PF Ch 5 Practice Questions
To refinance a mortgage, the lender typically requires at least 20% equity in the home.
true
When buying a used car, it is very important to have it checked by a reputable mechanic.
true
If you made a down payment of $11,000 on a $110,000 house, the lender no doubt will require ____ as a result of the size of the down payment. closing points a bond private mortgage insurance (PMI) application fees homeowner's insurance
private mortgage insurance (PMI)
Less rapid depreciation is one advantage of buying a used car rather than a new car.
true
Lowballing is a sales technique where the salesperson quotes a low price for a car to get you to make an offer, and negotiates the price upward prior to signing the sales agreement.
true
Henry has $2,500 for a down payment and thinks he can afford monthly payments of $400. If he can finance a vehicle with an 8%, 3-year loan, what is the maximum amount Henry can spend on the car? $12,765 $14,400 $14,079 $15,265 $16,879
$15,265
Anna purchased a vehicle six years ago for $25,000. She recently sold it for $5,000. Over the years, she paid a total of $5,800 on auto insurance, $4,800 on gas and maintenance, and $2,500 in interest. What was her depreciation cost on this vehicle? $5,000 $10,800 $15,000 $20,000 $25,000
$20,000
If the maximum loan-to-value ratio that a lender will accept on a $100,000 home is 80 percent, then the borrower must make a down payment of at least $100,000. $80,000. $50,000. $20,000. none of these.
$20,000.
Barb and Bob want to purchase a new home but don't know how much mortgage they can qualify for. The lender requires that total installment loan payments not exceed 35% of gross monthly income. Based on Barb and Bob's financial data below, what is the maximum monthly mortgage payment for which they can qualify? Monthly gross income $4,000 Car payment 350 Student loan payment 200 $1,400 $1,208 $1,050 $850 $500
$850
Pete and Pam want to purchase a new home but don't know how much mortgage they can qualify for. The lender requires total installment loan payments not exceed 32% of gross monthly income. Based on Pete and Pam's financial data below, what is the maximum monthly mortgage payment for which they can qualify? Monthly gross income $5,000 Car payment 400 Student loan payment 300 Current rent payment 1,000 $1,700 $1,600 $900 $600
$900
The capital cost reduction on a vehicle lease is like the down payment on a loan. the rate of interest on a lease. the residual value at the end of the lease. the depreciation on a lease. the same as the purchase option on a lease.
like the down payment on a loan.
Variable auto ownership costs are most dependent on driver behavior. miles driven. city lived in. down payment. installment payments.
miles driven.
The financing rate on the car you are leasing is called the money factor. capitalized cost. residual value. purchase option. capitalcost reduction.
money factor.
A financial advantage of renting compared to purchasing housing is income tax treatment. no need for a down payment. required security deposit. the legal obligation. stable monthly payments.
no need for a down payment.
At the end of the lease period, you are never required to purchase the vehicle at its residual value. pay for unreasonable wear and tear. pay for additional mileage. b and c. a, b, and c.
purchase the vehicle at its residual value.
The seller of the house typically pays the loan application fee. real estate agent's commission. appraisal fee. points. title search and insurance.
real estate agent's commission.
Gasoline is a variable cost of automobile ownership.
true
Housing prices vary widely from one part of the country to another.
true
If a buyer withdraws from a transaction without a valid reason after signing a sales contract, he typically loses his earnest money.
true
Most experts consider extended warranties on new vehicles unnecessary given the relatively long initial warranty periods now offered by most manufacturers.
true
One who leases an automobile is typically responsible for early termination costs, even when early termination is due to theft or an auto accident.
true
Points paid to secure a mortgage to purchase a primary residence will generally be tax deductible as interest in the year they are paid.
true
Renting affords more flexibility than home ownership.
true
Terminating a car lease before expiration is often difficult and costly.
true
The "rent ratio" has fallen as home prices have fallen.
true
The Veterans Administration guarantees mortgage loans given to qualified veterans.
true
The greatest fixed cost involved with owning an automobile is usually the monthly loan payments.
true
The interest rate charged on adjustable-rate mortgages will change from time to time based on a specified index.
true
The largest single investment you will undertake in your lifetime will probably be the purchase of a house.
true
The market price of a house is $125,000 and the homebuyer will borrow $100,000. Two points will equal $2,000.
true
The monthly mortgage payment divided by your monthly gross income equals an affordability ratio.
true
The monthly payment will be lower on a 6-year auto loan than on a 3-year auto loan.
