PFM Ch.10

A good way to estimate the market value of a home is to multiply the number of square feet by the average price per square foot of similar homes in the area.

T

A sales contract stipulates not only the price offered for a home, but also the repairs to be completed and the move-in date requested by the buyer.

T

Buying a home may be the single biggest investment you will ever make, so the decision should be taken very seriously.

T

For a conventional mortgage, a lender typically requires a down payment of 10 to 20% of the home's selling price.

T

For a long-term home loan, such as 30 years, the amount of principle you pay on your loan during the first few years is quite small.

T

Homeowner's Association monthly dues generally include water, sewer, garbage, and maintenance or other amenities such as a pool, clubhouse, and a tennis court.

T

In determining the amount of down payment and monthly mortgage payments you can afford, you should maintain some extra funds for liquidity purposes to cover unanticipated bills.

T

When buying a home, the seller pays the realtor commission, so you pay no fee for realtor services except in the form of a higher purchase price.

T

When choosing a home, a convenient location can save you considerable travel time and expenses.

T

Your monthly payments for a house are likely to be as high as rent when you factor in mortgage payments, property taxes, homeowner's insurance, and home repairs.

T

All of the following illustrate lessons learned regarding the 2008-2009 financial crisis except A) housing conditions have a strong impact on the economy. B) economic conditions affect the demand. C) sellers were able to attract potential buyers by slightly reducing sale prices. D) allowing unqualified mortgage applicants to qualify for mortgages hurt the housing market.

c

The selection of a home's school system is only applicable if you have or are likely to have school-aged children.

F

To simplify and speed up the home buying process, you should first give a verbal offer to see if the seller is willing to take the price you are willing to offer.

F

There are a number of different mortgage types to choose from in financing a home or condominium, such as a fixed or variable loans for 15 or 30 years.

T

) If a person chooses to purchase a more expensive home, he or she may have to cut expenses in other areas such as entertainment.

T

The monthly payment for a 15-year loan would be about ________ times as much as a comparable 30-year loan. A) 0.5 B) 1.25 C) 2.0 D) the same

B

The term ARM stands for A) alliance rated mortgage. B) adjustable-rate mortgage. C) American Realty Mortgage. D) American rated mortgage.

B

One point on a $80,000 loan for the purchase of a $110,000 home would equal A) $100. B) $800. C) $1,000. D) $1,100.

B

The first step in the home-buying process should be to A) identify the specific home you want to purchase. B) determine a realistic price range of homes you can afford. C) compare the cost of buying to renting. D) find a good realtor.

B

Which of the following should not be considered when selecting a condominium? A) Availability of companies that perform maintenance and repair services in the area B) Taxes C) Resale value D) Association dues

A

10) When a mortgage lender provides loans to borrowers without sufficient income or a down payment, the lender is said to provide a ________ mortgage. A) VA B) subprime C) prime D) FHA

B

When purchasing a home, which of the following costs will you not incur? A) Origination fee B) Realtor's commission C) Application fee D) Appraisal fee

B

When selling a home, which of the following costs will you incur? A) Loan origination fee B) Realtor's commission C) Title search and insurance D) Points

B

Which of the following is false about condominiums? A) Association dues are required. B) An individual owner may mow the grass or make any repairs to the common areas when needed. C) They share common areas such as a pool, tennis court, and club house. D) They combine funds for maintenance.

B

For a $72,000 mortgage at 9 percent, the monthly payments would be $730 for a 15-year mortgage and $579 for a 30-year mortgage. What would be the total savings in interest by using a 15-year mortgage? A) $27,180 B) $54,360 C) $77,040 D) $131,400

C

If you obtain an FHA or VA loan you will make additional payments each month to cover your home insurance and property taxes that will be placed in an account called a(n) A) insurance account. B) appraisal account. C) escrow account. D) default prevention account.

