Ch 7 Smartbook

True or False: Location is considered the most important factor when buying a home.

True

A drawback of 30-year conventional mortgages is:

you will pay higher initial rates than with adjustable mortgages.

Generally speaking, the ______ the credit score the ______ the mortgage rate.

higher, lower (vice versa)

FHA/VA fixed-rate mortgage typically have ______ down payment requirments

low

What are the advantages of owning a condominium?

Fewer maintenance responsibilities when compared to a house

True or False: Every buying decision is a statement about your lifestyle.

True

Which of the following can affect mortgage affordability?

-Mortgage rates -The amount of income you earn -Your down payment -The length of the loan

Which of the following are the important considerations when evaluating a local school system?

-Percentage of students who go to college -Program quality -Achievement level of students

The Act that requires that PMI (private mortgage insurance) be removed automatically once equity in the home reaches 22 percent is known as the:

Homeowners Protection Act

How could the tax benefit and risk of a home equity loan best be described?

Interest is tax deductible, but default could mean foreclosure.

The benefits of an adjustable rate mortgage include which of the following?

Lower initial rates than fixed-rate loans

Which of the following expenses is NOT usually incurred by a tenant? -Property taxes -Renters insurance -Utilities -Security Depoisit -None of these

Property Taxes

True or False: A security deposit covers the cost of damages that may be done to a rental unit.

True

True or False: Points are prepaid interest charged by the lender and one point is equal to 1 percent of the loan amount.

True

The common areas of condominiums are not owned by the condo owner but by the condominium _____

association

The most common sources for a down payment include all of the following except:

checking account funds

Factors such as the material quality and condition of the building, the condition of the foundation, roof and gutters, and the type of chimney are part of the:

exterior construction

Factors such as the appearance of the neighborhood, the quality of landscaping, the condition of the driveway, and the outdoor lighting are part of the:

exterior facilities

The main benefit of a conventional 30-year mortgage is:

fixed payments

The benefits of an adjustable rate mortgage include all of the following except:

fixed rates on loans

The one drawback of a conventional 15-year or 20-year mortgage when compared to a 30-year mortgage is:

higher monthly payments

Conventional 30-year mortgages provide certainty regarding principal and

interest

An adjustable-rate mortgage usually has a rate cap and a ________ cap

payment

A _______ deposit is usually one month's rent that is held by the landlord to cover the cost of any damages to the rented property.

security

In the context of the home inspection as part of the home-buying process, identify elements of interior design.

-Accessibility to basement and attic -Adequate laundry area -Ventilation for cooking

In the context of the home inspection as part of the home-buying process, identify elements of exterior facilities.

-Appropriate drainage system -Condition of patio or porch

What are some of the disadvantages of home ownership?

-Limited mobility when compared to renting -Significant financial commitment -Higher living expenses than renting

disadvantages associated with renting?

-Restrictions on pets (no pets) and certain activities -Limitations on remodeling -No federal tax benefits

The benefits of a conventional 15-year or 20-year mortgage usually include:

-a quicker pay-off of the loan than a 30-year amortization -a lower rate than a 30-year mortgage -a faster equity build-up than a 30-year mortgage

The expenses covered by a condominium monthly fee include:

-improvements -maintenance and repairs -insurance for common areas

The benefits of a FHA/VA fixed-rate mortgage include:

-may be assumable with no prepayment penalties -low down payment

The amount of money offered for a home depends on:

-recent selling prices of homes in the area. -the time the home has been on the market. -features of the home.

When purchasing a home, the buyer (not the seller) can expect to pay closing costs such as:

-settlement fee. -title search fee. -appraisal fee.

The advantages of owning a home include:

-stability of residence -tax benefits -personalized living location

Common sources of down payment funds to purchase a home include:

-the sale of investments -personal savings -assistance from relatives

Steps of the mortgage process:

1. Complete the mortgage application and present evidence of income, etc 2. lender gets credit report, confirms financial aspects 3. mortgage is approved/denied

Which of the following are the common terms (years) of home mortgages?

10, 15, 20, 30

Private mortgage insurance (PMI) is required when the down payment is less than Blank______ of the purchase price of the home.

20%

Total Cost of Owning Given the information here what is the annual cost of owning? -Home Value (300,000) -Annual Mortgage Payments (19,200) -Annual Property taxes (4,800) -Annual homeowners' insurance (1,200) -Estimated maintenance & repairs (1% of home value) -Growth in equity (3,000) -Tax savings (mortgage interest & property tax) (2,800) -Estimate annual appreciation (1.5 % of home value)

Annual mortgage payments + annual property taxes + annual homeowners' insurance + estimated maintenance and repairs) - (growth in equity + tax savings + estimated annual appreciation) = total annual cost of owning [19,200 + 4,800 + 1,200 + (1% x 300,000)] - [3,000 + 2,800 + (1.5% x 300,000)] = 28,200 - 10,300 = 17,900.

True or False: Monthly payments are typically the same across 15-, 20-, and 30-year loans.

False

True or False: Home equity loan interest is only tax deductible as long as the proceeds are spent on education with the risk being that a default on the equity loan could mean foreclosure.

False **Home equity loan interest is deductible regardless of what the loan proceeds are used for. However, default on the loan could mean you lose the home in a foreclosure.

During which step of the mortgage loan application process does the lender obtain a credit report and verify your application and financial status?

Step 2

Educators recommend that schools be evaluated based on which of the following?

Student achievement level

Which of the following captures the main factor to consider when refinancing a loan at a lower rate?

The cost of refinancing versus the benefits (savings) of lower monthly payments

Which of the following is NOT true? -A rate cap restricts how much a rate can increase or decrease. -A payment cap could cause negative amortization. -The initial rate offered by ARMS is usually higher than conventional mortgages. -The initial rate offered on ARMS is usually lower than those on conventional mortgages.

The initial rate offered by ARMS is usually higher than conventional mortgages.

True of False: Two external (market) factors that affect the price of a home are the current demand for housing and the financing options (i.e., interest rates) available.

True

True or False: Even if you do not use a real estate agent to sell your home, you should use an attorney or title company to close the transaction.

True

True or False: Making needed repairs, painting the interior and exterior of the home, and cleaning all rooms are strategies that can lead to a fast and financially favorable sale.

True

True or false: You should consider refinancing costs in relation to the savings gained with a lower monthly payment before moving forward with refinancing.

True; consider whether the benefits outweigh the costs

An estimate of the current value of the property is known as:

appraisal

Homeowners can request that PMI be removed once equity has grown to 22 percent of the _____ of a home.

current market value. **The current market value determines the amount of equity held.

Quality of landscaping, trees, and shrubs are part of the:

exterior facilities in a house.

Factors such as the size and arrangement of rooms, layout of kitchen, and the location of bedrooms, closets, and storage space should be considered when inspecting the ______ of a home.

interior design

Your ______, needs, desires, and attitudes are reflected in your choice of a home.

lifestyle

Renters have fewer responsibilities than home owners because:

tenants are not responsible for maintenance or repairs

Despite its fixed payments, some borrowers will select an adjustable rate mortgage over a conventional mortgage because:

the adjustable rate mortgage has lower initial payments