true
To be legally binding, real estate buy-sell agreements must be in writing, but leases may be oral.
true
You can deduct mortgage interest and property taxes on your home to reduce your federal income taxes only if you itemize deductions.
true
If you purchase a $220,000 and make a 20% down payment, how much would 1 point cost at closing? $440 $1,000 $1,760 $2,000 $2,200
$1,760
Jana has $1,500 for a down payment and thinks she can afford monthly payments of $300. If she can finance a vehicle with a 7%, 4-year loan, what is the maximum loan amount Jana can afford? $12,528 $14,000 $16,028 $17,900 $18,028
$14,000
A lender will usually require a down payment of ____ or more for you to avoid having to pay private mortgage insurance (PMI). 10% 15% 20% 25% 30%
20%
Which of the following is a major source of home mortgages? Commercial banks Thrift institutions Mortgage bankers and brokers Credit unions All of these
All of these
____ is a reason for preferring to rent rather than to buy. Flexibility No maintenance worries Lower monthly cash flows Down payment money better used elsewhere All of these
All of these
____ is a reason for owning your own home. Pride of ownership A feeling of permanence A sense of stability A tax shelter Any of these
Any of these
In which of the following situations would you have to pay additional money when returning a vehicle using an open-end lease? Residual value is less than expected. Residual value is more than expected. Mileage limits were exceeded. Both a and c apply. Both b and c apply.
Both a and c apply.
____ is(are) an up-front, one-time cost of home ownership. The down payment Closing costs Property taxes Insurance Both a and b
Closing costs
____ and ____ are often paid as part of one's house payment and held in an escrow account. Closing costs; interest Insurance; real estate taxes Principal; interest Insurance; utilities Utilities; real estate taxes
Insurance; real estate taxes
Which of the following is tax deductible if one itemizes deductions? Principal, interest, property taxes, and homeowner's insurance Principal, interest, and property taxes Principal and interest Interest, property taxes, and homeowner's insurance Interest and property taxes
Interest and property taxes
Which of the following is true regarding cooperative apartments? They are essentially the same as condominiums. It may be more difficult to obtain a home mortgage for them. They tend to be more expensive than single-family dwellings. They produce more tax advantages than other types of homes. All of the above are true.
It may be more difficult to obtain a home mortgage for them.
In which of the following situations would you have to pay additional money when returning a vehicle using a closed-end lease? Residual value is less than expected. Residual value is more than expected. Mileage limits were exceeded. Both a and c apply. Both b and c apply.
Mileage limits were exceeded.
____ can be deducted on your federal tax return. Rent payments Homeowner's insurance Property taxes Utility bills None of these
Property taxes
____ is(are) an ongoing cost of home ownership. The down payment Closing costs Property taxes Sales taxes Points
Property taxes
When you receive title to an individual unit and joint ownership of any common areas and facilities, you have purchased a single-family home. a cooperative. a condominium. a manufactured home. any one of these.
a condominium.
When you lease your apartment from the corporation that owns the building and your lease is an ownership share, your apartment is expensive. a cooperative. a condominium. a duplex. permanent.
a cooperative.
Which of the following are reasons people lease vehicles? Leasing is generally less expensive than buying. Monthly payments for leases are generally less expensive than loan payments. One can afford a more expensive car with the same monthly payment by leasing rather than buying. b and c only a, b, and c
b and c only
The type of mortgage that will most likely need to be refinanced is the ____ mortgage. fixed-rate adjustable-rate balloon-payment graduated-payment growing-equity
balloon-payment
A fee charged by lenders as a condition of a mortgage loan that effectively raises the interest rate is called mortgage points. a down payment. a commission. an add-on charge. loan fee.
mortgage points.
Private mortgage insurance (PMI) protects the lender from loss on a loan.
true
The first choice in housing in the United States is a single-family home. condominium. cooperative apartment. manufactured home. rental apartment.
single-family home.
A real estate sales contract will include the amount you are willing to pay for the property. the terms of the mortgage loan. deed restrictions. market value of the property. all of these.
the amount you are willing to pay for the property.
A signed sales contract binds you to purchase the car at the price stated in the contract.
true
Most lenders do not want mortgage payments to exceed ____ percent of your monthly gross income. 10-15 15-18 25-30 30-33 33-38
25-30
The most popular mortgage loan for financing a home purchase is a 30-year fixed-rate mortgage. 15-year fixed rate mortgage. convertible ARM. two-step ARM. growing equity mortgage.
30-year fixed-rate mortgage.
