ch 7 knowledge check/quiz

Given the information below, what is the total cost of renting per year? Annual rent payments $14,400 Annual renter's insurance $300 Annual interest lost on security deposit $10 Value of apartment $150,000

Total annual cost of renting = Annual rent payments + Annual renter's insurance + Annual interest lost on security deposit = $14,400 + $300 + $10 = $14,710.

Pauline just submitted an offer on her dream home. As evidence of good faith, she also included:

earnest money

advantages of renting a home

easy to move/change homes if you dislike one, less maintenance (bc of landlords), a smaller financial commitment than owning a home

The tenant is the

lessee

Major factors that affect the affordability of your mortgage include all of the following except:

the size of the home

You estimate that you can save $4,400 by selling your home yourself rather than using a real estate agent. What would be the future value of that amount if invested for seven years at 3 percent? Use Exhibit 1-A. (Round FV factor to 3 decimal places and final answer to 2 decimal places.)

Future value = Annual savings × Future value factor= $4,400 × 1.230= $5,412.00

Mason is applying for a 30-year mortgage with a 5% interest rate. Mason has an annual income of $50,000 and has no additional debt. His estimated monthly property taxes and homeowners insurance is equal to $430. What is Mason's affordable mortgage amount?

MGI = $50,000/12 = $4,166.6733% max of MGI without other debt = $4,166.67 × 0.33 = $1,375Affordable monthly mortgage payment = $1,375 − $430 = $945Affordable mortgage amount = [($945/5.37) × 1,000] = $175,977.65

According to the chart in the video, what is reported at the bottom of the statement?

The amount owed at closing by both the buyer and seller

disadvantages of home ownership

- costs more to buy (loan, down payments) - hard to move because home has to be sold

calculations used to determine housing affordability and mortgage qualification amounts

- first, determine monthly gross income - what percentage of MGI goes to PITI (principal, interest, taxes, and insurance)

advantages of home ownership

- pride of ownership - financial benefits (tax deductions for property tax and interest paid on mortgage) - lifestyle flexibility

For the borrower with additional debt, lenders use _____ percent to determine the "total" of all monthly debt payments including principal, interest, taxes, insurance, and ALL your other debts.

38

Aubrie is going to make a 22% down payment on her house. If her affordable mortgage amount is $212,476.35, what is Aubrie's affordable home purchase price?

Affordable home purchase price = $212,476.35/(1 − 0.22) = $272,405.58

All of the following are true about conventional mortgages discussed in the video, except:

Each monthly payment is fixed for a set period of time and then they may adjust if the market interest rate has risen.

According to the video, the decision to rent or buy a home is an important decision that can affect not only your ________________, but also your _________________.

Financial decisions; quality of life

Paisley has an annual income of $54,600 and has additional debt of $350. Her estimated monthly property taxes and homeowners insurance is equal to $390. What is Paisley's affordable monthly mortgage payment?

MGI = $54,600/12 = $4,55038% max of MGI with other debt = $4,550 × 0.38 = $1,729Affordable monthly mortgage payment = $1,729 − $350 − $390 = $989.00

Kelly and Tim Jarowski plan to refinance their mortgage to obtain a lower interest rate. They will reduce their mortgage payments by $60 a month. Their closing costs for refinancing will be $1,750. How long will it take them to cover the cost of refinancing? (Round your answer to the nearest whole number.)

Number of months = Closing costs/Monthly payment reduction= $1,750/$60= 29.17, or 29

All of the following are true of adjustable-rate, variable-payment mortgages according to the video, except:

There are no rate caps for this type of mortgage.

According to the video, all of the following are seller estimated costs, except:

appraisal fee

According to the video, all of the following are other options to consider when you finance your home, except:

buy-backs

The title search fee is paid by the _________ and is designed to ensure that the ___________ can legally purchase the property.

buyer; buyer

Which of the following is a form of housing in which the units are owned by a nonprofit organization?

cooperative housing

Lonnie wanted to sell his house but didn't know what price to ask. He should consider all of the following except: - Current mortgage rates. - Demand in the housing market. - His original cost. - Recent selling prices of comparable homes in the area. - The appraised value of his home.

his original cost

Jim wants to make an offer to buy an older house. At this point, he should:

set up a home inspection

The opportunity to have another person take over rent payments and live in the rental unit is called (a):

subletting

disadvantages of renting a home

there are no tax deductions to lower or reduce the income taxes, may be restrictions for pets/activities, unable to remodel the property