Chapter 5

The loss in the value of an automobile over time is called:

Depreciation

A behavioral bias in which an individual tends to allow an initial estimate (of value or price) to dominate the subsequent assessment (of value or price) regardless of new information to the contrary is called _____.

anchoring

are the expenses that borrowers pay when a mortgage loan is closed and they receive title to the purchased property

closing costs

The data in a multiple listing service (MLS):

consists of a comprehensive listing of properties for sale in a given community area.

Prequalification provides a home buyer with information regarding the specific mortgage amounts he or she is eligible for subject to the expected changes in interest rates.

true

The market price of a house is $125,000, and the home buyer borrows $100,000. Two points are equal to $2,000.

true

Assume that you have taken a car on a closed-end lease for a period of 5 years. At the end of the fifth year, you would need to pay additional money only

when the mileage limits are exceeded

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 percent, 4-year loan from a credit society, what is the maximum loan amount Jana can afford? (Round off the answer to nearest units place.)

$12,528

Kurt has $4,500 for a down payment and thinks he can afford monthly payments of $300. If Kurt can finance a vehicle with a 7 percent, 4-year loan from the automobile dealer, what is the maximum amount he can afford to spend on the car? (Round off the answer to nearest units place.)

$17,028

If the maximum loan-to-value ratio that a lender will accept on a house costing $100,000 is 80 percent, then the borrower must make a down payment of at least _____

$20,000

The purchase price of the house you are buying is $140,000. A loan-to-value ratio of 80 percent will require a down payment of

$28,000

Jackie is in the 28 percent marginal tax bracket and has no other itemized deductions except those related to her home. If she is eligible for a standard deduction worth $6,100 and she incurs the following costs related to housing, how much tax savings will she receive as a result of her home purchase?

$3,332

Barb and Bob want to purchase a new home but don't know how much mortgage they can qualify for. The lender requires that the total installment of loan payments do not exceed 35 percent of the monthly income. Based on Barb and Bob's financial data given 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

$850

If you purchase a house worth $110,000 and make a 10 percent down payment, how much would 1 mortgage point cost at closing?

$990

A lender will usually require a loan-to-value ratio of _____ or less for a borrower to avoid having to pay private mortgage insurance (PMI).

80%

_____ is a situation where homeowners owe more to the lenders than what their properties are worth.

A negative equity

Which of the following is a type of down payment that lowers the potential depreciation and therefore your monthly lease payments on a leased car?

Capital cost reduction

Jacob has taken an SUV on lease from Free Cruisers Inc. for a period of four years. Jacob does not need to pay any extra amount, based on the residual value of the car, at the end of the fourth year. He has a _____.

Close end lease

_____ are the expenses that borrowers pay when a mortgage loan is closed and they receive title to the purchased property.

Closing costs

on owner-occupied houses, condominiums, and apartment buildings of four units or fewer.

Closings

_____ are loans offering low payments for the first few years, gradually increasing until year three or five, and then remaining fixed.

Graduated-payment mortgages

The Federal Housing Administration _____ to high loan-to-value ratio mortgages.

Insurance

Which of the following are tax deductible if one itemizes deductions?

Interest, real estate taxes

Matt is considering the purchase of a condo on a mortgage. However, he is not sure of the amount of the mortgage he is eligible for. will help him identify and correct any problems such as credit report errors that may arise on his application.

Prequalification

Which of the following is true of buying a used car as compared with a new car?

Purchasing a used car will be less expensive as compared with purchasing a new car.

The Act governs closings on owner-occupied houses, condominiums, and apartment buildings of four units or fewer.

Real Estate Settlement Procedures

Act governs closings on owner-occupied houses, condominiums, and apartment buildings of four units or fewer.

Real Estate Settlement Procedures Act

The _____ governs closings on owner-occupied houses, condominiums, and apartment buildings of four units or fewer.

Real Estate Settlement Procedures Act

An escrow account is used to collect _____ from one's monthly mortgage payment.

Real estate taxes

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

At the end of your car lease period, you intend to turn in the car, and you will not pay extra at that time based on the residual value of the car. You have _____ lease.

a closed-end

When you lease your apartment from a nonprofit corporation that owns the building and you own a share of the nonprofit corporation, you own:

a cooperative apartment.

If the interest rates and monthly mortgage payments do not change over the life of your mortgage, you have _____

a fixed rate mortgage

When shopping for a lease, you want:

a low capitalized cost

The monthly interest on your adjustable-rate mortgage was $690. You paid $650 as your monthly payment on the loan leading to an increase in the principal balance. This is an example of:

a negative amortization.

A financing made available by a builder or seller to a potential new-home buyer at interest rates well below market interest rates, often only for a short period is termed as a

buydown

In a co-op, the buyer receives title to a unit and joint ownership of the common areas.

false

The job of a mortgage banker is to locate conventional loans for clients.

false

A buydown refers to:

financing made available by a builder or seller to a potential new-home buyer at well below market interest rates, often only for a short period.

The majority of each monthly payment at the beginning of the loan goes to pay the:

interest

The biggest fixed cost of owning a car is likely to be the

loan payments

A(n) ratio specifies the maximum percentage of the value of a property that a lender is willing to loan.

loan-to-value

The Real Estate Settlement Procedures Act governs ___ on owner-occupied houses, condominiums, and apartment buildings of four units or fewer.

mortgage closings

Fees charged by lenders as a condition of a mortgage loan that raises the effective rate of interest are called

mortgage points

Jane and Smith are considering the purchase of a home in downtown Minneapolis. They approached Larson's Mortgagers Inc. to arrange for the financing needed for their home. This process of arranging with a mortgage lender in advance of buying a home is called _____.

prequalification

Which of the following will help a buyer know ahead of time the specific mortgage amount that he or she will be eligible for subject to changes in rates and term

prequalification

If you made a down payment of $11,000 on a house worth $110,000, the lenders will require _____ because of the size of the down payment.

private mortgage insurance

____ are ongoing costs of home ownership.

property taxes and insurance

The seller of the house typically pays the

real estate agent's commission.

Fredrick purchased a property worth $150,000 on mortgage. He had paid $30,000 as a down payment on this property. However, because of a recent slump in the real estate prices, the property is worth only $110,000, forcing Fredrick to sell the property. Assuming that no mortgage payments have been made by Fredrick, this sale is termed a(an) _____.

real estate short sale

Earnest money is the sum of money the home buyer pledges with the

seller to indicate the intent of purchase

A real estate sales contract will include

the amount you have paid as an earnest money deposit.

Variable auto ownership costs are dependent on:

the miles covered by the automobile.

The real estate agent's commission is generally paid by

the seller

The first step in the auto-buying process should be:

to analyze how much you can afford to spend on the car.