BSAD test #2

What are closing costs?

*Fees and charges paid when a real estate transaction is complete- AKA settlement cost* it commonly includes: title search fee, title insurance, autorneys ee, property survey, apraisal fee, recording fee, transfer taxes, settlement fee, termite inspection, lender's origion fee, reserves for home insurance/ property taxes, interest paid in advanced and points, real estate brokers comission.

What is unit pricing?

*it is a standard unit of measurement to compare the prices of packages of different sizes* to calculate the unit price, divide the price of the item by the number of units of measurement (ounces, pounds, gallons, #of sheets) Then compare the unit prices for various sizes, brands and stores. ex) a 64 ounce product costing $8.32 ... 8.32/64=.13 (.13 cents per ounce)

What does leasing a car mean?

*leasing* is a contractural agreement with monthly payments for the use of an automobile over a set time period, typically 3, 4, or 5 years. At the end of the lease term, the vehicle is usually returned to the leasing company. *leasing advantages*- only a small cash outflow may be required for the security deposit, whereas buying can require a large downpayment; Monthly lease payments are usually lower than monthly financing payments; the lease agreement provides detailed records for business purposes; you are usually able to obtain a more expensive vehicle more often. (want to see stable financial position, lower initial cost since you only pay for what you use and you can get a new car every three to four years) *leasing drawbacks*- no owndership interest in the vehicle; you must meet requirements similar to qualifying for credit; additional costs may be incurred for extra mileage, certain repairs, turning the car in early or even moving to another state

What is the difference between risk assumption and risk shifting?

*risk is the chance of loss or injury* *risk assumption*- take on responsibility for the negative results of risk. It makes sense to assume risk if the possible loss is small; or when you have taken all precautions you can to avoid or reduce risk. *risk shifting*- the most common method of dealing with risk is by shifting it. That simply means to transfer it to an insurance company. In exchange for the fee you pay, the insurance agrees to pay for your losses.

Who owns a leased car? What are capitalized costs? What are residule values?

*the dealership still owns a leased car*. When leasing, you arrange for a dealer to sell the vehicle through a financing company. As a result, be sure to know the true costs including: 1) *capitalized costs*- price of vehicle. The average car buyer pays about 92% of the list price for a vehicle; the average leasing arrangement has a captialized cost of 96% of the list price for a vehicle 2) *residule value*- expected value of a vehicle at the end of a lease

Is it better to have 30% off $9, or get 30% more of a product for $9?

*when two offers use the same percentage, consumers often perceive them to be equivalent BUT THE DISCOUNT IS CHEAPER* you save more money with getting 30% off, but people tend to choose 30% more (people also prefer a double discount (two 20% discounts) rather than one 40% discount *consumers generally favor product bonuses over price discounts, but in this case the product bonus is more expensive*

Homeowner's policy

- It DOES cover damage caused by rain - It DOES NOT cover damage caused by flooding (need to get federal flood insurance) -It DOES cover damage caused by trees -It DOES NOT cover sewage back up

Pluses to leasing

- small cash outlay - monthly lease payments are often less than monthly finance payments -you can get more expensive car for a reasonable payment - you "pay for what you use" - Not locked in one car- safety features and electronic technology change rapidly -you get a new car every three years -no repair responsibility except oils and tires -if you really like the car you can buy it at the residual price -you can actually settle in one payment - you wont have to own a depreciating asset

When you insure your home, what is covered by a typical policy?

-The building in which you live and any other structures on the property (house, garage, whole property as well as damage inside house- such a robbery) -additional living expenses -personal property -personal liability and related coverage -specialized coverage

Plusses to buying a car

-if you expect to keep a car a long time (8-10 years) you win by buying it -psychologically the idea of milking every last dollar of your car is appealing -the quality of your car us getting better and better- 100k plus miles is not unusual anymore -you actually own your car

Know where to get auto insurance

-independent agents -The internent- gieco, progressive -direct writers- allstate, statefarm

Summary of things to know when buying a home

1)*know what you want (need)* - location (most important factor), neighborhood/ schools, size/features 2) *get preapproval*- know what you can afford, importance of credit score comes into play here 3) *get help*- buyers agent, if no contract real estate agent works for seller (they can report back everything you say), commission- sellers pay 4) *valuing real-estate* - appraised value, assessed value, building inspection, contingency clause 5) *borrowing money*- earnest money, down payment, fixed mortgage (most common), adjustable rate mortgage, private mortgage insurance (deposists less than 20%) closing costs (*title insurance, attorney survey, bank origionation fee*) 6. *ongoing costs*- PITI- principles, interest, taxes, insurance

What is a duplex, a condominium and manufactured housing?

