Chapter 9 Exam 2

Disadvantages of leasing

-Few Financial Benefits •No tax deduction for mortgage interest and property taxes that buyers get -Restricted Lifestyle •Limits regarding remodeling, pets, sound -Legal Details •Lease is legal document that defines the conditions of the rental -Costs include a security deposit, utilities, and renter's insurance

second mortgage

-Homeowners can borrow on the paid-up value of the property -The home is collateral and interest may be tax deductible - Also known as home equity loan

Opportunity costs of housing choices

-Interest earnings lost on money used for a down payment on a home or the interest on a security deposit for an apartment -Time and cost of commuting to work when you live in an area that offers less expensive housing or more space -Renters lose tax advantages and equity growth -Time and money you spend to repair and improve a lower-priced home -Time and effort when you have a home built to your personal specifications

Advantages of leasing

-Mobility: Moving is easier -Fewer Responsibilities •Renters usually do not have to be concerned with maintenance and repairs •Renters have fewer financial concerns and no expenses for property taxes, property insurance, and upkeep -Lower initial costs •Renters pay a security deposit which is much less than the down payment and closing costs required when buying

disadvantages of home ownership

-limited mobility -higher living costs; home improvements, maintenance, repairs - rising real estate taxes -larger costs upfront (down payment) -qualifying for mortgage financing -changing property values

Advantages of home ownership

-pride of ownership -stability of location -financial benefits -deduct property taxes and mortgage interest -building equity -increasing value of your home -decorating

deed

A document that transfers ownership of property from one party to another.

conventional mortgage

A fixed-rate, fixed-payment home loan with equal payments over 10, 15, 20, 25, or 30 years.

cooperative housing

A form of housing in which a building containing a number of housing units is owned by a nonprofit organization whose members rent the units.

adjustable rate mortgage (ARM)

A home loan with an interest rate that can change during the mortgage term due to changes in market interest rates; also called a flexible-rate mortgage or a variable-rate mortgage.

Legal Details of Lease

A legal document defining the terms of a rental; it includes the amount due, due date, names of tenant and landlord, security deposit amount, date and length of lease, etc.

payment cap

A limit on the payment increases for an adjustable-rate mortgage.

Reverse Mortgage

A loan based on the equity in a home, that provides elderly homeowners with tax-free income and is paid back with interest when the home is sold or the homeowner dies.

mortgage

A long term loan on property, such as a house or other real estate

escrow account

An account, usually with the lending institution, used to pay property taxes, homeowner's insurance, and private mortgage insurance -It protects the lender from financial loss due to unpaid real estate taxes or damage from fires and other hazards

appraisal

An estimate of the current value of a property. Lenders may require this

condominium

An individually owned housing unit in a building with several such units.

buy-down

An interest rate subsidy from a home builder or a real estate developer that reduces a home buyer's mortgage payments during the first few years of the loan.

closing costs

Fees and charges paid when a real estate transaction is completed; also called settlement costs.

HELOC

Home Equity Line of Credit

Title Insurance

Insurance that, during the mortgage term, protects the owner and lender against financial loss resulting from future defects in the title and from other unforeseen property claims not excluded by the policy.

points

Prepaid interest charged by a lending institution for the mortgage; each discount point is equal to 1 percent of the loan amount.

zoning laws

Restrictions on how the property in an area can be used; restrict on what you can construct

Down payment

The amount of cash available for a down payment will affect the size of the mortgage loan you require. A large down payment, such as 20 percent or more, makes it easier to obtain a mortgage.

earnest money

The amount of money you put down to demonstrate how serious you are in purchasing a property; good faith deposit

refinancing

The process of obtaining a new mortgage on a home to get a lower interest rate and payment.

amortization

The reduction of a loan balance through payments made over a period of time.

Housing Alternatives

When you assess housing alternatives, identify the factors that will influence your choice, such as lifestyle, marital status, having a family, etc. Personal preferences also influence housing choice

rate cap

a limit on the increases and decreases in the interest rate charged on an adjustable-rate mortgage.

interest only mortgage

allows a home buyer to have lower payments for the first few years of the loan. During that time, none of the mortgage payment goes toward the loan amount. Once the initial period ends, the mortgage adjusts to be interest-only at the new payment amount. Or a borrower may obtain a different type of mortgage to start building equity.

Counteroffer

functions as both a rejection of an offer to enter into a contract, as well as a new offer that materially changes the terms of the original offer. this indicates a willingness to negotiate a price settlement. If the counteroffer is only slightly lower than the asking price, you are expected to move closer to that price with your next offer.

Private Mortgage Insurance (PMI)

usually required if the down payment is less than 20 percent. This coverage protects the lender from financial loss due to default. PMI charges, which the borrower pays, vary depending on the amount of the down payment and your credit score.