Deck 7: The Finances of Housing

Question 1

Which of the following is typically excluded from a lease agreement?

A) the conditions under which the landlord may enter the apartment.
B) the tenant's right to sublet the rental unit.
C) A list of utilities, appliances etc that are included in the rental amount.
D) the penalty for missing rental payments.
E) restrictions regarding specific activities (e.g. remodeling).

Answer 1

the penalty for missing rental payments.

Question 2

Renting is more advantageous than buying a home for

A) lower short-term living costs.
B) financial benefits.
C) long-term investment purposes.
D) receiving tax benefits.
E) permanence of residence.

Answer 2

lower short-term living costs.

Question 3

Renting would be most appropriate for people who

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

Answer 3

have limited funds currently available.

Question 4

The main financial benefit of renting is

A) tax deductions.
B) increased equity.
C) investment value growth.
D) lower initial costs.
E) high financial commitment.

Question 5

Which of the following is not a common financial risk of home ownership?

A) interest rates may change.
B) property values may decrease.
C) repairs and maintenance.
D) susceptibility to macroeconomic factors
E) capital gains taxes on the sale of a principal residence.

Question 6

Brian Pittman rents a living unit as a result of his membership in a nonprofit housing organization. What name is commonly used for this type of housing?

A) modular housing
B) government-subsidized housing
C) zoned housing
D) a condominium
E) cooperative housing

Question 7

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

A) lower financial obligations
B) increased interest rates
C) increased down payment
D) decreased family income
E) increased monthly living expenses

Question 8

As William Quintal conducts an investigation of property value factors, most real estate experts tell him that ____________ most influences the housing values in an area.

A) community pride
B) style of homes
C) quality of schools
D) age of neighborhood
E) zoning laws

Question 9

A real estate agent can best assist a homebuyer by

A) assisting in getting a mortgage
B) setting the purchase price.
C) offering new home warranties.
D) assisting you in obtaining financing.
E) paying the first month's mortgage payment.

Question 10

What is the purpose of subletting an apartment?

A) to increase the rent
B) to lower maintenance costs
C) to convert the units to condominiums
D) to meet certain government housing regulations
E) to obtain another tenant to complete a lease period

Question 11

A common financial benefit of home ownership is

A) increased property value.
B) tax deductibility of the down payment.
C) amortization of the growth of equity.
D) a low security deposit.
E) low interest financing.

Question 12

Which of the following are disadvantages of home ownership?

A) limited responsibility
B) few financial benefits
C) low initial costs.
D) limited mobility.
E) lifestyle flexibility.

Question 13

The purpose of zoning laws is to

A) restrictions on 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 14

A common opportunity cost associated with renting is

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

Question 15

A lease always gives the landlord the right to:

A) to increase the rent
B) to evict the tenant at any time
C) to take legal action against a tenant for nonpayment of rent
D) to ignore government housing regulations
E) cancel the lease

Question 16

If you decide to purchase a condominium for potential benefits you are probably:

A) single parent.
B) young couple, no children.
C) couple, young children
D) young single
E) retired person.

Question 17

The Gross Debt Service (GDS) ratio measures:

A) your monthly mortgage payment, including any outstanding debt as a percentage of gross monthly income.
B) your monthly mortgage payment, including principal, interest, heating, and taxes as a percentage of gross monthly income.
C) your monthly mortgage payment as a percentage of gross monthly income.
D) your annual mortgage payment, including any outstanding debt, as a percentage of gross annual income.
E) your annual mortgage payment, including principal, interest, heating, and taxes, as a percentage of gross annual income.

Question 18

A cooperative housing arrangement involves

A) government-supported rental units.
B) a nonprofit organization.
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 19

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 20

Belinda Williams plans to rent instead of buying her house. What advantage of renting will Belinda encounter?

A) tax advantages
B) financial benefits
C) community pride
D) lower initial costs
E) home improvement flexibility

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

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

A) higher interest rates.
B) a lower down payment.
C) high debt obligations.
D) a low family income.
E) lower interest rates.

Question 23

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 the mortgage payments.

Question 24

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) making smaller deposit to the escrow account

Question 25

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 26

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

A) a First Home mortgage
B) a buy down
C) a fixed rate mortgage
D) a shared appreciation mortgage
E) a home equity loan

Question 27

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 28

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 29

The purpose of title insurance is to

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

Question 30

Assuming semi-annual compounding and a quoted mortgage rate of 9 percent, what are the effective annual rate and the effective monthly rate?

