride of ownership

Most rate caps limit increases/decreases in the mortgage rate to ___ or ___ percentage points in a year, and to no more than ___ points over the life of the loan. A. 1;2;3 B. 3;5;7 C. 3;5;10 D. 1;2;5

D. 1;2;5

Step two in the application process is fee payment and obtain commitment. Which of the following regarding the involvement during step two is true? A. At this point, lenders will likely charge a fee that may be as high as $500 B. Purchase contract become legally binding C. Borrower decides whether to lock in an interest rate for 30-90 days or float to lock the rate in at a later time D. All of the above

D. All of the above

Which of the following are included in the pre-qualification step during the application process? A. Completing the mortgage application and obtaining a credit report B. Borrower presents evidence of employment, income, ownership of assets, and amounts of existing debts C. Borrower receives a loan estimate and the mortgage is either approved or denied D. All of the above

D. All of the above

Which of the following are websites that offer information on the current mortgage rates in your area? A. www.bankrate.com B. www.hsh.com C. www.interest.com D. All of the above

D. All of the above

___ has an interest rate that increases or decreases during the life of the loan. A. Flexible-rate mortgage B. Variable-rate mortgage C. Adjustable-rate mortgage D. All of the above

D. All of the above

True or False: Today, few assumable mortgages are available. A. True B. False

A. True

True or False: Some people who are financially able to buy a home may choose to rent to avoid the time and money commitment required to maintain a house. A. True B. False

A. True

A ___ keeps the payments on an adjustable-rate mortgage at a set level or limits the amount to which those payments can rise.

Payment cap

A(n) ___ is the most common type of rental housing. A. Apartment B. Condominium C. Cooperative D. Single-family dwelling

A. Apartment

What occurs to determine the value of a house based on location, features, and condition? A. Appraisal B. Pre-qualification C. Home inspection D. All of the above

A. Appraisal

___ insurance covers medical costs. A. Health B. Personal C. Life D. Automobile

A. Health

Which of the following is a drawback of a conventional 30-year mortgage? A. Higher initial rates than adjustable B. May require additional processing time C. No decrease in amount owed D. None of the above

A. Higher initial rates than adjustable

___ requires that a private mortgage insurance policy be terminated automatically when a homeowner's equity reaches 22 percent of the property value at the time the mortgage was issued (earlier if equity grows 20 percent of the market value). A. Homeowners' Protection Act B. Federal Housing Authority (FHA) C. Contingency Clause D. Both A and B

A. Homeowners' Protection Act

___ is a form required by the Consumer Financial Protection Bureau and provides a summary of key information to help the borrower decide among various loans being offered. A. Loan estimate B. Loan report C. Borrower's estimate D. Borrower's report

A. Loan estimate

A document that constitutes your legal offer to purchase a home is called a(n): A. Purchase agreement B. Amortization C. Premium D. Appraisal

A. Purchase agreement

What is equity? A. The home value less than the amount owed on the mortgage B. How you spend your time and money C. A monthly mortgage payment D. None of the above

A. The home value less than the amount owed on the mortgage

True or False: Adjustable-rate mortgages usually have a lower initial interest rate than fixed-rate mortgages; however, the borrower, not the lender, bears the risk of future interest rate increases. A. True B. False

A. True

True or False: Renters will incur less expense if they desire to change locations because of various reasons such as a job change. A. True B. False

A. True

True or False: The security deposit money is held by the landlord to cover the cost of any damage done to the rental unit during the lease period. A. True B. False

A. True

True or False: The site for a mobile home may be either purchase or leased in a development specifically designed for such housing units. A. True B. False

A. True

True or False: Those in rental housing are generally limited in the types of activities they can pursue in their place of residence. A. True B. False

A. True

True or False: To qualify for an FHA-insured loan, a person must meet certain conditions related to the down payment and fees. A. True B. False

A. True

A mortgage that usually has equal payments over 10, 15, 20, 25, or 30 years based on a fixed interest rate and offers home buyers certainty about future loan payments is called a(n): A. Unconventional mortgage B. Conventional mortgage C. Adjustable-rate mortgage D. Interest-only mortgage

B. Conventional mortgage

During which step of the application process does the appraisal of a home occur? A. Pre-qualification B. Finding a property C. Fee payment and obtain commitment D. None of the above

B. Finding a property

How you spend your time and money is referred to as your: A. Insurance requirements B. Lifestyle C. Pure-risk D. None of the above

B. Lifestyle

___ is a long-term loan on a specific piece of property such as a home or other real estate. Payments are usually made over 10, 15, 20, 25, or 30 years. A. Down payment B. Mortgage C. Premium D. Amortization

B. Mortgage

Prepaid interest charged by a lending institution for the mortgage are called: A. Discount points B. Points C. Fees D. None of the above

B. Points

Insurance is based on the principal of ___, in which thousands of policyholders pay a small sum of money (the premium) into a central pool. A. Taxing B. Pooling risks C. All of the above D. None of the above

B. Pooling risks

___ restricts the amount that the interest rate can increase or decrease during the adjustable-rate mortgage term. This limit prevents the borrower from having to pay an interest rate significantly higher than in the original agreement. A. Premium B. Policy C. Rate cap D. Payment cap

C. Rate cap

Which of the following are benefits of a conventional 15 or 20 year mortgage? A. Quicker payoff of loan B. Higher rates than a 30-year fixed mortgage C. Faster equity buildup D. Both A and C

D. Both A and C

Which of the following is a benefit of a 30-year conventional mortgage? A. No prepayment penalties B. Low down payment C. Additional processing time D. Certainty of principal and interest payments

D. Certainty of principal and interest payments

Each ___ is equal to 1 percent of the loan amount and should be viewed as a premium you pay for obtaining a lower mortgage rate. A. Interest rate B. Down payment C. Insurance policy D. Discount point

D. Discount point

___ include loans insured by the Federal Housing Authority (FHA) and loans guaranteed by the Veterans Administration (VA), but they do not provide mortgage money. Instead, they help home buyers obtain low-interest, low-down-payment loans. A. Insurance companies B. Mortgage companies C. State financing programs D. Government financing programs

D. Government financing programs

___ is a factor that increases the likelihood of loss through some peril. A. Risk B. Premium C. Rate cap D. Hazard

D. Hazard

Protection against possible financial loss is called: A. Policy B. Avoidance C. Premium D. Insurance

D. Insurance

The amount of money a policyholder is charged for and insurance policy is called a(n): A. Fee B. Points C. Commitment D. Premium

D. Premium