Chapter 9 Personal Finance

What are zoning laws?

restrictions on how the property in an area can be used.

What is the purpose of a real estate agent?

1. presenting your offer to the seller. 2. negotiating a settlement price. 3. assisting you in getting financing. 4. representing you at closing.

How to determine selling price of home.

1. recent selling prices in the area. 2. current demand for housing. 3. length of time home has been on the market. 4. owner's need to sell. 5. features and condition of home.

What is a Rate Cap?

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

What is a Payment Cap?

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

The housing decision.

Conduct a home inspection with an inspector recommended by a friend. An inspection is not an appraisal.

What is a deed?

Document that transfers owners ship from one party to another.

What do you need for pre qualification?

Income, assets, debts and any required information.

What is the most important factor in selecting a home?

Location

Lock in rate vs. float rate

Lock in makes it so your rate doesn't change. Float rate is when your rate changes along with the market rate.

What is a mortgage?

Long term loan for piece of property.

What is an escrow account?

Money usually deposited with the lending financial institution for the payment of property taxes and home owner's insurance.

What are points?

Prepaid interest charged by the lender. each point is equal to 1% of the loan amount

What is Private Mortgage Insurance (PMI)?

Required when downpayment is less than 20%. Coverage protects lender from financial loss due to default. Cancel PMI after 20% is reached.

Down Payment

The larger the payment the easier it is to get a mortgage. Bank wants 20%

What is negative amortization?

When mortgage payments do not cover interest owed. This increased loan balance means the amount of the home equity is decreasing not increasing.

What is a dual agent?

When the real estate agent represents both the buyer and the seller.

What is a conventional mortgage?

a fixed rate, fixed payment home loan with equal payments over 10, 20, 30 years.

What is an 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. AKA flexible rate or variable rate.`

What is a reverse mortgage loan?

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. Must be 62 to qualify.

What is an interest only loan?

allows a homebuyer to have lower payments for the first few years of the loan. During that time, non of the mortgage payment goes toward the loan amount. Monthly payments increase later on in loan.

What is an appraisal?

an estimate of the current value of property.

What is title insurance (1)?

defines the boundaries for the property and conductions a search to make sure the property is free of claims.

What is closing costs?

fees and charges paid when a real estate transaction is completed. settlement cost.

what is earnest money?

portion of purchase price deposited as evidence of good faith to show that the purchase offer is serious.

What is title insurance (2)?

protects the owner and lender against financial loss resulting from future defects in the title and unforeseen claims.

What is the Homeowners Protection Act?

requires that a PMI policy be terminated automatically when a homeowners equity reaches 22% of the property value at the time the mortgage was executed.

What is refinancing?

the process of obtaining a new mortgage on a home to get a lower interest rate.

What is a amortization?

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

What is a contingency clause?

this contract condition(s) states that the agreement is binding only if certain events occur.