Deck 10: Purchasing and Financing a Home

Question 1

If a person chooses to purchase a more expensive home, he or she may have to cut expenses in other areas such as entertainment.

Answer 1

True

Question 2

Financial planners advise that a home price should be no more than 4 times annual income.

Answer 2

False

Question 3

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.

Answer 3

renter's insurance.

Question 4

For a conventional mortgage you will typically need a(n) ________ of from 10% to 20% of the selling price of the home you are purchasing.

Question 5

One disadvantage of a neighborhood with a homeowner's 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.

Question 6

When obtaining a mortgage, 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 years.

Question 7

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.

Question 8

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

Question 9

Which of the following costs associated with home ownership is hardest to budget?

A) Insurance
B) Taxes
C) Repairs
D) Mortgage payments

Question 10

Most individuals pay for a home with a down payment of 5% or less and then obtain a mortgage to finance the rest.

Question 11

To determine how much home 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.

Question 12

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.

Question 13

Homeowner's 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.

Question 14

Your monthly payments for a house are likely to be as high as rent when you factor in mortgage payments, property taxes, homeowner's insurance, and home repairs.

Question 15

The purchase of a home represents a potential liability if you need to move quickly and the home does not appreciate rapidly in value.

Question 16

Since most of the problems have already been fixed, older homes usually have lower maintenance expense than newer homes.

Question 17

Condominium association monthly dues generally include water, sewer, garbage, and maintenance or other amenities such as a pool, clubhouse, and a tennis court.

Question 18

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.

Question 19

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.

Question 20

In determining the amount of down payment and monthly mortgage payments you can afford, you should maintain some extra funds for liquidity purposes to cover unanticipated bills.

Question 21

Which of the following should not be considered when selecting a condominium?

A) Availability of companies in the area that you can call on to perform maintenance and repair services on your unit
B) Taxes
C) Resale value
D) Association dues

Question 22

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.

Question 23

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.

Question 24

Online real estate services are more convenient, but usually charge higher commissions than traditional full-service real estate companies.

Question 25

You should consider the school system near a home only if you have or are likely to have school-aged children.

Question 26

The specific location of your home can influence the amount of property taxes and insurance you will pay.

Question 27

Which of the following is true about condominiums?

A) Each person owns a specific 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.

Question 28

When buying a home, which of the factors 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.

Question 29

Most real estate agents agree that location is the most important influence on a home's future resale value.

Question 30

Condominiums have the advantages of sharing expenses among owners and giving the owners more privacy than single-family homes.

Question 31

Buying a home may be the single biggest investment you will ever make, so the decision should be taken very seriously.

Question 32

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

Question 33

Is purchasing a home an expense, an investment, or both?

Question 34

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.

Question 35

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.

Question 36

When choosing a home, a convenient location can save you considerable travel time and expenses.

Question 37

Purchasing a condominium is an alternative to purchasing a detached house but also requires careful consideration of selection criteria.

Question 38

Since real estate brokers are licensed and bonded, they are required to give you unbiased information about real estate purchases.

Question 39

Real estate brokers usually offer good advice, but since they have a vested interest in you buying from them, you should also factor in your own judgment.

Question 40

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.

Question 41

As a result of the financial crisis of 2008-2009, some financial institutions accepted a ________ arrangement in which the lender accepted the proceeds of the sale of a home as full payment on the debt owed even though the proceeds were less than the debt owed.

A) mortgage modification
B) foreclosure
C) refinancing
D) short sale

Question 42

To simplify and speed up the home-buying process, you should first make a verbal offer to see if the seller is willing to take the price you are willing to offer.

Question 43

When a mortgage lender provides loans to borrowers without sufficient income or a down payment, the lender is said to provide a(n) ________ mortgage.

A) VA
B) subprime
C) prime
D) FHA

Question 44

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.

Question 45

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

Question 46

Which of the following is most important when selecting a home?

A) Taxes
B) Insurance
C) Resale value
D) Location

Question 47

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) Purchase price
D) Cost of moving the buyer's possessions into the home

Question 48

A good way to estimate the market value of a home is to multiply the number of square feet by the average price per square foot of similar homes in the area.

Question 49

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

Question 50

Before you buy a house, you should conduct a(n) ________ to determine if the price is comparable to similar houses in the area.

Question 51

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.

Question 52

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

Question 53

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) $207,500
D) Stay away from a house needing major system repairs.

Question 54

Homes near areas that have just been zoned for industrial use become more valuable.

Question 55

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.

Question 56

Which of the following does not reflect the impact of a strong economy on 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.

Question 57

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.

Question 58

Proximity to schools can increase home values, while increased distance from schools often lowers home values.

Question 59

A sales contract stipulates not only the price offered for a home, but also the repairs to be completed and the move-in date requested by the buyer.

Question 60

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.

Question 61

For a conventional mortgage, a lender typically requires a down payment of 10% to 20% of the home's selling price.

Question 62

One point on an $80,000 loan for the purchase of a $110,000 home would equal

A) $100.
B) $800.
C) $1,000.
D) $1,100.

Question 63

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.

Question 64

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

Question 65

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

Question 66

Use the following two columns of items to answer the matching questions below:
Points

A)title search and insurance, appraisal fee, and other costs
B)fees that are a percentage of the purchase price and are paid by the borrower to the lender to obtain a reduction in the interest rate

Question 67

A point is a flat fee of $500 for each multiple of $100,000 that you finance on a new home.

Question 68

Government-backed mortgages may require lower down payments than conventional mortgages, but usually charge higher interest rates.

Question 69

All 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

Question 70

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.

Question 71

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

Question 72

List four key components of closing costs.

Question 73

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.

Question 74

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.

Question 75

Which of the following would not be included in closing costs?

A) Points
B) Earnest money
C) Title charges
D) Recording fees

Question 76

Use the following two columns of items to answer the matching questions below:
Closing costs

A)title search and insurance, appraisal fee, and other costs
B)fees that are a percentage of the purchase price and are paid by the borrower to the lender to obtain a reduction in the interest rate

Question 77

When buying a home, the seller pays the real estate agent's commission, so you pay no fee for the agent's services except in the form of a higher purchase price.

Question 78

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

Question 79

In addition to closing costs, real estate agent fees of more than 10% are charged when you buy a home.

Question 80

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.