Deck 9: The Housing Decision: Factors and Finances

Question 1

Real estate advisors suggest a price-to-rent ratio of 25 or lower when you buy to possibly avoid a lower home value after your purchase.

Answer 1

False

Question 2

Renting would be most appropriate for people who:

A)want more tax deduction benefits.
B)desire to do their own maintenance and repairs.
C)have limited initial funds available.
D)enjoy remodeling their residence.
E)desire unmonitored parties.

Answer 2

have limited initial funds available.

Question 3

Kate plans to rent instead of buying her housing.Which advantage of renting will she realize?

A)Tax deductions
B)Ease of mobility
C)Property value increases
D)Restricted lifestyle
E)Home remodeling flexibility

Answer 3

Ease of mobility

Question 4

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

Question 5

Prepaid interest may be charged by the lender for a lower mortgage rate.

Question 6

Real estate professionals believe that location is the most important factor to consider when selecting a home.

Question 7

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

Question 8

An FHA fixed-rate mortgage has low down payment requirements and is fully assumable with no prepayment penalties.

Question 9

Negotiating a purchase price for a home can involve an offer and a counteroffer.

Question 10

A payment cap keeps the payments on an adjustable-rate mortgage at a given level or limits the amount to which those payments can rise.

Question 11

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

Question 12

A deed is the document that transfers ownership of the property from one party to another.

Question 13

Home improvements may or may not increase the selling price of the home.

Question 14

A major expense associated with home ownership would be:

A)renter's insurance.
B)the security deposit.
C)increased value of the property.
D)real estate taxes.
E)interest lost on the security deposit.

Question 15

The amount of cash available for a down payment will affect the size of the mortgage loan needed to purchase a home.

Question 16

The purpose of a rate cap in an adjustable-rate mortgage is to limit the amount by which the interest rate can increase or decrease during the ARM term.

Question 17

A lease provides protection to both the tenant and the landlord.

Question 18

Condominiums involve the purchase of an individual housing unit in a building rather than an entire building.

Question 19

Renting is more advantageous than buying a home when you are seeking:

A)lower initial costs.
B)fewer restrictions regarding remodeling.
C)a long-term investment.
D)tax deductions for property taxes.
E)permanence of residence.

Question 20

A common cost associated with renting is:

A)the down payment.
B)closing costs.
C)property taxes.
D)maintenance costs.
E)the security deposit.

Question 21

As you determine how much of a home you can afford,consider the price of the house along with the quality and:

A)size of the home.
B)school zone.
C)location of the home.
D)local zoning laws.
E)outdoor living area.

Question 22

Which of the following would increase the equity in a home at a faster rate?

A)Making a down payment of 10 percent instead of 20 percent
B)Obtaining a mortgage interest rate of 9 percent instead of 8 percent
C)Obtaining a 15-year mortgage instead of a 30-year mortgage
D)Making larger deposits to the escrow account
E)Obtaining an interest-only mortgage

Question 23

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

A)Increase in family income
B)Increase in insurance payments
C)Decrease in initial maintenance and repairs
D)Increase in utility bills
E)Increase in monthly living expenses

Question 24

A conventional mortgage usually has:

A)a variable interest rate.
B)a government guarantee.
C)a balloon payment.
D)equal payments.
E)a payment cap.

Question 25

The legal document involved in renting an apartment is called a:

A)service contract.
B)mortgage.
C)lease.
D)security deposit.
E)escrow account.

Question 26

Prepaid interest charged by a mortgage lender is called:

A)Escrow
B)Points
C)Origination fee
D)Title fee
E)Deed

Question 27

A cooperative housing arrangement involves:

A)government-supported rental units.
B)a nonprofit organization whose residents must own its stock.
C)individual ownership of a living unit in a building.
D)factory built and on-site assembly.
E)housing units owned by a real estate developer.

