PFM final chapter 10 (purchasing and financing a home)
which of the following would not be included in closing costs A) Points B) Earnest money C) Title charges D) Recording fees
earnest money
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.
escrow account
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.
being in an area that has just been zoned for industrial use
the type of mortgage that is usually the shortest term and will require further action at the end of it is A) graduated payment mortgage. B) balloon payment mortgage. C) adjustable rate mortgage. D) fixed rate mortgage.
balloon payment mortgage
when buying a home, all of the following are factors one should consider, EXCEPT A) considering a condominium as an alternative to purchasing a house. B) once you decide how much you can afford, identifying a specific home you desire. C) borrowing 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) evaluating the homes for sale in your target area.
borrowing 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
the size of the monthly payment on a mortgage is not dependable on the A) principal borrowed. B) interest rate. C) maturity. D) broker's commission.
brokers commission
one disadvantage of a neighborhood with a homeowners association is that A) the association covenants can restrict how you decorate the outside of your home as well as what you store outside on the property. B) the association often chooses the trash and other common service companies for all homeowners. C) the association maintains the common area so homeowners do not have to. D) the association pays for all homeowner's insurance.
convenats can restrict how you decorate the outside of your house as well as what you store on your property
in negotiating for the purchase of a home, which of the following is unlikely to be included in the negotiating process A) Possession date B) Repairs that are to be made C) A pile of wood for the fireplace D) Cost of moving the buyer's possessions into the home
cost of moving the buyer's possessions into the home
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.
decrease
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 real estate broker.
determine a realistic price range of homes you can afford
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.
fixed rate loans
if the interest rate on your house mortgage will not change over the life of the loan you have a _________
fixed-rate mortgage
If you anticipate your income rising slowly but steadily over the years, you may want to consider a A) 30-year fixed rate mortgage. B) 15-year ARM. C) graduated payment mortgage. D) balloon payment mortgage.
graduated payment mortgage
the type of home that probably would require the lowest maintenance is a(n) A) large home. B) older home. C) home built by a well-known construction company. D) home with a large yard.
home built by a well-known construction company
when buying a home, which of the following below should be considered in the decision process A) Interior paint colors B) Homeowner association covenants C) How far away it is from the nearest mall D) A, B and C are all key considerations. Answer: B
homeowners association covenants
am 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
increase in market value
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
increases; decreases
which of the following statements about interest-only mortgages is NOT true A) Interest-only mortgages cannot be Qualified Mortgages under The Consumer Financial Protection Bureau's rules. B) Mortgage payments may increase abruptly. C) Interest-only mortgages allow the borrower to pay only interest for the life of the mortgage. D) Interest-only mortgages were popular before the financial crisis.
interest-only mortgages allow the borrower to pay only interest for the life of the mortgage
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
$2,700
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 square 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
$204,600
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
$207,000
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%? A) $50 B) $600 C) $2,500 D) $7,200
$600
Tiffany and Jason want to obtain a $72,000 mortgage. Their payments would be $730 for a 15-year mortgage and $579 for a 30-year mortgage. What would be their total savings in interest by using a 15-year mortgage? A) $27,180 B) $54,360 C) $77,040 D) $131,400
$77,040
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
$82,440
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.
1% of the amount being financed
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.
1% to 2% of the home value
Lucky Louie is putting together an offer on a previously owned home he wants to buy. The home has 2,200 square feet of living space and is priced at $225,000. Upon his inspection, the condition of the roof is not good, and the central air system is on its last leg. Louie estimates replacement costs for these two systems to be a minimum of $17,000. Recent comps in the neighborhood show a 2,400 square foot house in good condition having sold for $245,000 just one month ago. What should Louie offer? A) $225,000 B) $206,000 C) $208,000 D) Stay away from a house needing major system repairs.
208,000
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
25
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.
30 year fixed rate
Lucky Louie qualified for a $250,000 mortgage for his new home. The loan application was $400, closing attorney fee $500, appraisal fee $400, title insurance $1200, document fee $75, credit check $50. The loan requires a 1% origination fee plus 1 point ( 1 %) interest to buy down the rate. How much are Louis's total closing costs? A) $5,500 B) $7,625 C) WOW! D) $5,125
7,625
one point on an 80,000 loan for the purchase of a house of 110,00 would equal A) $100. B) $800. C) $1,000. D) $1,100.
