Deck 9: The Housing Decision: Factors and Finances

Question 1

A lease protects the rights of both the tenant and the landlord.

Answer 1

True

Question 2

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

Answer 2

False

Question 3

Prepaid interest may be a part of a mortgage agreement.

Answer 3

True

Question 4

Ease of mobility is an advantage of renting.

Question 5

Most people select a place of residence based on available financial resources, needs, and lifestyle.

Question 6

Many people believe that location is the most important factor to consider when selecting a home.

Question 7

Home improvements may contribute more to the value of the home than the cost of the renovations.

Question 8

The purpose of a rate cap in an adjustable rate mortgage is to limit the amount by which the interest rate can vary.

Question 9

Condominiums involve the purchase of an individual living unit rather than an entire building.

Question 10

Cooperative housing is a form of housing in which the units in a building are owned by a nonprofit organization.

Question 11

An FHA-insured mortgage has less risk than a conventional mortgage for the financial institution.

Question 12

Negotiating a purchase price for a home usually involves an offer and counteroffers.

Question 13

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

Question 14

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

A) lower short-term living costs.
B) a place to remodel.
C) a long-term investment.
D) tax benefits.
E) permanence of residence.

Question 15

Current interest rates can affect the price of a home.

Question 16

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

Question 17

The amount of the down payment will affect the amount of the monthly mortgage needed to purchase a home.

Question 18

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

Question 19

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

Question 20

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 21

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 22

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 complete a lease period

Question 23

A cost associated with home buying would be:

A) renter's insurance.
B) the security deposit.
C) annual appreciation of the property.
D) property taxes.
E) interest lost on the security deposit.

Question 24

The purpose of a security deposit is to:

A) pay for potential damages.
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 25

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

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

Question 26

Prefabricated housing 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 partially assembled in factories.

Question 27

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

A) Tax deductions
B) Lower initial costs
C) Property appreciation
D) Restricted lifestyle
E) Home improvement flexibility

Question 28

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 29

A cooperative housing arrangement involves:

A) government-supported rental units.
B) a nonprofit organization that rents units to its shareholders.
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 30

Renting would be most appropriate for people who:

A) want to reduce their taxes.
B) have difficulty establishing credit.
C) have limited funds currently available.
D) enjoy remodeling their residence.
E) desire the financial benefits of increased equity.

Question 31

What is the name commonly used to refer to the recent national crisis in which with many mortgages were issued to borrowers with poor credit histories, resulting in numerous loan defaults?

A) Mortgage meltdown
B) Subprime crisis
C) Credit default swap
D) Credit score crisis
E) Mortgage balloon crisis

Question 32

Which types of problems are least likely to be covered by a home buyer warranty?

A) Structural
B) Wiring
C) Plumbing
D) Heating/cooling
E) Appliance

Question 33

A condominium involves:

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

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

The most commonly considered factor when selecting a home is the:

A) size of the home.
B) condition of the home.
C) location of the home.
D) local zoning laws.
E) current interest rates.

Question 36

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

A) Low security deposit
B) Tax deductibility of the down payment
C) Amortization of the equity
D) Increased property value
E) No maintenance cost

Question 37

A common opportunity cost associated with renting is interest lost on money spent for:

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

Question 38

Ownership of an individual housing unit in a building is commonly called:

A) a cooperative.
B) modular housing.
C) manufactured housing.
D) a condominium.
E) zoned housing.

Question 39

Natasha and Al received a statement reporting that they paid $8,000 in mortgage interest during the past year. If they are in a 28 percent tax bracket, this deduction may reduce their taxable income by:

A) $1,000.
B) $2,240.
C) $3,000.
D) $4,000.
E) $8,000.
Taxable income is reduced by the $8,000 of mortgage interest.

Question 40

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 interest rates
C) Decrease in down payment
D) Increase in other financial obligations
E) Increase in monthly living expenses

Question 41

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 42

If you sell your home without a real estate agent, you should still employ the services of a(n):

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

Question 43

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 44

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 45

The most common service provided by a real estate agent when selling your home is:

A) providing legal advice.
B) qualifying buyers for a mortgage.
C) screening potential buyers.
D) making needed repairs.
E) attend home inspection.

Question 46

Which document is used to transfer ownership of property from one party to another?

