Question 1

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

Accepted Answer

Title insurance is a common closing cost, which is a fee paid at the closing of a real estate transaction.

Question 2

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

Accepted Answer

Property taxes are typically paid from an escrow account. An escrow account is set up by the mortgage lender to pay ongoing property-related expenses on behalf of the homeowner, such as property taxes and homeowners insurance, ensuring these bills are paid on time.

Question 3

An appraisal is likely to cost between:

Accepted Answer

The cost of an appraisal typically ranges between $300 and $400, although this can vary based on location, property size, and other factors.

Question 4

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?

Accepted Answer

A buy-down is a financing technique in which the seller or builder subsidizes the mortgage by lowering the interest rate for the first few years of the loan. This subsidy makes the initial payments lower, making it easier for the buyer to afford the home.

Question 5

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

Accepted Answer

A warranty deed is the document used by the seller to guarantee that the title is good and free of any claims or liens, ensuring the buyer receives a clear title.

Question 6

Which one of the following is an advantage of buying?

Accepted Answer

Buying property can offer financial benefits such as building equity and potential appreciation in value over time.

Question 7

A cost associated with renting would be:

Accepted Answer

A security deposit is a cost directly associated with renting, typically required by landlords before moving in to cover any potential damages or unpaid rent.

Question 8

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?

Accepted Answer

James is most likely living in a cooperative (co-op) housing arrangement, where members own shares in a nonprofit organization that owns the building, and the right to occupy a unit is tied to stock ownership in the organization.

Question 9

A possible advantage of FHA and VA mortgages can be:

Accepted Answer

Loans from the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA) can be assumable, meaning a buyer can take over the seller's loan under the same terms, which can be a significant advantage if the existing loan's interest rate is lower than current market rates.

Question 10

A VA-guaranteed loan program provides assistance to:

Accepted Answer

VA-guaranteed loans are specifically designed to help veterans, offering them favorable terms on home loans.

Question 11

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?

Accepted Answer

Gary is most likely purchasing a condominium, as it involves buying a single unit within a larger building that contains multiple units.

Question 12

The purpose of title insurance is to:

Accepted Answer

Title insurance is designed to protect property owners and mortgage lenders against losses from defects in titles, such as undisclosed liens, encumbrances, or issues in the chain of title, ensuring the owner's legal claim to the property.

Question 13

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

Accepted Answer

A rate cap in an adjustable-rate mortgage (ARM) is designed to limit the amount by which the interest rate can increase or decrease during the loan term, protecting borrowers from drastic changes in their interest payments.

Question 14

Which one of these situations creates negative amortization?

Accepted Answer

Negative amortization occurs when the monthly mortgage payment is not enough to cover the interest owed, causing the unpaid interest to be added to the loan's principal balance.

Question 15

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

Accepted Answer

A home equity loan is often referred to as a second mortgage because it is a loan secured against the value of your home, similar to your primary mortgage but in a secondary position. This means if the home goes into foreclosure, the primary mortgage gets paid off first before any payments are made towards the second mortgage or home equity loan.

Question 16

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

Accepted Answer

Real estate agents assist in screening potential buyers to ensure they are serious and qualified, which helps in making the selling process more efficient and secure. They do not typically provide legal advice, complete mortgage applications, make repairs, or conduct home inspections as these tasks fall outside their scope of responsibilities and require specific professional qualifications.

Question 17

Which one of the following is an advantage of renting?

Accepted Answer

Renting typically involves fewer responsibilities for maintenance and repairs, as these are often the landlord's responsibility, not the tenant's.

Question 18

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.

Accepted Answer

A lawyer is essential for assisting with the legal aspects of selling a home, including the contract and closing process, ensuring that all legal requirements are met and protecting the seller's interests.

Question 19

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

Accepted Answer

A duplex is a type of building that is divided into two separate homes, making it the correct answer for a building that contains exactly two housing units.

Question 20

Refinancing of a mortgage is recommended when:

Accepted Answer

Refinancing a mortgage is most beneficial when interest rates fall, as it allows the borrower to secure a lower interest rate on their mortgage, potentially saving them money on their monthly payments and over the life of the loan.

Quiz 9: The Housing Decision: Factors and Finances