Deck 5: Making Automobile and Housing Decisions

Question 1

In a co-op, the buyer receives title to a unit and joint ownership of the common areas.

Answer 1

False

Question 2

Jacob has taken an SUV on lease from Free Cruisers Inc. for a period of 4 years. Jacob does not need to pay any extra amount when he turns in the vehicle because he didn't exceed the mileage specified in the lease and the SUV is not damaged. He has a:

A)residual lease.
B)closed-end lease.
C)purchase option lease.
D)right to early termination lease.
E)reassignment option lease.

Answer 2

B

Question 3

Kurt has $4,500 for a down payment and thinks he can afford monthly payments of $300. If Kurt can finance a vehicle with a 7%, 4-year loan from the automobile dealer, what is the maximum amount he can afford to spend on the car? (Round to the nearest dollar.)

A)$12,528
B)$14,400
C)$16,028
D)$17,028
E)$18,028

Answer 3

D

Question 4

Henry has $2,500 for a down payment and thinks he can afford monthly payments of $400. If he can finance a vehicle with an 8%, 3-year loan from a local bank, what is the maximum amount Henry can spend on the car? (Round to the nearest dollar.)

A)$12,765
B)$14,400
C)$14,079
D)$15,265
E)$16,879

Question 5

Lowballing is a sales technique where the salesperson quotes a low price for a car to get you to make an offer, and negotiates the price upward prior to signing the sales agreement.

Question 6

The loss in the value of an automobile that occurs over its period of ownership is called:

A)reinsurance.
B)the acquisition payment.
C)the market price.
D)the repurchase commission.
E)depreciation.

Question 7

Prequalification provides a home buyer with information regarding the specific mortgage amounts he or she is eligible for subject to the expected changes in interest rates.

Question 8

At the end of your car lease period, you intend to turn in the car, and you will not pay extra at that time based on the residual value of the car. You have a(n)_____ lease.

A)residual
B)open-end
C)purchase option
D)closed-end
E)money factor

Question 9

The property listing in a local Multiple Listing Service (MLS)cannot be accessed by all buyers and sellers.

Question 10

The price of the car you are leasing is called the:

A)money factor.
B)capitalized cost.
C)residual value.
D)purchase option.
E)capital cost reduction.

Question 11

The financing rate on a lease is called the:

A)lease point.
B)residual rate.
C)money factor.
D)purchase option.
E)capitalized cost.

Question 12

The market price of a house is $125,000, and the home buyer borrows $100,000. Two points are equal to $2,000.

Question 13

Which of the following is a type of down payment that lowers the potential depreciation and therefore your monthly lease payments on a leased car?

A)Money factor
B)Property depreciation cost
C)Initial residual value
D)Purchase option
E)Capital cost reduction

Question 14

Which of the following is the biggest fixed auto ownership cost?

A)The cost of fuel
B)The cost of oil
C)The cost of installment loan payments
D)The cost of maintenance and repair
E)The cost of tires

Question 15

Variable auto ownership costs are dependent on the:

A)driver's behavior.
B)miles covered by the automobile.
C)installment payments on a car loan.
D)down payment.
E)periodic renewals of vehicle registration.

Question 16

A behavioral bias in which an individual tends to allow an initial estimate (of value or price)to dominate the subsequent assessment (of value or price)regardless of new information to the contrary is called:

A)foreclosing.
B)anchoring.
C)depreciating.
D)leasing.
E)cooperating.

Question 17

When shopping for a lease, you want:

A)a high insurance cost.
B)a low capitalized cost.
C)a high money factor.
D)a low residual value.
E)high lease payments.

Question 18

The first step in the auto-buying process should be:

A)to test-drive several automobiles.
B)to begin negotiations on various automobiles.
C)to decide whether to trade in your used car or to sell it yourself.
D)to consider alternative buying strategies.
E)to analyze how much you can afford to spend on the car.

Question 19

Jana has $1,500 for a down payment and thinks she can afford monthly payments of $300. If she can finance a vehicle with a 7%, 4-year loan from a credit society, what is the maximum loan amount Jana can afford? (Round to the nearest dollar.)