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

Question 47

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 unknown claims on the property.
D) protect an owner from changes in mortgage interest rates.
E) cover the closing costs of a real estate transaction.

Question 48

A possible disadvantage of FHA and VA mortgages can be:

A) higher debt ratios for buyers.
B) a longer processing time.
C) loans may be assumable.
D) the monthly payments can be higher than those of other mortgages.
E) the high down payment requirements.

Question 49

Todd Foley is applying for a $100,000 mortgage. He can select either a $600 monthly payment with no points or a $520 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 50

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

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

Question 51

The amount of mortgage a person is eligible for would be increased by:

A) decreasing the value of the collateral.
B) lowering the down payment.
C) increasing other debt obligations.
D) lowering the family's income.
E) decreasing the interest rate.

Question 52

A conventional mortgage usually involves:

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

Question 53

Which of the following would increase the speed of equity growth for a homebuyer?

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 54

Which one of these situations creates negative amortization?

A) Increasing the amount of the monthly mortgage payment
B) Paying less than the monthly interest on a mortgage
C) Decreasing the amount paid into an escrow account
D) Lowering the mortgage interest rate
E) Decreasing the amount of the down payment

Question 55

A VA-guaranteed loan program provides assistance to:

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

Question 56

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 57

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

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

Question 58

What is prepaid interest charged by a mortgage company called?

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

Question 59

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.
E) lower the escrow account.

Question 60

The purpose of an appraisal is to:

A) estimate the current value of a home.
B) reduce the amount paid for property taxes.
C) qualify for a reduced mortgage rate.
D) eliminate the need for home insurance.
E) reduce fees paid to realtor.

Question 61

Some real estate experts estimate that remodeling a kitchen can add 130 percent of the cost of remodeling to the value of the house. A remodeled kitchen costing $8,000 could add _____ to the value of the house.

A) $4,000
B) $8,000
C) $9,600
D) $10,400
E) $13,000

Question 62

A cost associated with renting would be:

A) property insurance.
B) maintenance costs.
C) title insurance.
D) security deposit.
E) points.

Question 63

Gary Smith is purchasing one living unit in a building. 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 64

Ted pays $4,500 in real estate property taxes and is in the 28 percent tax bracket. What is the value of this federal tax deduction?

A) $4,500.
B) $3,240.
C) $2,500.
D) $1,260.
E) $500.

Question 65

Which one of the following is an advantage of renting?

A) Unrestricted lifestyle
B) Tax benefits
C) Fewer responsibilities
D) An ability to build equity
E) Increased equity

Question 66

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

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

Question 67

Michelle Duncan wants to know what price home she can afford. Her annual gross income is $45,000. She owes $750 per month on other debts and expects her property taxes and homeowners insurance to cost $250 per month. She knows she can get a 7.5%, 30 year mortgage so her mortgage payment factor is 6.99. She expects to make a 20% down payment. What is Michelle's affordable home purchase price? Round your answer to the nearest $100.

A) $76,000
B) $60,800
C) $304,000
D) $42,500
E) $254,800

Question 68

Paula has completed a mortgage application and provided evidence of employment, income, 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

Question 69

If closing costs of $1,400 are associated with the refinance of a mortgage that would reduce the monthly payment from $980 to $870, it would take approximately ____ months to cover these costs.

A) 6
B) 9
C) 13
D) 17
E) 22

Question 70

Noelle 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 71

James Monroe is a member of a nonprofit organization that allows him to rent a living unit in a building. 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 72

A _________ is a building that contains exactly two separate homes.

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

Question 73

Jennifer Garland is purchasing a home that was assembled in a factory and then moved to the living site. What type of housing is Jennifer purchasing?

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

Question 74

The appraised 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 remaining after the down payment.

Question 75

A renter is required to pay a security deposit of $800, on which 4 percent interest will be paid. What amount would the person earn each year?

A) $100
B) $64
C) $32
D) $16
E) $4

Question 76

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 77

Which one of the following is an advantage of buying?

A) Mobility
B) Tax benefits
C) Fewer responsibilities
D) Minimal financial commitment
E) Declining equity

Question 78

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 $400 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) $164,800
D) $197,700
E) $1,483,000

Question 79

What is the most popular type of home ownership?

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

Question 80

A loan based on the equity of the home that provides the homeowner with tax-free income and which is paid back when the home is sold is called a(n):

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