A) 4.5 percent, 1 percent
B) 9 percent, 0.75 percent
C) 9.2 percent, 0.736 percent
D) 18.81 percent, 0.75 percent
E) 18.81 percent. 0.736 percent

Question 31

You made a $100,000 down payment on a $400,000 house and financed the remaining amount with a Canadian fixed-rate mortgage. Your mortgage has a term of three years, an amortization period of 25 years, a quoted rate of 7% and payments are made monthly. Identify the correct statement.

A) The 7% quoted rate does not represent the effective annual rate charged on the mortgage.
B) The interest rate is fixed for 25 years.
C) You will make a total of 36 monthly payments to pay off the mortgage.
D) You have a high-ratio mortgage.
E) Your interest rate is fixed for 3 years, variable for 22 years.

Question 32

At the closing of home purchase, the "earnest" money has the purpose of:

A) paying real estate property taxes.
B) reducing the mortgage interest rate.
C) paying a mortgage application fee.
D) paying the real estate agent's commission.
E) serving as evidence of serious intent.

Question 33

The purpose of a rate cap with a variable 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 34

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

A) origination fee
B) mortgage application fee
C) earnest money
D) title insurance
E) down payment

Question 35

If you sell your home without the use of a real estate agent, you should still make use of a

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

Question 36

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) getting you the lowest offer

Question 37

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) refinancing costs are low

Question 38

A cost associated with home buying would be

A) appraisal.
B) property taxes.
C) legal fees.
D) A & B are correct.
E) A, B and C are correct.

Question 39

A home equity loan is also referred to as a ____________ mortgage.

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

Question 40

Negative amortization has the effect of:

A) extending the number of payments to pay off the mortgage.
B) decreasing the number of payments to pay off the mortgage.
C) a lower escrow account.
D) lower interest rates.
E) a lower down payment.

Question 41

Given the following, calculate the TDS ratio. All income and expense items are annual. $$\begin{array} { | l | r | l | r | } \hline \text { Gross income } & \mathbf { \$ 4 8 , 0 0 0 } & \text { Bank account } & \mathbf { \$ 1 , 0 0 0 } \\\hline \text { Net income } & \$ 38,000 & \text { Property taxes } & \$ 4,800 \\\hline \text { Heating } & \$ 3,600 & \text { Annual car payment } & \$ 4,200 \\\hline \text { Credit card payments } & \$ 2,400 & \text { Car loan balance } & \$ 10,000 \\\hline \text { Student loan payments } & \$ 2,400 & \text { Mortgage payments } & \$ 18,000 \\\hline\end{array}$$

A) 28%
B) 41%
C) 50%
D) 74%
E) 84%

Question 42

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

A) higher interest rates.
B) a lower down payment.
C) high debt obligations.
D) a low family income.
E) a larger down payment.

Question 43

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

A) higher financial obligations
B) decreased interest rates
C) increased down payment
D) decreased family income
E) increased monthly living expenses

Question 44

Opportunity costs of housing can refer to time and effort involved in finding and repairing a place to live along with lost interest earnings on security deposits and down payments.

Question 45

Renting is more advantageous than buying a home for

A) minimal financial commitment.
B) financial benefits.
C) long-term investment purposes.
D) receiving tax benefits.
E) permanence of residence.

Question 46

Given the following, calculate the GDS ratio. All income and expense items are annual. $$\begin{array} { | l | r | l | r | } \hline \text { Gross income } & \mathbf { \$ 5 5 , 0 0 0 } & \text { Bank account } & \mathbf { \$ 1 , 0 0 0 } \\\hline \text { Net income } & \$ 38,000 & \text { Property taxes } & \$ 3,600 \\\hline \text { Heating } & \$ 4,800 & \text { Annual car payment } & \$ 4,200 \\\hline \text { Credit card balance } & \$ 2,500 & \text { Car loan balance } & \$ 10,000 \\\hline \text { Student loan payments } & \$ 2,400 & \text { Mortgage payments } & \$ 15,600 \\\hline\end{array}$$

A) 28%
B) 41%
C) 44%
D) 52%
E) 63%

Question 47

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

A) origination fee
B) mortgage application fee
C) earnest money
D) deed recording fee
E) down payment

Question 48

The sub-prime mortgage crisis in 2007 was caused by

A) a housing bubble
B) excessive risk taking by lenders and investors
C) loose lending practices
D) low interest rates
E) all four factors contributed

Question 49

Renting would be most appropriate for people who

A) own a variety of pets.
B) have difficulty establishing credit.
C) want to reduce their taxes.
D) enjoy remodeling their residence.
E) desire the financial benefits of increased equity.