C

Nathaniel and Kimberly want to make an offer on a 2,200 square foot home that is priced at $212,000. They research other home prices and find the following information: a 2,400 square foot home sold for $220,000; a 1,800 square foot home sold for $168,000; a 2,000 squarer foot home sold for $185,000. Based on your analysis, what reasonable offer should Nathaniel and Kimberly make on the house? (Round all computations to the nearest dollar.) A) $212,000 B) $200,400 C) $204,600 D) $194,000

C

Of the following criteria for selecting a home, which would usually diminish the most in importance as the age of the buyers exceed 50? A) Price B) Convenient location C) School system D) Taxes

C

On the purchase of a home, one "point" is equal to A) $100. B) $1,000. C) 1% of the amount being financed. D) 1% of the purchase price.

C

When obtaining a mortgage you should A) apply for the maximum amount you can afford, since the house will be an appreciating asset. B) let a realtor or some other expert choose the type and length of mortgage you will need. C) maintain some funds for liquidity purposes to cover unanticipated bills. D) be very conservative and apply only for a mortgage amount you can pay off within 10 years.

C

Which of the following costs associated with home ownership is hardest to budget? A) Insurance B) Taxes C) Repairs D) Mortgage payments

C

Which of the following does not reflect the impact of a strong economy on home prices? A) There is a strong desire to purchase homes B) People are more confident that their jobs are secure C) People spend their money more conservatively D) It's easier to obtain financing

C

Which of the following is not true? A) A conventional mortgage requires a 10-20% down payment. B) With government-backed loans, the government insures the loan in the event of default. C) Veterans Administration mortgages are extended to most first-time homebuyers. D) Government-backed mortgages may require lower down payments than conventional mortgages.

C

Your home value is likely to be higher with all of the following except A) being close to a school. B) having a convenient location. C) being in an area that has just been zoned for industrial use. D) being in an area where a large retail business has just moved in.

C

If a homebuyer shops around, she/he can probably avoid which of the following fees? A) Title search B) Title insurance C) Appraisal fee D) Loan origination fee

D

If you wish to keep your monthly payments as low and predictable as you can, you should use a A) 15-year ARM. B) 30-year ARM. C) 15-year fixed rate. D) 30-year fixed rate.

D

In an effort to stimulate the housing market, some financial institutions accepted a(n) ________ arrangement in which the proceeds of the sale of the home were less than the debt owed on the home. A) mortgage modification B) foreclosure C) refinancing D) short-sale

D

In negotiating for the purchase of a home, which of the following may not be included? A) Possession date B) Repairs that are to be made C) A pile of wood for the fireplace D) Cost of street repairs

D

The interest rate on an ARM may be adjusted A) once a year. B) every three years. C) every five years. D) Any of the above depending on the terms of the loan.

D

The size of the monthly payment on a mortgage is not dependent on the A) principal borrowed. B) interest rate. C) maturity. D) broker's commission.

D

The total cost of owning a home versus renting is calculated by A) adding up the repair and maintenance expenses associated with the home. B) subtracting the tax savings from the mortgage interest expense and taxes. C) subtracting the expected value of the equity of the home at the end of the period. D) All of the above.

D

) Caps on adjustable-rate mortgages refer only to the maximum fluctuation in interest rates.

F

) Most individuals pay for a home with a down payment of 5% or less and then obtain a mortgage to finance the rest.

F

) Since most of the problems have already been fixed, older homes usually have lower maintenance expense than newer homes.

F

A balloon payment mortgage starts with higher payments, which decrease as the mortgage is paid off.

F

A point is a flat fee of $500 for each multiple of $100,000 that you finance on a new home.

F

Homes near areas that have just been zoned for industrial use become more valuable.

F

In comparing a 30- and 50-year mortgage, over the life of the loan you will have smaller payments but pay more interest with the 30-year mortgage.

F

If the rent on an apartment is $600 per month, which is equal to a mortgage payment on a house, how much additional tax savings will you realize if $200 of the monthly mortgage payment is interest and your tax bracket is 25 percent? A) $50 B) $600 C) $2,500 D) $7,200

B

Making extra mortgage payments does which of the following? A) Increases the total amount of interest paid B) Reduces the length of the loan C) Decreases net worth D) Increases the points charged

B

Most home purchases are made initially A) with payments by personal check. B) with a 10 to 20% down payment and a mortgage. C) with a 5% down payment. D) with no down payment.