A money factor of 0.0028 on a lease is equivalent to an annual percentage rate of 2.80. 3.60. 6.72. 8.64. 10.80.
6.72.
A money factor of 0.0036 on a lease is equivalent to an annual percentage rate of 1.80. 3.60. 4.32. 8.64. 10.80.
8.64
If the maximum loan-to-value ratio that a lender will accept on a $100,000 home is 90 percent, then the borrower must make a minimum down payment excluding closing costs of $10,000. a minimum down payment including closing costs of $10,000. closing costs plus points of $10,000. a maximum down payment of $10,000. none of these.
a minimum down payment excluding closing costs of $10,000
For most homeowners, the most important financial reason for owning a home is security for loans. an inflation hedge. a tax shelter. a cash flow item. psychic income.
a tax shelter.
One can arrange auto loans through auto dealers. banks. credit unions. consumer finance companies. all of the above.
all of the above.
The ____ would be included in a rental contract or lease agreement. amount of the monthly payment payment date length of lease agreement deposit required all of these
all of these
The price of the car you are leasing is called the money factor. capitalized cost. residual value. purchase option. capital cost reduction.
capitalized cost.
The loss of value in a car over time is called maintenance. loan payments. sales payments. commissions. depreciation.
depreciation.
At the end of the lease period, you may be required to purchase the vehicle at its residual value. pay for unreasonable wear and tear. pay for additional mileage. do both b and c. do a, b, and c.
do both b and c.
Capitalized cost on an auto lease is similar to the interest rate on a loan.
false
Depreciation is not an important consideration since it is not a recurring out-of-pocket cost.
false
Fixed automobile costs increase as the number of miles driven increase.
false
The interest rates and monthly mortgage payments will not change over the life of your mortgage if you have a(n) reverse-annuity mortgage. fixed-rate mortgage. adjustable rate mortgage. rollover mortgage. graduated-payment mortgage.
fixed-rate mortgage.
For the first 15 years of a 30-year mortgage, the majority of each monthly payment goes to principal. interest. real estate taxes. homeowner's insurance. private mortgage insurance.
interest
The first step in the auto-buying process should be to test drive several cars. begin negotiations. consider alternative buying strategies. decide whether to trade in your used car or to sell it yourself. research which car best meets your needs.
research which car best meets your needs.
A PITI payment is composed of principal, interest, property taxes, and homeowner's insurance.
true
A condominium buyer receives title to an individual unit and joint ownership of the common areas.
true
A condominium buyer will make monthly mortgage payments as well as pay a fee for services and maintenance of common areas.
true
A lender will generally require private mortgage insurance (PMI) if the down payment is less than 20 percent.
true
An FHA loan is insured by the federal government.
true
An adjustable rate mortgage with a baseline rate of 4%, a margin of 1%, and an annual cap of 1% would have a mortgage rate no higher than 6% in the second year.
true
As a homeowner, the federal government may allow you to deduct interest expenses and taxes paid on the property.
true
Balloon payment mortgages generally must be refinanced.
true
Capitalized cost on an auto lease is the same as the price of the car.
true
Commercial banks are an important source of both mortgage loans and interim construction loans.
true
Condominium and co-op owners can deduct real estate taxes and mortgage interest on their federal income taxes.
true
Condominiums are generally less costly than single-family, detached homes.
true
Earnest money deposits and contingency clauses are usually specified in the real estate sales contract.
true
First-time homebuyers can withdraw up to $10,000 from an IRA without penalty before age 59 1/2.
true
If lenders specify a loan-to-value ratio of 70 percent, then a buyer must make a 70% down payment on the purchase of a home.
false
In a co-op, the buyer receives title to a unit and joint ownership of the common areas.
false
Lowballing is a sales technique where the salesperson quotes a low price for a car then tries to get you to purchase a different, more expensive vehicle.
false
The affordability ratios used to qualify applicants for FHA loans are more stringent than those used for conventional loans.
false
The interest rate is likely to be lower on a 6-year auto loan than on a 3-year auto loan
false
The largest single investment you will undertake in your lifetime will probably be the purchase of an automobile.
false
The market price of a house is $125,000 and the homebuyer will borrow $100,000. Two points will equal $2,500.
false
The term condominium refers to a style of architecture.
false
Advantages of buying a used car rather than a new car include certainty about mechanical condition. will appreciate more quickly. more choices available. less expensive. all of the above.
less expensive.
Disadvantages of buying a used car rather than a new car include uncertainty about mechanical condition. will depreciate more quickly. larger down payment required. all of the above.
uncertainty about mechanical condition.