A)$12,528
B)$14,208
C)$16,028
D)$17,900
E)$18,028

Question 20

The job of a mortgage banker is to locate conventional loans for clients.

Question 21

A lender will usually require a loan-to-value ratio of _____ or less for a borrower to avoid having to pay private mortgage insurance (PMI).

A)75%
B)80%
C)85%
D)90%
E)95%

Question 22

If you purchase a house worth $110,000 and make a 10% down payment, how much would one mortgage point cost at closing?

A)$765
B)$990
C)$1,100
D)$1,530
E)$1,800

Question 23

_____ is a situation where homeowners owe more to the lenders than what their properties are worth.

A)Negative equity
B)A foreclosure
C)A restructure
D)Inflation
E)An expanded mortgage

Question 24

_____ are the expenses that borrowers pay during the final step of a real estate purchase.

A)Amortization costs
B)Closing costs
C)Property taxes
D)Insurance costs
E)Mortgage interests

Question 25

Which of the following are tax deductible if you itemize deductions?

A)Mortgage principal, mortgage interest, property taxes, and homeowner's insurance
B)Mortgage principal, mortgage interest, and property taxes
C)Mortgage principal and mortgage interest
D)Mortgage interest, property taxes, and homeowner's insurance
E)Mortgage interest and property taxes

Question 26

The majority of each monthly payment at the beginning of the loan goes to pay the:

A)principal.
B)interest.
C)real estate taxes.
D)homeowner's insurance.
E)private mortgage insurance.

Question 27

Fees charged by lenders at the time they grant a mortgage loan are called:

A)mortgage points.
B)down payments.
C)add-on charges.
D)commissions.
E)loan discounts.

Question 28

The data in a Multiple Listing Service (MLS):

A)eliminate the need for a real estate agent.
B)are accessible to buyers and sellers directly.
C)include the entire ownership history of the listed properties.
D)deal only with undervalued properties that are authorized by the government within a geographic location.
E)consist of a comprehensive listing of properties for sale in a given community area.

Question 29

A real estate sales contract will include:

A)the amount you have paid as an earnest money deposit.
B)the terms of a mortgage loan taken from a third party.
C)expected home maintenance costs.
D)the movement in the value of the property over the last 20 years.
E)the current value of the properties in the neighboring locations.

Question 30

Barb and Bob want to purchase a new home but don't know how much mortgage they can qualify for. The lender requires that the total installment of loan payments does not exceed 35% of the monthly income. Based on Barb and Bob's financial data given below, what is the maximum monthly mortgage payment for which they can qualify?

A)$1,400
B)$1,208
C)$1,502
D)$850
E)$500

Question 31

An escrow account is used to collect _____ from one's monthly mortgage payment.

A)interest
B)principal
C)real estate taxes
D)closing costs
E)operating expenses

Question 32

A foreclosure happens when:

A)the rates of interest prevalent in the housing market are extremely volatile, forcing the lender to demand additional collateral from the borrower.
B)the lenders attempt to recover loan balances from the insolvent borrowers by forcing the sale of the home pledged as collateral.
C)the borrowers repay their housing loan well before the estimated closing period of the loan.
D)the value of a house is higher than the loan taken on the property.
E)the borrower is planning to restructure the loan taken for making mortgage payments.

Question 33

As home prices have fallen in recent years, the rent ratio:

A)and rent attractiveness have increased.
B)and rent attractiveness have decreased.
C)has increased and rent attractiveness has decreased.
D)has decreased and rent attractiveness has increased.
E)has increased and rent attractiveness has stabilized.

Question 34

When you lease your apartment from a nonprofit corporation that owns the building and you own a share of the nonprofit corporation, you own a:

A)single-family home.
B)cooperative apartment.
C)condominium.
D)row house.
E)mobile home.

Question 35

You recently bought a new home. You receive title to an individual unit and joint ownership of any common areas and facilities. You have purchased a:

A)single-family home.
B)cooperative.
C)condominium.
D)row house.
E)mobile home.

Question 36

The _____ governs closings on owner-occupied houses, condominiums, and apartment buildings of four units or fewer.