A *duplex* is a building with seperate houses. A *condominium* is individually owned housing units in a building with several such housing units. Ownership doesn't include common areas such as hallways. A *manufactured housing* is assembeled in a factory and then moved to a living site.

What is a mortgage insurance and when do you need to buy it?

A *private mortgage insurance* is usually requires if a downpayment is less than 20%. This protects the lender from financial loss due to default. After building up 20% in home equity, a buyer should contact the lender to cancel the private mortgage insurance.

What is the difference between full warranty, limited warranty and implied warranty?

A warranty is a writen gaurentee from the manufacturer or distributor that specifies the conditions under which the product can be returned, replaced or repaired. an express warenty, usually in a written form, is created by the seller or manufacturer and has the following forms: 1. *full warranty*- states that a defective product can be fixed or replaced during a reasonable amount of time (can get $ back 2. *limited warranty*- covers only certain aspects of the product, such as parts, or requires the buyer to incur part of the costs for shipping or repairs (give you broken part for free but charge to repair) 3. *implied warranty*- covers a products intended use or other basic understandings that are not in writing (if a toaster doesn't toast, you can take it back to the manufacturer to get money back; if you cant get money back go to small claims court)

What is an umbrella policy?

Aka personal catastrophy policy; supplements your basic personal liability coverage. The added protection covers you for all kinds of personal liability coverage. homeowners covers x amount, pay $200 a year its also a factor in good auto coverage

What is a home inspection? a home appraisal?

An *appraisal* is an estimate of the current value of a property; it provides a good indication of the price you should set. An *appraised value* is the assessment of what the house is worth; a bank will not lend you money above this amount (the assessed vale is what the city puts on for tax- usually less than the appraised value) A *home inspection* is a limited, non-invasive examination of the condition of a home, often in connection with the sale of that home. Home inspections are usually conducted by a home inspector who has the training and certifications to perform such inspections. The inspector prepares and delivers to the client a written report of findings. (can also get a building inspection- buyer wants to check out condition and any structural probems "to see if the place will fall down")

What factors affect auto insurance rates?

Automobile insurance costs are directly related to coverage amounts and other factors such as the vehicle, your place of residence, driving recors, vehicile type, drivers classification, rating territory, drivers training classes, security investments, nonsmoker, increasing deductable *you get auto insurance to cover someone else*

What are car buying services and how do they work?

Businesses that help buyers obtain a specific new car at a reasonable price. AKA an autobroker; these businesses offer desired models with options for prices ranging between $50-$200 over the dealers cost. 1) the autobroker charges a small fee for price info on the desired model 2) if you decide to buy a car, the autobroker arranges the purchase with a dealer near your home

What claims are handled in the small claims court?

Claims that involve amounts below a set dollar limit. The maximum varies from state to state, ranging from 500-10,000$. The process usually takes place with out a lawyer, although in many states, attourneys are allowed in small claims court. *no lawyer, judge decides who gets what*

what is a contingency clause

If appraisal is not at a certain price or above, then you can not back out the the contracts (its an agreement between you and the seller of what you think the problems are )

How do you figure the price-to-rent ratio?

If your on the fence about buying or renting, take a look at the Price-to-rent ratio of where you live. This is *the median sale price of a home divided by the average annual rate for a comparable one*. If the ratio is less than 15, the market rewards the home buyers; if its more than 20, it rewards renters.

For insurance purposes, what is "actual cash value" vs "replacement value"?

Insurance companies base claim setlement on 1 of 2 methods: *under actual cash value*- the payment you recieve is based on the replacement cost of an item minus depreciation (depreciation- the loss of value of an item as it gets older) ex) you will recieve less for your 5 year old bicycle than what you origionally payed for it *or under replacement value*- Method for settling claims, you recieve full cost of repairing or replacing an item. *depreciatin is NOT considered*. Many companies limit the replacement cost to 400% of the items actual value. Replacement value coverage is more expensive than actual cash value coverage.

What is an assigned risk pool?

It consists of people who are unable to obtain motor vehicle insurance due to poor driving records or accident records and must obtain coverage at high rates through a state program that requires insurance companies to accecpt some of them.

How much personal property is generally covered under a homeowners' policy? Jewelry?

