Ch 7 Smartbook
True or False: Location is considered the most important factor when buying a home.
True
A drawback of 30-year conventional mortgages is:
you will pay higher initial rates than with adjustable mortgages.
Generally speaking, the ______ the credit score the ______ the mortgage rate.
higher, lower (vice versa)
FHA/VA fixed-rate mortgage typically have ______ down payment requirments
low
What are the advantages of owning a condominium?
Fewer maintenance responsibilities when compared to a house
True or False: Every buying decision is a statement about your lifestyle.
True
Which of the following can affect mortgage affordability?
-Mortgage rates -The amount of income you earn -Your down payment -The length of the loan
Which of the following are the important considerations when evaluating a local school system?
-Percentage of students who go to college -Program quality -Achievement level of students
The Act that requires that PMI (private mortgage insurance) be removed automatically once equity in the home reaches 22 percent is known as the:
Homeowners Protection Act
How could the tax benefit and risk of a home equity loan best be described?
Interest is tax deductible, but default could mean foreclosure.
The benefits of an adjustable rate mortgage include which of the following?
Lower initial rates than fixed-rate loans
Which of the following expenses is NOT usually incurred by a tenant? -Property taxes -Renters insurance -Utilities -Security Depoisit -None of these
Property Taxes
True or False: A security deposit covers the cost of damages that may be done to a rental unit.
True
True or False: Points are prepaid interest charged by the lender and one point is equal to 1 percent of the loan amount.
True
The common areas of condominiums are not owned by the condo owner but by the condominium _____
association
The most common sources for a down payment include all of the following except:
checking account funds
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 of 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
The one drawback of a conventional 15-year or 20-year mortgage when compared to a 30-year mortgage is:
higher monthly payments
Conventional 30-year mortgages provide certainty regarding principal and
interest
An adjustable-rate mortgage usually has a rate cap and a ________ cap
payment
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
In the context of the home inspection as part of the home-buying process, identify elements of interior design.
-Accessibility to basement and attic -Adequate laundry area -Ventilation for cooking
In the context of the home inspection as part of the home-buying process, identify elements of exterior facilities.
-Appropriate drainage system -Condition of patio or porch
What are some of the disadvantages of home ownership?
-Limited mobility when compared to renting -Significant financial commitment -Higher living expenses than renting
disadvantages associated with renting?
-Restrictions on pets (no pets) and certain activities -Limitations on remodeling -No federal tax benefits
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
The expenses covered by a condominium monthly fee include:
-improvements -maintenance and repairs -insurance for common areas
The benefits of a FHA/VA fixed-rate mortgage include:
-may be assumable with no prepayment penalties -low down payment
The amount of money offered for a home depends on:
-recent selling prices of homes in the area. -the time the home has been on the market. -features of the home.
When purchasing a home, the buyer (not the seller) can expect to pay closing costs such as:
-settlement fee. -title search fee. -appraisal fee.
The advantages of owning a home include:
-stability of residence -tax benefits -personalized living location
Common sources of down payment funds to purchase a home include:
-the sale of investments -personal savings -assistance from relatives
Steps of the mortgage process:
1. Complete the mortgage application and present evidence of income, etc 2. lender gets credit report, confirms financial aspects 3. mortgage is approved/denied
Which of the following are the common terms (years) of home mortgages?
10, 15, 20, 30
Private mortgage insurance (PMI) is required when the down payment is less than Blank______ of the purchase price of the home.
20%
Total Cost of Owning Given the information here what is the annual cost of owning? -Home Value (300,000) -Annual Mortgage Payments (19,200) -Annual Property taxes (4,800) -Annual homeowners' insurance (1,200) -Estimated maintenance & repairs (1% of home value) -Growth in equity (3,000) -Tax savings (mortgage interest & property tax) (2,800) -Estimate annual appreciation (1.5 % of home value)
Annual mortgage payments + annual property taxes + annual homeowners' insurance + estimated maintenance and repairs) - (growth in equity + tax savings + estimated annual appreciation) = total annual cost of owning [19,200 + 4,800 + 1,200 + (1% x 300,000)] - [3,000 + 2,800 + (1.5% x 300,000)] = 28,200 - 10,300 = 17,900.
True or False: Monthly payments are typically the same across 15-, 20-, and 30-year loans.
False
True or 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 **Home equity loan interest is deductible regardless of what the loan proceeds are used for. However, default on the loan could mean you lose the home in a foreclosure.
During which step of the mortgage loan application process does the lender obtain a credit report and verify your application and financial status?
Step 2
Educators recommend that schools be evaluated based on which of the following?
Student achievement level
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? -A rate cap restricts how much a rate can increase or decrease. -A payment cap could cause negative amortization. -The initial rate offered by ARMS is usually higher than conventional mortgages. -The initial rate offered on ARMS is usually lower than those on conventional mortgages.
The initial rate offered by ARMS is usually higher than conventional mortgages.
True of False: Two external (market) factors that affect the price of a home are the current demand for housing and the financing options (i.e., interest rates) available.
True
True or False: Even if you do not use a real estate agent to sell your home, you should use an attorney or title company to close the transaction.
True
True or False: 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
True or false: You should consider refinancing costs in relation to the savings gained with a lower monthly payment before moving forward with refinancing.
True; consider whether the benefits outweigh the costs
An estimate of the current value of the property is known as:
appraisal
Homeowners can request that PMI be removed once equity has grown to 22 percent of the _____ of a home.
current market value. **The current market value determines the amount of equity held.
Quality of landscaping, trees, and shrubs are part of the:
exterior facilities in a house.
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
Your ______, needs, desires, and attitudes are reflected in your choice of a home.
lifestyle
Renters have fewer responsibilities than home owners because:
tenants are not responsible for maintenance or 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