Finance Final- Chapter 7

Lonette and Al received a statement reporting that they paid $8,000 in mortgage interest during the past year. If they are in a 28 percent tax bracket, this deduction would reduce their taxable income by

$8,000.

An appraisal refers to the price for which a home has been sold

False

An escrow account is designed to reduce the cost of a mortgage.

False

Ease of mobility is a common advantage associated with home ownership

False

Most people select a place of residence based on available financial resources, needs, and lifestyle.

True

Negotiating a purchase price for a home usually involves an offer and counteroffers

True

Opportunity costs of housing can refer to time and effort involved in finding and repairing a place to live along with lost interest earnings on security deposits and down payments

True

Prepaid interest may be a part of a mortgage agreement

True

Qualifying for a mortgage is similar to obtaining other forms of credit

True

The amount of the down payment will affect the amount of mortgage a person can afford.

True

Fran Laurel expects her income to rise every few years as she gains experience in her career. Which mortgage has payments that rise to different levels every 5 or 10 years?

graduated payment

A security deposit is a fee charged to help you find an apartment or house to rent

False

Amortization refers to changes in the monthly payment for a variable rate mortgage

False

Otto Putman rents a living unit as a result of his membership in a nonprofit housing organization. What name is commonly used for this type of housing?

cooperative housing

A conventional mortgage usually involves

equal payments.

The purpose of an appraisal is to

estimate the current value of a home.

The purpose of title insurance is to

guarantee the boundaries of the property.

Renting would be most appropriate for people who

have limited funds currently available

Which of the following would increase the amount that a person could afford to spend on a home?

increased family income

A common financial benefit of home ownership is

increased property value.

The most commonly considered factor when selecting a home is the

location of the home.

Brenda Williams plans to rent instead of buy her housing. What advantage of renting will Brenda encounter?

lower initial costs

The main financial benefit of renting is

lower initial costs.

The amount of mortgage a person is eligible for would be increased by

lower interest rates

Renting is more advantageous than buying a home for

lower short-term living costs.

A VA-guaranteed loan program provides assistance to

military veterans.

The purpose of a counteroffer is to

negotiate the purchase price.

Which of the following would increase the speed of equity growth for a homebuyer?

obtaining a 15-year mortgage instead of a 30-year mortgage

Prefabricated housing refers to

partially assembled housing in factories

Which of the following expenses is paid from an escrow account?

property insurance

A cost associated with home buying would be

property taxes.

A common financial risk of home ownership is that

property values may decrease.

As Wally Quinten conducts an investigation of property value factors, most real estate experts tell him that ____________ most influences the housing values in an area.

quality of schools

The purpose of zoning laws is to

restrict property use.

The purpose of a rate cap with an adjustable rate mortgage is to

restrict the amount by which the interest rate can increase.

The most common service provided by a real estate agent when selling your home is

screening potential buyers.

A home equity loan is also referred to as a ____________ mortgage.

second

Earnest money has the purpose of

serving as good faith by a homebuyer.

Restrictions on how property in an area can be used are

zoning laws.

The purpose of a security deposit is to

pay for potential damages

What is prepaid interest charged by a mortgage company?

points

Many people believe that location is the most important factor to consider when selecting a home.

True

A condominium involves

ownership of an individual living unit

Todd Foley is applying for a $100,000 mortgage. He can get a $600 monthly payment for principal and interest and no points, or a $520 monthly payment with 2 points? How many months will it take Todd to cover the cost of the discount points if he takes the lower monthly payment?

25

A balloon mortgage can help a homebuyer when interest rates are high but are expected to come down in the near future.

True

A buy down results in reduced mortgage payments during the first few years of the loan as a result of an interest rate subsidy from a builder or real estate developer.

True

A lease protects the rights of both the tenant and the landlord

True

Adjustable rate mortgages with a payment cap can result in a situation of negative amortization.

True

Ownership of an individual housing unit in a building is commonly called

a condominium.

Which of the following is an example of a conventional mortgage?

a fixed rate mortgage

Negative amortization is the result of

a higher amount owed on the mortgage.

A possible disadvantage of FHA and VA mortgages can be

a longer processing time.

A cooperative housing arrangement involves

a nonprofit organization.

A real estate agent can best assist a homebuyer by

assisting in getting a mortgage.

A short-term mortgage with a very large final payment is called a ____________ mortgage.

balloon

A newly married couple is having trouble affording a home. What type of mortgage arrangement would reduce the monthly payment as a result of an interest rate subsidy from a builder or real estate developer?

buy down

Which document is used to transfer ownership of property from one party to another?

deed

A common opportunity cost associated with renting is

interest lost on the security deposit

Refinancing of a mortgage is recommended when

interest rates fall.

If you sell your home without the use of a real estate agent, you should still make use of a

lawyer.

The legal document involved in renting an apartment is called a(n)

lease.

Which of the following is an example of a closing cost?

title insurance

What is the purpose of subletting an apartment?

to obtain another tenant to complete a lease period

An FHA-insured mortgage has less risk than a conventional mortgage for the financial institution.

True

Budget guidelines are available to assist people in deciding how much to spend on housing.

True

Condominiums involve the purchase of an individual living unit rather than an entire building.

True

Cooperative housing involves the renting of a living unit by the people involved in ownership of the building on a nonprofit basis.

True

Current interest rates can affect the price of a home

True

Ease of mobility is an advantage of renting

True

Home improvements may contribute more to the value of the home than the cost of the renovations.

True