It covers household belongings such as furniture, appliances, and clothing, up to a proportion of the insured value of the home. That proportion is usually 55%, 70% or 75% ex) A home insured for $160,000 might have $112,000 (70%) worth of coverage for the household belongings Personal property coverage typically limits the payout for theft of certain items, such as $5,000 for jewelry (if you need more than $5,000 for your jewelry coverage, you need to buy a personal policy floater)- doing this adds a small premium; you identify jewelry and the cost of it and if it is approved the insurance company will give you more money.

What is a personal policy floater?

It is aditional property insurance that covers the damage or loss of a specific item of high value. The insurance company will require a detailed description of the item and its worth. You'll also need to have the item appraised to make sure that the value has not changed.

What does liability mean?

It is the legal responcibility for the financial cost of another persons losses or injury. ex) Terry falls in Lisa's yeard when they were playing. Terry's family may be able to sue Lisa's parents even though Lisa's parents did nothing wrong. Usually if you are found liable, or legally responsible in a situatiion, it is because negligence on your part of the mishap *this is the financial cost you are causing to someone else; this is why you get insurance! to protect yourself if you injure someone else*

What is a deductible?

It is the set amount that the policy holder must pay per loss on an insurance policy. *It is a combo of risk assumption and risk shifting* ex) tree fell on your car, you pay $200 towards repairs and your insurance company covers the rest. -amount of money you have to pay before insurance company has to pay *the more risk you are willing to take on (the more you will pay) the lower the cost of your insurance will be

what does amortization mean?

Mortgage rates are set to allow *amortization* of a loan; that is the balance owed reduced with each payment. *amortization is he reduction of a loan balance through payments made overtime* Early years of mortage are mainly towards interest with small reductions in loan principles. As the amount owed declined, The monthly payments go right to loan balance.

Do you insure the land the house sits on?

No

What does renter's insurance typically cover? Are renters covered under their landlord's insurance?

Renters insurance does not provide coverage on the building or other structures. There are two standard renter's insurance policies: 1) the broad form that covers your personal property against perils specified in the policy (fires or thefts) 2) the comprehensive form that protects your personal property against all perils not specifically excluded in the policy Renters are not covered under their landlord's insurance. You are only covered under the landlords insurance if the landlord is proved liable for some damage. ex) if bad wiring causes a fire and damages the tenant's property, The tenant may be able to collect money from the landlord

What is a fixed rate mortgage versus an adjustable rate mortgage?

The *fixed rate mortgage* (aka conventional mortgage) are a MAJOR TYPE of mortage that usually has equal payments over 15, 20 or 30 years based on a fixed interest rate. ex) fixed rate mortgage at 4% for 30 years (never changes) The *adjustable- rate mortgage* (ARM- aka flexible mortgage/ vaiable-rate mortgage) has an interest rate that increases/ decreases during the life of the loan. Its a home loan with an interest rate that can change during the mortage term due to changes in market interest rates. Banks can also give a 5 year adjustable mortgage where after 5 years the price can change, but for the first 5 years is a fixed priceF ex) 3% for 30 years, but if at year 2 the bank decides to raise the price so the amount paid goes up- *you can pay less up front but end up paying more in the future* * if you think interest rates are going to go up, you should get a fixed mortgage*

According to the text, how much does one, two and three moving violation increase your auto insurance?

The penalties for poor driving behavior can be servere. A car insurance company increases 18% for *one moving violation*,increases 34% for *two moving violations* and increases to 53% for *three moving violations*

Who pays the commission to a broker when you buy a house and how much is it?

The seller pays the broker and it is usually 6%. ex) you buy a house for 200k and you need a mortgage for 160k ; you pay the seller 200k (160k from mortgage and 40k is a deposit) the seller gets 200k - 6% the seller pays commission and leaves w about 160k

When buying a car, what is the sticker price? what is the invoice price?

When buying a car, the *sticker price* is a label printed on the vehicle with the suggested retail price. This label presents the base price of the car with costs of added features. The dealers cost, or *invoice price*, is an amount less than the sticker price. The difference between the sticker price and the invoice prie is the RANGE AVAILABLE FOR NEGOTIATION. (bargaining power) This range is larger for more expensive vehicles; smaller cars usually do not have a wide negotiation range. *capitalized (assumed car worth) - residual (what they will sell it to you after lease)*

According to the book, what credit score (FICO) do you need to have to qualify for a mortgage?