800
when considering how much home you can afford, you should consider all of the following, except A) principal and interest payment. B) annual homeowner's insurance premium divided by 12. C) homeowner's association monthly fee. D) A, B and C should all be considered.
A, B and C should all be considered
If a current mortgage payment of $792 per month can be reduced to $578 per month by refinancing, how many months would you need to remain in the house to recoup refinancing charges of $3,784? (Round up to the nearest month.) A) Five months B) Seven months C) Eighteen months D) The maturity of the loan
Eighteen months
While interest rates have been historically low for the past 8 years, rates are expected to begin to increase over the coming couple of years. Given the interest rate environment, which type of mortgage would be best for your new home? A) Variable rate interest only mortgage since the payments would be the lowest B) A 5 year adjustable ARM C) A 30 year conventional fixed rate mortgage D) A one year adjustable ARM with a 6% cap
a 30 year conventional fixed rate mortgage
points paid at closing represent A) a fee paid to the lender. B) part of the loan principal. C) the property tax rate. D) the interest rate on the mortgage.
a fee paid to the lender
during a period when interest rates are very low by historical standards and are expected to increase substantially over time, individuals should choose A) an ARM with a rate that adjusts after three years. B) a fixed-rate mortgage. C) an ARM that adjusts after one year. D) an ARM with a rate that adjusts every year for five years and then converts to a fixed rate
a fixed mortgage rate
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.
a guarantee of the price you will receive when selling a home
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 buildup of equity.
a lower appraisal fee
before buying a house you should do the following A) Have your real estate agent complete a market price analysis for comparable properties B) Have a certified home inspector complete an inspection of the home inside and out C) Check your budget to make sure the home including all associated costs is affordable D) A, B and C are all important.
a,b, and c are all important
a mortgage where the interest owed changes in response to movements in a specific market-determined interest rate is called A) HELOC. B) fixed-rate mortgage. C) adjustable-rate mortgage. D) second mortgage.
adjustable- rate mortgage
ARM stand for A) alliance rated mortgage. B) adjustable-rate mortgage. C) American Realty Mortgage. D) American rated mortgage.
adjustable-rate mortgage
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.
all of the above
which of the following would 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
all of the above should be considered
the schedule that discloses the monthly payment that you will make, based on the specific mortgage amount, a fixed interest rate level and maturity is called an A) depreciation schedule. B) payment table. C) amortization table. D) obligation schedule.
amortization table
which of the following is FALSE about condominiums A) Association dues are required. B) An individual owner must 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.
an individual owner must mow the grass or make repairs to the common areas when needed
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.
any of the above depending on the terms of the loan
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
availability of companies that perform maintenance and repair services in the ares
which of the following is true of private mortgage insurance Which of the following is true of private mortgage insurance? A) It generally is required if the borrower makes a down payment of less than 20%. B) It costs $20 to $25 per year. C) It protects the borrower in the event that the lender goes bankrupt. D) It is another name for title insurance.
it generally is required if the borrower makes a down payment of less than 20%
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% and 20% of the value of the home.
loan application fees range from 100 to 500
by shopping around, a homeowner can probably avoid which of the following fees A) Title search B) Title insurance C) Appraisal fee D) Loan origination fee
loan origination fee
which of the following is most important when selecting a home A) Taxes B) Insurance C) Resale value D) Location
location
when obtaining a morgate you should A) apply for the maximum amount you can afford, since the house will be an appreciating asset. B) let a real estate agent 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 yea
maintain some funds for liquidity purposes to cover unanticipated bills
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.
maintenance fees of common areas are shared
before you buy a house, you should conduct this to determine if the price is comparable to similar houses in the area
market analysis
to determine how much you can afford to purchase, you should not consider A) finding a Web site that has a good mortgage calculator. B) looking at your budget, balance sheet, and income statement. C) money you might receive if you win a small lottery. D) consulting a loan officer.
money you might receive if you win a small lottery
if you are not planning to stay in your current house very long, _________ probably not be advantages
mortgage refinancing
in negotiating a price for the purchase of a home, you should do all of the following, EXCEPT A) offer the highest price you can afford first to get the purchase settled quickly. B) write up a contract. C) assess how market conditions affect the value of the home. D) understand that real estate agents are brokers between the buyer and seller.