A)Equal Credit Opportunity Act
B)Truth-in-Lending Act
C)Real Estate Settlement Procedures Act
D)Mortgage Lenders Act
E)Real Estate Agents Act

Question 37

If the maximum loan-to-value ratio that a lender will accept on a house costing $100,000 is 90%, then the borrower must make a:

A)minimum down payment of $10,000 plus closing costs.
B)minimum down payment of $10,000 including closing costs .
C)maximum down payment of $10,000 including closing costs and mortgage points.
D)maximum down payment of $10,000.
E)minimum down payment of $90,000 including closing costs.

Question 38

Fredrick purchased a property worth $150,000 on mortgage. He paid $30,000 as a down payment on this property. However, a recent slump in real estate prices forced Fredrick to sell the property for $115,000 only 2 months later. This sale is termed a(n):

A)real estate declining equity.
B)real estate short sale.
C)fixed mortgage sale.
D)shrinking principal sale.
E)indexed equity.

Question 39

If the maximum loan-to-value ratio that a lender will accept on a house costing $100,000 is 80%, then the borrower must make a down payment of at least:

A)$100,000.
B)$80,000.
C)$180,000.
D)$20,000.
E)$120,000.

Question 40

If you made a down payment of $11,000 on a house worth $110,000, the lenders will require _____ because of the size of the down payment.

A)closing points
B)a bond
C)private mortgage insurance
D)application fees
E)homeowner's insurance

Question 41

The _____  governs closings on owner-occupied houses, condominiums, and apartment buildings of four units or fewer.

A)Equal Credit Opportunity Act
B)Truth-in-Lending Act
C)Real Estate Settlement Procedures Act
D)Mortgage Lenders Act
E)Tax Cut and Jobs Act of 2017

Question 42

Janet is considering the purchase of a condo for $150,000 during a recession phase, partly financed by a mortgage. She is due to retire in a few years. If she cannot make her mortgage payments on time, she is bound to incur a:

A)neutral equity on her property.
B)reduced residual value of the property.
C)higher rent ratio.
D)foreclosure of her house.
E)fine from the local government.

Question 43

_____  are ongoing costs of home ownership.

A)Down payments
B)Closing costs
C)Taxes on capital gains
D)Property taxes and insurance
E)Rental payments

Question 44

A type of financing made available by a builder or seller to a potential new-home buyer at interest rates well below market interest rates, often only for a short period, is termed a:

A)conventional mortgage.
B)convertible ARM.
C)buydown.
D)two-step ARM.
E)growing equity mortgage.

Question 45

A veteran might be able to buy a home with no down payment with a(n):

A)FHA mortgage insurance.
B)VA loan guarantee.
C)buydown.
D)conventional mortgage.
E)graduated-payment mortgage.

Question 46

With prequalification, a buyer can:

A)negotiate a price lower than the quoted price on the property.
B)correct any problems on his credit report.
C)get a comprehensive list of all the suitable properties in a locality.
D)bargain for additional time in a property deal.
E)reduce the required down payment.

Question 47

Jane and Smith are considering the purchase of a home in downtown Minneapolis. They approached Larson's Mortgagers Inc. to arrange for the financing needed for their home. This process of arranging with a mortgage lender in advance of buying a home is called:

A)foreclosure.
B)a contingency auction.
C)prequalification.
D)a real estate short sale.
E)diversification.

Question 48

The monthly interest on your adjustable-rate mortgage was $690. You paid $650 as your monthly payment on the loan leading to an increase in the principal balance. This is an example of a(n):

A)growing equity.
B)negative amortization.
C)fixed interest expense.
D)shrinking principal.
E)indexed equity.

Question 49

_____ are loans offering low payments for the first few years, gradually increasing until year three or five, and then remaining fixed.

A)Reverse-annuity mortgages
B)Fixed-rate mortgages
C)Adjustable-rate mortgages
D)Graduated-payment mortgages
E)Rollover mortgages

Question 50

Assume that you have taken a car on a closed-end lease for a period of 5 years. At the end of the fifth year, you would need to pay additional money only when:

A)fuel costs have been higher than expected.
B)the residual value is more than expected.
C)the mileage limits are exceeded.
D)the company upgrades the automobile.
E)the driver does not have automobile insurance.