B

On a fixed rate mortgage, the monthly A) payment remains constant and the interest rate fluctuates. B) payment remains constant and interest rate stays the same. C) rate varies and the interest rate varies. D) payment remains constant until the balloon payment.

B

Which of the following is true about condominiums? A) Each person owns a portion of the land on which a condominium is located. B) Maintenance fees of common areas are shared. C) They have more privacy than single family homes. D) All of the above.

B

When buying a home, all of the following are factors one should consider except A) consider a condominium as an alternative to purchasing a house. B) once you decide how much you can afford, identify a specific home you desire. C) borrow as much as the lender is willing to loan you since the mortgage interest is tax deductible and may result in a larger tax refund. D) evaluate the homes for sale in your target area.

C

Which of the following is most important when selecting a home? A) Taxes B) Insurance C) Resale value D) Location

D

Which of the following would you not factor into a decision to buy or rent a house? A) The return you can receive on investing your money B) Current mortgage rates on 30-year fixed rate mortgages C) The value you place on your pride of ownership D) All of the above should be considered in the decision

D

Government-backed mortgages may require lower down payments than conventional mortgages, but usually charge higher interest rates.

F

If you think interest rates will rise in the near future, you should seek an adjustable rate mortgage (ARM).

F

Most realtors agree that location more than anything influences a home's future resale value.

T

Proximity to schools can increase home values, while increased distance from schools often lowers home values.

T

Purchasing a condominium is an alternative to purchasing a home but also requires good decision-making skills.

T

The purchase of a home represents a potential liability if you need to move quickly and the home does not appreciate rapidly in value.

T

A 15-year mortgage compared to a 30-year mortgage has all of the following except A) a lower appraisal fee. B) less interest over the life of the loan. C) higher payments. D) a faster build up of equity.

A

All the information, except ________, can be found on a variety of Web sites about mortgages. A) projected rate increases B) loan rates, length of loan, and principal C) loan applications D) background on different mortgage companies

A

During the financial crisis of 2008-2009, approximately ________% of subprime mortgages had late payments of at least 30 days. A) 25 B) 75 C) 5 D) 50

A

Fixed rate mortgages usually have A) the same interest rate. B) an adjustable rate. C) a balloon payment. D) different monthly payments depending upon the interest rate.

A

Greg and Kathy are considering purchasing a home requiring an $85,000 mortgage. The payment on a 30-year mortgage for this amount is $605. The payment for a 15-year mortgage is $752. What is the additional amount of interest paid on the 30-year mortgage? A) $82,440 B) $52,920 C) $135,360 D) $26,460

A

In negotiating a price for the purchase of a home, you should do all except which of the following? A) Offer the highest price you can afford first to get it settled quickly B) Write up a contract C) Realize this is a process D) Understand that realtors are brokers between the buyer and seller

A

Owning a home entails all of the following expenses except A) renter's insurance. B) property taxes. C) maintenance expenses. D) lost interest on down payment and closing costs.

A

Points paid at closing are for payment of A) finance charges or interest. B) loan processing. C) property taxes. D) inspections.

A

The initial rate on an ARM will typically be A) relatively low to benefit the homeowner. B) relatively high to allow the bank to recoup costs. C) about the same as a fixed rate loan on the same maturity. D) set by state law.

A

When buying a home, all of the following are factors one should consider except A) the existing interior paint colors. B) resale value. C) taxes. D) maintenance.

A

When homeowners expect that interest rates will rise, they prefer A) fixed rate loans. B) adjustable rate mortgages. C) balloon payment mortgages. D) decreasing term mortgages.

A

) A market analysis is not A) an estimate of the price of a home. B) a guarantee of the price you will receive when selling a home. C) based on similar homes in the area. D) determined by multiplying the number of square feet in the home by the average price per square foot of comparable homes.

B

Adjustable-rate mortgages are riskier than fixed-rate mortgages. However, they may be useful when the interest rate is expected to ________ in the future. A) increase B) decrease C) remain stable D) None of the above.

B

An advantage of using online realtor services is that A) you have easier access to qualified realtors. B) the commissions and fees are often less than those charged by traditional full-service realtors. C) your chances of selling a house are about 50% greater. D) you will get a higher price for houses sold or pay lower prices for houses bought.

