Personal Finance Chapter 7
Approval usually locks rate for _________________ days
60-90
Automatic PMI termination when equity equals?...
>22%
How is the commission paid by the seller?
It is built into the price
What is an appraisal?
It is not an inspection; it is an assessment of market value
Home ownership includes ____________ ____________ financial advantage
Long-term
Types of Mortgages
Fixed-rate/payment mortgages Adjustable-rate mortgages Government-Guaranteed financing programs Interest-only mortgage Buy-down Second mortgage
Fixed-rate, fixed payment mortgage is
amortized
Home =
collateral
For second mortgage, interest may be tax ___________.
deductible
Before buying a house you must...
determine what you can afford
When an individual obtains financing they must determine...
down payment account
When selecting location, be aware of ___________ laws.
Zoning
Second mortgage is also known as
home equity loan
Your lifestyle and your choice of housing depends on...
how you spend your time and money
Adjustable Rate Mortgage (ARM) is also known as
flexible rate or variable rate mortgage
Every buying decision =
financial factors
How much must you put down for a fixed-rate mortgage?
5%, 10% or 20%
Condominium does not equal...
a type of building structure
(Adjustable Rate Mortgage) Payment cap
restricts amount of change in payment
Fixed Rate Mortgage
A mortgage in which the interest rate does not change during the entire term of the loan.
Second Mortgage
A mortgage that has a lien position subordinate to the first mortgage.
Any deductions in the lessers security deposit must be?
Documented
Advantages of renting a home?
Easy to move Minimal financial commitment Fewer responsibilities for maintenance
Manufactured homes
Fully or partially assembled in a factory, and then moved to the housing site
Whether you should rent a house or buy a house is based on...
Lifestyle Financial factors Mobility vs. permanence
Interest-only mortgage have ______ payments for the first few years
Lower
Loan for which you qualify will be greater when rates are _________.
Lower
PMI
Mortgage insurance if <20% down
Buy a ______________ special at a lower price, if you have the time, skills, and money to fix it up
handyman's
Adjustable Rate Mortgage
has a interest rate that increase or decreases during the life of the loan
What must you look at when determining what you can afford?
income current living expenses how much you have for a down payment
Condominium
individual ownership of a unit in a building A form of homeownership
buy down mortgages _________ payments for the first few years
reduces
Disadvantages of buying a home
Financial commitment Higher living expenses than renting Limited mobility
Who is meeting together for closing?
buyer, seller and lender
Real estate settlement procedure act requires...
buyers be given closing cost estimate before the closing
For interest-only mortgages, payments go towards ______ only
interest
When selecting location, be sure to assess the _________ ___________ if you have children
school system
For buy-down, interest rates are...
subsidy
What are the three main phases of a home-buying process
1) Complete an application and meet with lender to provide evidence of qualification 2) Lender obtains credit report and verifies application 3) Mortgage is approved or denied
What are the 5 steps to the home buying process?
1) Determine homeownership needs 2) Find and evaluate the home 3) Price and property 4) Obtain financing 5) Close the purchase transaction
As a home owner, you are responsible for paying ___________ tax.
Property
What does renter's insurance cover?
contents of rented property
What are common in negotiation of the purchase price?
counteroffers
For Adjustable Rate Mortgage, interest rates varies of the _______ of a loan
life
buy down mortgage
paying interest in advance to reduce monthly payments
Points
prepaid interest charged by the lender Prepaid interest as a % of loan amount
Have a loan officer _________ you
prequalify
What is stability of residence?
the american dream/norm
Cooperative housing
units owned by a non-profit organization A shareholder purchase stock for the right to live in a unit in a building with multiple units
Reverse mortgages
when a homeowner borrows against the equity in their home and obtains monthly, tax-free payments from the lender
How many years will one be paying for fixed payments?
15, 20, 30 years
Multi-unit dwelling
2 homes (duplex) Townhouse (2,4, or 6 units)
A mortgage company will require an ______________.
Appraisal
What is required by homeowner's protecting act?