Question 51

A buydown refers to:

A)a mortgage that starts with unusually low payments that rise over several years to a fixed payment.
B)financing made available by a builder or seller to a potential new-home buyer at well below market interest rates, often only for a short period.
C)a fixed-rate mortgage with payments that increase over a specific period.
D)a mortgage that requires the borrower to pay only interest; typically used to finance the purchase of more expensive properties.
E)a loan on which payments that equal half the regular annual interest amount are made every 6 months.

Question 52

The real estate agent's commission is generally paid by the:

A)seller.
B)buyer.
C)mortgage bank.
D)local multiple listing service provider.
E)seller ' s financial institution.

Question 53

If the interest rate and monthly mortgage payment do not change over the life of your mortgage, you have a(n):

A)reverse-annuity mortgage.
B)fixed-rate mortgage.
C)adjustable-rate mortgage.
D)rollover mortgage.
E)graduated-payment mortgage.

Question 54

Earnest money is the sum of money the home buyer pledges with the:

A)lender to guarantee the purchase.
B)seller to indicate the intent to purchase.
C)realtor for finding the desired home within a preset budget.
D)lender to originate the loan.
E)financial institution to prequalify for a mortgage loan.

Question 55

The purchase price of the house you are buying is $140,000. A loan-to-value ratio of 80% will require a down payment of:

A)$34,000.
B)$28,000.
C)$108,000.
D)$112,000.
E)$20,000.

Question 56

A(n)_____  ratio specifies the maximum percentage of the value of a property that a lender is willing to loan.

A)affordability-to-expense
B)loan-to-value
C)rent-to-mortgage
D)mortgage points to closing costs
E)points-to-mortgage

Question 57

If your lender charges 1.5 mortgage points on a house selling for $100,000, on which there is a $90,000 loan, the points will cost you:

A)$1,350.
B)$1,500.
C)$2,850.
D)$150.
E)$900.

Question 58

Which of the following will help a buyer know ahead of time the specific mortgage amount that he or she will be eligible for subject to changes in rates and terms?

A)Prequalification
B)The rent ratio
C)Leasing
D)Anchoring
E)The interest rate

Question 59

The seller of a house typically pays the:

A)appraisal fee.
B)loan application fee.
C)real estate agent's commission.
D)title search and insurance.
E)mortgage points.

Question 60

Matt is considering the purchase of a condo on a mortgage. However, he is not sure of the amount of the mortgage he is eligible for. _____  will help him identify and correct any problems such as credit report errors that may arise on his application.

A)Prequalification
B)A contingency clause
C)A Multiple Listing Service
D)The seller's financial institution
E)A buyer ' s agent

Question 61

Judy has $2,000 for a down payment on a vehicle and she can afford monthly payments of $400. If lenders are currently offering 6% interest on 5-year loans, what is the maximum price Judy can pay for a vehicle?

Question 62

Leslie has been offered the choice of either a $1,000 rebate or a 5.5%, 48-month loan for the new car she is purchasing. If Leslie will be financing $15,000 and can get a 7.5%, 48-month loan at her credit union, should she take the $1,000 rebate or the 5.5% loan? (Show all work.)

Question 63

Greg has negotiated a $20,000 price on a new pickup truck. The manufacturer is offering a $1,500 rebate or 3.9%, 3-year financing. Greg is also able to get 7%, 3-year financing from his credit union. If Greg plans to finance $18,000 over 3 years, should he take the 3.9% financing or the 7% financing? (Show all work and round to two decimal places.)

Question 64

Dick and Jane have just purchased a house and are calculating how much money they will need when the closing day rolls around. The purchase price is $200,000. They will make a 20% down payment, and they must pay two points on the loan. Closing costs should be 3% of the purchase price. What is the total dollar amount they will need at closing? (Show all work.)

Question 65

You made a $900 mortgage payment. The interest of $925 on the mortgage for this month leads to an increase in the principal balance. You have:

A)experienced a negative amortization.
B)signed up for a conventional mortgage.
C)refinanced your loan.
D)taken a fixed-rate mortgage.
E)accepted a buydown.