B

Homeowner's association fees are not A) often used for security guards. B) optional to homeowners in an area. C) used to maintain common grounds. D) often quite high and should be considered when buying a home.

B

Which of the following is not true concerning adjustable rate mortgages (ARMs)? A) There is usually a limit on how much a rate may increase per year. B) There is usually no limit on how much a rate may increase per year. C) There is usually a limit on how much a rate may increase over the life of the loan. D) The maximum increase over the life of the loan is usually 5%.

B

Which of the following is true? A) Loan origination fees are around 10-20 percent. B) Loan application fees range from $100 to $500. C) Points are $100-$200 per $1,000 of the home's value. D) Appraisal costs range between 15-20% of the value of the house.

B

Which of the following would not be included in closing costs? A) Points B) Earnest money C) Title charges D) Recording fees

B

Real estate brokers usually offer good advice, but since they have a vested interest in you buying from them, you should also factor in your own judgment.

T

You are considering the purchase of a 2,300 square foot house that is being offered for $238,500. After researching recent home sales in the area, you find three that are comparable. The first was a 2,500 square foot home that sold for $225,000, the second was a 2,200 square foot home that sold for $200,000 and the third was a 2,000 square foot home that sold for $178,000. Based on your analysis, what would be a reasonable offer on the house? (Round all computations to the nearest dollar.) A) $210,000 B) $207,000 C) $205,000 D) $201,000

B

A ________ is responsible for determining the value of the home as part of the loan process. A) banker B) loan officer C) real estate appraiser D) real estate agent

C

A mortgage where the interest owed changes in response to movements in a specific market-determined interest rate is called a(n) A) HELOC. B) fixed-rate mortgage. C) adjustable-rate mortgage. D) second mortgage.

C

An amortization schedule shows all but the A) principal portion of the payment. B) interest portion of the payment. C) increase in market value. D) beginning and ending balances.

C

Annual property taxes for homes are usually A) less than 0.5% of the home value. B) 0.5% to 1% of the home value. C) 1% to 2% of the home value. D) greater than 2% of the home value.

C

Chuck obtained a mortgage of $90,000 to finance a $120,000 home. The title search will be $400, appraisal fee $500, application fee $900, and he will pay 1% origination fee. How much are his closing costs? A) $900 B) $1,800 C) $2,700 D) $3,000

C

Of the following fees involved in the purchase of a house, which is usually not borne by the purchaser? A) Title search and insurance B) Appraisal fee C) Realtor's commission D) Loan application fee

C

Over the life of a mortgage, the payment to principal ________ and the portion to interest expense ________. A) increases; increases B) decreases; increases C) increases; decreases D) decreases; decreases

C

The schedule that discloses the monthly payment that you will make, based on a specific mortgage amount, a fixed interest rate level, and maturity is called a(n) A) depreciation schedule. B) payment table. C) amortization table. D) obligation schedule.

C

The type of home which probably would require the lowest maintenance is a (an) A) large home. B) older home. C) home built by a well-known construction company. D) home with a large yard.

C

To determine how much home you can afford to purchase, you should not consider A) finding a good Internet page that has a mortgage calculator. B) looking at your budget, balance sheet, and income statement. C) possible future raises you will receive. D) consulting a loan officer.

C

The specific location of your home can influence the amount of property taxes and insurance you will pay.

T

Condominiums have the advantages of sharing expenses among owners and giving the owners more privacy than single-family homes.

F

In addition to closing costs, realtor fees of about 10% are charged when you buy a home.

F

Online realtor services are more convenient, but usually charge higher commissions than traditional full-service real estate companies.

F

Renting is almost always a better financial option since owning a home has so many costs such as repair, insurance, and taxes.

F

Since real estate brokers are licensed and bonded, they are required to give you unbiased information about real estate purchases.

F

Since there is no limit on how much and how fast adjustable rate mortgages (ARMs) can increase, most homeowners are afraid to take out this kind of loan.

F

The schedule that shows your monthly home payment and the amounts applied to principle and interest each month is called a depreciation table.

F