Question 50

Given the following, calculate the GDS ratio. All income and expense items are annual. $$\begin{array} { | l | r | l | r | } \hline \text { Gross income } & \mathbf { \$ 4 8 , 0 0 0 } & \text { Bank account } & \mathbf { \$ 1 , 0 0 0 } \\\hline \text { Net income } & \$ 38,000 & \text { Property taxes } & \$ 2,400 \\\hline \text { Heating } & \$ 3,600 & \text { Annual car payment } & \$ 4,200 \\\hline \text { Credit card balance } & \$ 2,500 & \text { Car loan balance } & \$ 10,000 \\\hline \text { Student loan payments } & \$ 2,400 & \text { Mortgage payments } & \$ 18,000 \\\hline\end{array}$$

A) 28%
B) 41%
C) 50%
D) 59%
E) 64%

Question 51

Lenders commonly use a TDS ratio of _________ and a GDS ratio of __________ to help determine the amount most people can comfortably afford for housing.

A) 20%; 30%
B) 40%; 20%
C) 40%; 30%
D) 30%; 20%
E) 20%; 40%

Question 52

The main financial benefit of owning is

A) lower living expenses.
B) don't pay GST.
C) investment value growth.
D) lower initial costs.
E) high financial commitment.

Question 53

The term "sub-prime mortgage crisis" refers to

A) the difficulty new home owners have in negotiating a low interest rate with banks
B) obtaining a mortgage interest rate of 8 percent instead of 7 percent
C) the financial crisis precipitated in 2007 after a sharp increase in mortgage foreclosures
D) lower interest rates on shorter term mortgages than longer term mortgages
E) higher interest rates on shorter term mortgages than longer term mortgages

Question 54

A cost associated with home buying would be

A) appraisal.
B) home inspection.
C) property appraisal.
D) land transfer tax.
E) all are cost associated with buying a house.

Question 55

Financial guidelines suggest that you should "spend no more than 10 to 20 percent of your take home pay on housing".

Question 56

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 7 percent instead of 8 percent
C) obtaining a 25-year mortgage instead of a 20-year mortgage
D) making larger deposits to the escrow account
E) making smaller deposit to the escrow account

Question 57

Approximately ________ percent of mortgages issued in the United States to sub-prime borrowers were adjustable-rate mortgages

A) 100
B) 80
C) 60
D) 40
E) 20

Question 58

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

Question 59

Which of the following are disadvantages of home ownership?

A) limited responsibility
B) few financial benefits
C) low initial costs.
D) financial commitment.
E) lifestyle flexibility.

Question 60

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 20-year mortgage instead of a 25-year mortgage
D) making larger deposits to the escrow account
E) making smaller deposit to the escrow account

Question 61

The amount of the down payment will affect the amount of mortgage a person can afford.

Question 62

A lease only protects the rights of the tenant.

Question 63

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

Question 64

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

Question 65

Zoning laws are restrictions on how the property area can be used.

Question 66

One significant drawback of home ownership is financial uncertainty.

Question 67

Qualifying for a mortgage is much different then obtaining other forms of credit.

Question 68

Past interest rates can affect the price of a home.

Question 69

Real estate agents will provide you with services using an hourly rate.

Question 70

Ease of mobility is an advantage of renting.

Question 71

The gross debt service ratio is your monthly mortgage payment (including principal, interest, heating and taxes) as a percentage of your gross monthly income.

Question 72

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

Question 73

The total debt service ratio is your monthly mortgage payment and other outstanding debts as a percentage of your gross monthly income.

Question 74

Cooperative housing involves the renting of a living unit by the people involved in ownership of the building on a nonprofit basis.

Question 75

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

Question 76

Variable rate mortgages with a rate cap prevent the borrower from having to pay an interest rate significantly higher than the one in the original agreement.

Question 77

Closing costs are the fees and charges owed when making the decision to refinance a home.

Question 78

A lease does not protect tenants from rent increases during the term of the lease.

Question 79

Lenders commonly use a GDS ratio of 50% and a TDS ratio of 60% as guidelines to determine the amount you can comfortably afford for housing.

Question 80

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