offer the highest price you can afford first to get the purchase settled quickly
homeowners association fees are NOT A) often used for security guards. B) optional for homeowners in the area. C) used to maintain common grounds. D) often quite high and should be considered when buying a home.
optional to homeowners in an area
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.
payment remains constant and interest rate stays the same.
which of the following does NOT reflect the impact of a strong economy in 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.
people spend their money more conservatively
all of the following 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
projected rate increases
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
real estate appraiser
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) Real estate broker's commission D) Loan application fee
real estate broker's commission
When selling a home, which of the following costs will you incur? A) Loan origination fee B) Real estate agent's commission C) Title search and insurance D) Points
real estates agent's commission
when purchasing a home, which of the following costs will you NOT incur A) Origination fee B) Real estate agent's commission C) Application fee D) Appraisal fee
real estates agent's commission
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
reduces the length of the loan
You currently have a 5 year adjustable variable rate mortgage which is 4 years into the adjustment period. The current interest rate is 3.5% per annum, and the rate is indexed to the 10 year Treasury note which is currently yielding 2.15%. Most financial forecasters are anticipating rate increases over the 2016-2017 period, but there is no consensus on the total amount of the increases. Given the interest rate environment, what would be the best course of action for your mortgage? A) Double up on payments and pay it off in half of the term. B) Refinance at the conventional 30 year fixed rate currently offered at 3.75%. C) Stick with your existing mortgage since it is currently 3.5% and below the offered fixed rate. D) Refinance into a 1 year ARM so that when rates decrease you will be in a better position.
refinance at the conventional 30 year fixed rate currently offered at 3,75%
the initial rate on an ARM will typically be A) relatively low, which benefits 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.
relatively low, which benefits the homeowner
owning a home entails all of the following expenses, EXCEPT A) renter's insurance. B) property taxes. C) maintenance expenses. D) lost interest on the down payment and closing costs.
renter's insurance
which of the following costs associated with home ownership is hardest to budget A) Insurance B) Taxes C) Repairs D) Mortgage payments
repairs
amortization schedule
schedule of payments, interest expense, and balance
of the following criteria for selecting a home, which would probably be least important for buyers older than 55 A) Price B) Convenient location C) School system D) Taxes
school system
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 for homes. 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.
sellers were able to attract potential buyers by slightly reducing sale prices
as a result of the financial crisis of 2008-2009, some financial institutions accepted a ________ arrangements in which the lender accepted the proceeds of the sale of a home as full payment in the debt owed even though the proceeds were less than the debt owed A) mortgage modification B) foreclosure C) refinancing D) short-sale
short-sale
when a mortgage lender provides loans to borrowers without sufficient income or a down payment, the lender is said to provide a ______mortgage payment, the lender is said to provide a ________ mortgage. A) VA B) subprime C) prime D) FHA
subprime
which of the following is the primary reason that a mortgage lender may allow a rate modification of an existing mortgage holder with a fixed-rate mortgage A) The lender receives a one-time fee. B) The borrower may obtain a new mortgage from another lender. C) The borrower receives a lower interest rate. D) The borrower does not have to pay closing costs.
the borrower may obtain a new from another lender
an advantage of using online real estate services is that A) you have easier access to qualified real estate agents. B) the commissions and fees are often less than those charged by traditional full-service real estate agents. 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
the commissions and fees are often less than those charged by traditional full-service real estate agents
when buying a home, all of the following are economic factors one should consider, EXCEPT A) the existing interior paint colors. B) resale value. C) taxes. D) maintenance.
the existing interior paint colors
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.
the same interest rate
which of the following is NOT true concerning adjustable rate mortgages 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%.
there is usually no limit on how much a rate may increase per year
all of the following are true of FHA loans, EXCEPT A) they are provided by private lenders but guaranteed by the FHA. B) they enable lower and middle income individuals to obtain mortgage financing. C) they are required for mortgages larger than $300,000. D) it is another name for title insurance.
they are required for mortgages larger than 300,000
closing cost
title search and insurance, appraisal fee, and other costs
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
veterans administration mortgages are extended to most first-time homebuyers
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.
with a 10 to 20% down payment and a mortgage
refinancing a home is usually worthwhile when A) interest rates have risen. B) you can increase your monthly payment considerably. C) you will live in your home long enough to recoup the closing costs. D) you plan on moving in less than a year.
you will live in your home long enough to recoup the closing costs