You need to have a credit score of 620 to obtain home financing. The higher the credit score, the lower the mortgage rate, given the same loan amount and down payment. *pre approval is needed for a loan; it tells if you are a serious loaner and the banks won't even look at you if score is under 620* *BUILD YOUR CREDIT SCORE- its a factor in auto insurance; as well as good grades.

What is a lemon law?

a law enacted that requires a refund for the vehicle after the owner has made repeated attempts to obtain servicing. This laws apply when four attempts are made to get the same problem corrected, or when the vehicle has been out of service for more than 30 days within the first 12 months of purchase, or the first 12,000 miles. This law was made because major problems occured with a new car and the warrenty did not solve the difficulty.

What is reinsurance?

insurance companies as reinsurance companies to buy a portion of liability the insurance company has written (often happens because they don't want to be too concentrated in one area)

What is a class of action law suit?

it is a legal action taken by a few individuals on behalf of all people who have suffered the same alleged injustice. These people are presented by 1 or more lawyers. Once a situation qualifies as a close-action suit, all of the affected parties must be notified. A person may decide not to participate in the class action suit and instead file an individual law suit. ex) auto-owners who were sold unnedded placement parts for their vehicles and a group of investors who sued the brokage company for unauthorized buy-and-sell transactions that resulted in high comission charges. ex) vw problem- thousands of people bought bad vw, law firms came and classified people to join, if win case the lawyers get (X) amount of money and you get sent a check

What is an arbitration?

it is the settlement of difference by a third party - *the arbitrator*- whose decision is legally binding. After both sides agree to arbitration, each side presents its case. Arbritrators are selected from volunteers trained for this purpose. Most major automobile manufacturers and many industry organizations have arbitrartion programs to resovle customer complaints.

If you expect to stay in the same place for fewer than how many years does it make sense to rent your place of residence? Why is this?

less than 5 years; This makes sense to rent your place of residence because it offers mobility when location change is necessary or desireable, has fewer responsibilities than owning a home and it costs less in terms of time, effort and money to break a lease then to sell/ rent a home.

What is insurance?

protection against possible loss; it allows you to be prepared for the worst. It provides protection against many risks, such as unexpected property loss, illness and injury. One common characteristic of insurance is that it gives you a peace of mind and they protect you from financial loss when trouble strikes.

AUTO INSURANCE 100/300/100

the first $100 is for one person (only covers up to $100 per person) the $300 is the cost for the whole accident (total) the final $100 is for property damage Three people were in an accidnent : person 1- $80, person 2- $50, person 3- $150 auto insurance would only cover first two people, the third person is over 100 so could only cover 100 and not the remaining 50. 4 people got into an accident and were $100 each. the total goes above 300 so courts have to come in *insured motorist* the 100/300/100 applies to you if you get into an accident if it is caused by someone else who doesn't have insurance *if you cause an accident, insurance pays other peoples damage; to repair yourself you need to buy collision insurance* GET COVERAGE FOR YOUR CAR- comprehensive: non- moving damaging, Collision: moving damage *try to maintain a good driving record- moving violations affect insurance rates*

What are "points"?

the interest rates aren't the only factors you should consder when comparing mortage companies; the required payment and the points charged will effect the interest rate. *Points are the prepaid interest charged by the lender*. Each discount point is equal to 1% of the loan amount and should be viewed as premium you pay for obtaining a lower mortage rate. (lower rate with more ponts or a higher rate with fewer points; if your planning to live somewhere for a long time a lower mortage rate is the best action, if your planing to sell your home in a few years, the higher mortage rate is better)

What is the largest fixed expense associated with a car?

the largest fixed expense associated with a car is *depreciation* - natural using up of cars value (roughly down 15% after first 5 years; then car is typically worth 40-60% less)

What is the most important factor when buying a home?

the location (determines how much the price goes up)

what is certified pre-owned? (CPO)

vehicles that are nearly new cars that come with the origional manufacturers gaurentee of quality. The rigerous inspection and repair process means a higher price than other used vehicles. CPO programs were origionally created to generate demand for the low milage vehicles returned at the end of a lease

what does "upside down" mean?

when after 2-3 years, the vaue of your car may be less than the amount you still owe. If you default your loan or sell your car at this time, you will have to pay the difference.

know if you have renters insurance

you have it through your parents while your a student but it is cheap to buy for yourself

determination of car insurance

your age, gender, driving record (tickets and accidents), type of car, miles driven, credit history, grades, and possibly occupation and education