Question 28

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

A)An FHA mortgage
B)A buy-down
C)A fixed-rate mortgage
D)A shared-appreciation mortgage
E)A home equity loan

Question 29

The amount of mortgage a person is eligible for will be larger when:

A)the value of the collateral is lower.
B)the down payment is lower.
C)other debt obligations are higher.
D)the family's income is lower.
E)the interest rates are lower.

Question 30

What does it mean to sublet an apartment?

A)Increase the rent
B)Lower maintenance costs
C)Convert the units to condominiums
D)Meet certain government housing regulations
E)Obtain another tenant to take over rent payments during the lease period

Question 31

Which of these is a potential financial benefit of home ownership?

A)Low security deposit
B)Tax deductibility of the down payment
C)Lifestyle flexibility
D)Increases in property value
E)No maintenance cost

Question 32

The purpose of a security deposit is to:

A)pay for any damages that may occur during the lease period.
B)cover the costs of utilities.
C)pay for the tenant's portion of real estate property taxes.
D)cover increases in monthly rent.
E)meet government housing regulations for a safe building.

Question 33

Which type of repair problem is more likely to be covered by a new homeowner service contract?

A)Structural damage
B)Roof damage from a hurricane
C)Paint for worn exterior
D)Heating and air-conditioning system failure
E)Remodeling the kitchen

Question 34

The purpose of zoning laws is to:

A)restrict property use.
B)encourage new housing development.
C)minimize people moving from an area.
D)reduce real estate property taxes.
E)assist real estate agents in finding homes for sale.

Question 35

A multiunit dwelling with two,four,or six single-family living units is called:

A)a cooperative.
B)a mobile home.
C)a manufactured home.
D)a townhouse.
E)a condominium.

Question 36

A condominium involves:

A)renting a mobile home.
B)buying stock in a nonprofit organization.
C)ownership of an individual housing unit in a building.
D)government-subsidized housing.
E)renting a house with the option to buy.

Question 37

Earnest money is used:

A)to pay real estate property taxes.
B)to reduce the mortgage interest rate.
C)as evidence of good faith by a homebuyer.
D)to pay the real estate agent's commission.
E)to pay a mortgage application fee.

Question 38

Todd Foley is applying for a $100,000 mortgage.He can select either a $595 monthly payment with no points or a $515 payment with two points.How many months will it take Todd to cover the cost of the discount points if he takes the lower monthly payment?

A)6
B)10
C)18
D)25
E)48

Question 39

Prefabricated homes refers to:

A)nonprofit ownership.
B)government leasing of living units.
C)rental units available to government employees.
D)ownership available to low-income individuals.
E)housing units that are partially assembled in factories.

Question 40

The purpose of a counteroffer is to:

A)negotiate the purchase price.
B)reduce mortgage payments.
C)lower real estate property taxes.
D)avoid paying points at closing.
E)avoid paying the real estate agent's commission.

Question 41

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

A)Home inspection fees
B)Moving expenses
C)Earnest money
D)Title insurance
E)Down payment

Question 42

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

A)Title insurance
B)Property taxes
C)Points
D)Loan application fee
E)Real estate agent's commission

Question 43

An appraisal is likely to cost between:

A)$100 - $200.
B)$200 - $300.
C)$300 - $400.
D)$400 - $500.
E)$500 - $600.

Question 44

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?

A)FHA-insured loan
B)Balloon mortgage
C)Buy-down
D)Shared-appreciation mortgage
E)Growing-equity mortgage

Question 45

Which document does the seller use to guarantee the title is good?

A)Title
B)Escrow account
C)Settlement statement
D)Appraisal
E)Warranty deed

Question 46

Which one of the following is an advantage of buying?

A)Ease of mobility
B)Financial benefits
C)Fewer responsibilities
D)Minimal financial commitment
E)Declining equity

Question 47

A cost associated with renting would be:

A)property insurance.
B)property taxes.
C)down payment and closing costs.
D)security deposit.
E)mortgage interest.

Question 48

James Monroe is a member of a nonprofit organization that owns a building.He can occupy one of its units as long as he owns stock in the organization.What type of housing is James most likely living in?