Automatic PMI termination
Prefabricated
Components factory-built and assembled at site.
What are the financial benefits one must consider when evaluating home ownership?
Deduct property taxes and mortgage interest Potential increase in value of your home Building an equity in your home
What happens at closing?
Document signing Last minute details settled Closing costs Real estate settlement procedures act
What can a payment cap result in?
Negative amortization
What must one due when given a purchase price?
Negotiate
If renting a house, ________ utilities are included
No
Disadvantages of renting a home?
No tax benefits Limitations regarding remodeling Restriction on pets and other activities
What is contingency clause?
Offer that is dependent on obtaining financing and sale of current home
What do you take into consideration when selecting and financing housing?
Personal preference and financial factors
When determining what you can afford, consider both _________ and ________.
Price and quality
Advantages of buying a home
Pride of ownership Financial benefits Lifestyle benefits
What must you do when finding and evaluating your potential home? (step 2)
Select a location Hire a real estate agent Home inspection
What are the 3 types of real estate agents?
Seller's agent Dual agent Buyer's agent
Real estate agents will..
Show you homes that meet your needs Present your offer Negotiate the price Assist in obtaining financing Represent you at the closing
Traditional financial guidelines:
Spend no more than 25-30% of take-home pay on housing, or no more than 21/2 times your annual income
What must one consider when evaluating home ownership?
Stability of residence Financial benefits Lifestyle flexibility
What is the "transfer clause"?
The right to sublet a unit
Renting is ________ costly in the short run
less
A ________ is paid to obtain a lower mortgage rate
premium
Closing costs =
settlement cost
In a buy-down mortgage, interest rate is...
stubborn
What happens if there is no damage to the unit at the end of the lease?
the lessee gets their security deposit back
Time frame of a mortgage?
usually 10, 15, 20, 25,30 years
Qualifying for a mortgage includes
-Income -Debts -Credit history (620+ score) -Down payment amount -Length of the loan -Current mortgage rates
How much does a security deposit usually cost?
1 months rent
What does a lease include?
Description and address of property Name and address of the landlord (lessor) Name of tenant (lessee) Effective date and length of lease Amount of security deposit Amount and due date of rent Date and amount for late rent payments List of included utilities, appliances, etc. Restriction of certain activities Transfer clause Conditions under which landlord may enter the rental unit
How can one determine the home price?
Price if affected by selling prices in the area Current demand for housing Time home has been on the market Owner's need to sell Financing options Features and conditions of home Purchase agreement/contract
What is earnest money?
Putting down money to show you're in good faith Potion of the price is deposited as evidence of good faith
Lease
a legal document that defines the conditions of a rental unit
Mortgage
a long-term loan on a specific piece of property such as a home or other real estate
interest-only mortgage
a mortgage that requires the borrower to pay only interest; typically used to finance the purchase of more expensive properties
Government-Guaranteed financing programs have a ___________ down payment than conventional programs
lower
Mass production under factory conditions keeps cost _________ than site-built homes
lower
Contract for a contractor should include...
time schedule cost estimates description of work a payment schedule
Mobile
usually less than 1000 square feet; land can be leased or bought
Types of housing available?
-Single-family Dwelling -Multi-unit Dwelling -Condominium -Cooperative Housing -Manufactured Homes -Mobile Homes -Custom Homes (building a home)
End point
1% of the loan amount
Before closing the purchase transaction, a buyer should?
make arrangements for a walk-through for last minute items of negotiation
What is lifestyle flexibility?
Express your individuality
Questions one should ask when building a home
Does the carpenter have needed experience? Does the carpenter have good working relationships? What assurance do you have about quality? What are the payment arrangements? What delays will be considered legitimate? Is the contractor license or insured? Are there any complaints about this contractor?
What does the lessor do if the lessee damages the property?
Takes the security deposit
What are examples of government guaranteed financing programs?
Veterans administration Federal housing authority
What utility is often covered in apartment rent?
Water
(Adjustable Rate Mortgage) Rate cap
restricts amount of change in rate
What is a purchase agreement?
your legal offer to purchase a home