A)A condominium
B)A duplex
C)A cooperative
D)A prefabricated home
E)A mobile home

Question 49

A possible advantage of FHA and VA mortgages can be:

A)higher debt ratios are required of buyers.
B)loans may be assumable.
C)the high interest loans are attractive.
D)the monthly payments will always be higher than those of other mortgages.
E)higher down payments are required of buyers.

Question 50

A VA-guaranteed loan program provides assistance to:

A)armed services veterans.
B)recent college graduates.
C)low-income homebuyers.
D)government employees.
E)the elderly.

Question 51

Gary Smith is purchasing one housing unit in a building with several units.What type of housing is Gary most likely going to live in?

A)Condominium
B)Duplex
C)Cooperative
D)Prefabricated home
E)Mobile home

Question 52

The purpose of title insurance is to:

A)transfer ownership of property.
B)reduce the chance of a decrease in property value.
C)protect an owner from unforeseen property claims.
D)protect an owner from changes in mortgage interest rates.
E)cover the closing costs of a real estate transaction.

Question 53

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

A)minimize interest costs.
B)prevent changes in the amount of the monthly payment.
C)increase negative amortization.
D)restrict the amount by which the interest rate can increase or decrease during the ARM term.
E)lower the escrow account.

Question 54

Which one of these situations creates negative amortization?

A)When the amount of the monthly mortgage payment increases
B)When the monthly mortgage payment does not cover the interest owed
C)When the amount paid into an escrow account decreases
D)When the mortgage interest rate decreases
E)When the amount of the down payment is lowered

Question 55

A home equity loan may also be referred to as a ________ mortgage.

A)shared-appreciation
B)graduated-payment
C)growing-equity
D)second
E)buy-down

Question 56

One service provided by a real estate agent when selling your home is:

A)providing legal advice.
B)completing a mortgage application.
C)screening potential buyers.
D)making needed repairs.
E)conducting a home inspection.

Question 57

Which one of the following is an advantage of renting?

A)Tax benefits
B)Fewer responsibilities
C)Increased value of real estate
D)Increased maintenance costs

Question 58

If you sell your home without a real estate agent,you should still employ the services of a(n)________ to assist you with the contract and the closing.

A)broker
B)insurance agent
C)lawyer
D)contractor
E)rental agent

Question 59

A ________ is a building that contains exactly two housing units.

A)mobile home
B)duplex
C)condominium
D)prefabricated home
E)cooperative

Question 60

Refinancing of a mortgage is recommended when:

A)interest rates rise.
B)interest rates fall.
C)the escrow account balance declines.
D)two or more points are required by the lender at the time of closing.
E)the escrow account balance increases.

Question 61

Michelle Duncan wants to know what price home she can afford.Her annual gross income is $45,000.She owes $550 per month on other debts and expects her property taxes and homeowners insurance to cost $225 per month.She knows she can get an 8%,30-year mortgage so her mortgage payment factor is 7.34.She expects to make a 20% down payment.What is Michelle's affordable home purchase price? Round your answer to the nearest $100.

A)$110,700
B)$88,600
C)$199,300
D)$42,500
E)$254,800

Question 62

What is the term used to describe the reduction of the balance owed on a loan with each payment made over a period of time?

A)A buy-down
B)Shared-appreciation
C)Prepaid interest
D)Amortization
E)A rate cap

Question 63

A renter is required to pay a security deposit of $800,on which 3 percent interest will be paid.What amount would the person earn each year?

A)$100
B)$64
C)$24
D)$16
E)$4

Question 64

If closing costs of $1,950 are associated with the refinance of a mortgage that would reduce the monthly payment from $890 to $780,it would take approximately ________ months to cover these costs.

A)8
B)16
C)18
D)20
E)22

Question 65

The assessed value of your home is the:

A)value used to calculate property taxes.
B)estimated current market value.
C)price you paid to purchase the home.
D)amount of money a buyer has offered to purchase the home.
E)cost basis assigned to your home by your insurance company.

Question 66

Duane Miller wants to know what price home he can afford.His annual gross income is $60,000.He has no other debt expenses and expects property taxes and insurance to cost $500 per month.He knows he can get a 6%,15 year mortgage so his mortgage payment factor is 8.43.He expects to make a 10% down payment.What is Duane's affordable home purchase price? Round your answer to the nearest $100.

A)$148,300
B)$177,900
C)$151,600
D)$197,700
E)$1,483,000

Question 67

A contract condition that states that the agreement is binding only if a certain event occurs is a:

A)dual agency.
B)contingency clause.
C)counteroffer.
D)zoning law.
E)prefabrication.

Question 68

Which type of home has a tendency to quickly depreciate in value?

A)Cooperative
B)Mobile home
C)Condominium
D)Duplex
E)Previously-owned single family home

Question 69

Private Mortgage Insurance is usually required if the down payment is less than ________ percent of the purchase price of the home.

A)5
B)8
C)12
D)15
E)20

Question 70

Jennifer Garland is purchasing a home with components built in a factory and then assembled at the housing site.What type of housing is Jennifer purchasing?

A)Condominium
B)Duplex
C)Cooperative
D)Prefabricated home
E)Penthouse

Question 71

During which phase of the home-buying process would you assess types of housing available?

A)Price the property
B)Find and evaluate a property to purchase
C)Obtain financing
D)Determine home ownership needs
E)Close the purchase transaction

Question 72

What is the most popular form of housing?

A)Condominium
B)Duplex
C)Cooperative
D)Prefabricated home
E)Single-family dwelling

Question 73

Legislation that requires that loan applicants be given certain information,including an estimate of the costs,three days before the closing,is known as:

A)the Real Estate Settlement Procedures Act.
B)the Cooperative Lending Act.
C)the Truth in Lending Act.
D)the Title Insurance Act.
E)the Real Estate Investment Act.

Question 74

Money that is usually deposited with the lending institution for the payment of property taxes and homeowner's insurance is called:

A)points.
B)an escrow account.
C)a rate cap.
D)closing costs.
E)a buy-down.

Question 75

A loan based on the high equity in a home that provides the homeowner with tax-free income and which is paid back when the home is sold or the homeowner dies is called a:

A)conventional mortgage.
B)growing equity mortgage.
C)second mortgage.
D)reverse mortgage.
E)adjustable rate mortgage.

Question 76

Nicole and Larry have decided to perform the landscaping of their new home by themselves.They also plan to take a do-it-yourself class at a local home store so they can replace the tile in the master bathroom without using a contractor.The effect of performing these tasks themselves will result in an increase in their:

A)principal.
B)contingencies.
C)escrow account.
D)sweat equity.
E)buy-down.

Question 77

The appraised value of your home is the:

A)value used to calculate property taxes.
B)estimated current value of the property.
C)price you paid to purchase the home.
D)amount of money a buyer has offered to purchase the home.
E)cost remaining after the down payment.

Question 78

The Homeowners Protection Act requires that a PMI policy be terminated automatically when a homeowner's equity reaches ________ percent of the property value at the time the mortgage was issued.

A)5
B)9
C)12
D)18
E)22

Question 79

Brett has hired a professional to assess the soundness of the roof,foundation,and building materials of a potential home he is considering.The professional will also be checking other aspects of the home including the plumbing,heating,and cooling systems.Brett is paying for a:

A)walk-through.
B)zoning evaluation.
C)home inspection.
D)title search.
E)handyman's special.

Question 80

Paula has completed a mortgage application and provided evidence of employment,income,assets owned,and existing debt to the potential lending institution.Although Paula has not even begun the process of looking at possible homes to buy,she is eagerly awaiting news from the lender as to whether she has been approved for a mortgage.In what stage of the application process is she?

A)Appraisal
B)Prequalification
C)Assessment
D)Amortization
E)Home inspection