Question 1

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

Accepted Answer

Real estate agents are licensed, but they are not necessarily required to provide unbiased information as they may represent the interests of the seller or buyer, depending on their role.

Question 2

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

Accepted Answer

A verbal offer is not legally binding in real estate transactions. It's more effective to submit a written offer through your real estate agent, as this formalizes your intentions and starts the negotiation process in a serious and legally recognized manner.

Question 3

It is a good idea not to disclose defects of the home you are trying to sell,since these will adversely affect your selling price or your ability to sell your home quickly.

Accepted Answer

It is important to disclose any known defects in the home to potential buyers as it is required by law and failure to do so can lead to legal issues. Additionally, being upfront about any issues can build trust with potential buyers and prevent any surprises or renegotiations later on in the selling process.

Question 4

A fixed-rate mortgage will have a set amount applied to the principal with each monthly payment.

Accepted Answer

In a fixed-rate mortgage, the total monthly payment remains the same, but the portion that goes towards the principal increases over time, while the interest portion decreases.

Question 5

A variable-rate mortgage starts with higher payments,which decrease as the mortgage is paid off.

Accepted Answer

A variable-rate mortgage has payments that can fluctuate based on changes in interest rates, not necessarily starting higher and decreasing over time.

Question 6

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

Accepted Answer

Most individuals typically pay for a home with a down payment of at least 20% and finance the rest with a mortgage. However, some people may choose to make a smaller down payment of 5% or less and obtain a mortgage with private mortgage insurance (PMI).

Question 7

In addition to closing costs,realtor fees of three to seven percent are charged when you buy a home.

Accepted Answer

Realtor fees, typically ranging from three to seven percent, are usually paid by the seller, not the buyer, when a home is sold.

Question 8

Gross debt service ratio refers to a calculation of all mortgage-related financing and must not exceed 32 percent of total household income.

Accepted Answer

The statement is correct. The gross debt service ratio is a measure of how much of a household's income is being used to pay for mortgage-related financing, and a common guideline is that it should not exceed 32% of total household income.

Question 9

Malcolm has a down payment of $45 000 on a house valued at $200 000.He might be better off to borrow an additional $5000 on a personal loan to avoid the high ratio insurance premium.

Accepted Answer

To avoid high ratio insurance premium, the down payment should be at least 20% of the house value which is $40 000 in this case. Malcolm already has a down payment of $45 000 which is more than 20% of the house value. Therefore, he does not need to borrow an additional $5000 on a personal loan.

Question 10

If Jane had a total of $30 000 available for the purchase and transactions expenses to buy a condo,and an accepted offer of $150 000 for the property,she would be able to get a conventional mortgage.

Accepted Answer

Conventional mortgages typically require a down payment of at least 20% of the home's purchase price. In this case, 20% of $150,000 is $30,000, which is the total amount Jane has available. This does not account for additional transaction expenses, meaning she would not meet the requirements for a conventional mortgage based solely on her available funds.

Question 11

In choosing an open mortgage over a closed mortgage,you should consider the likelihood of being able to prepay principal to make up for the higher interest rate on the open mortgage.

Accepted Answer

With an open mortgage, you have the flexibility to make prepayments without penalty, which can help reduce overall interest costs. However, the interest rate on an open mortgage is typically higher than a closed mortgage, so it's important to assess whether or not the ability to prepay is worth the higher rate.

Question 12

It is impossible to finance a home purchase worth $210 000 with only $10 500 to put down.

Accepted Answer

Many mortgage programs allow for down payments as low as 3% or even 0% for certain buyers, so a $10,500 down payment on a $210,000 home (which is 5%) could be sufficient under the right circumstances.

Question 13

For a 25-year mortgage of $300 000 with monthly payments of $1745 and interest rate of five percent compounded semi-annually,the amount of principle paid off over five years would be approximately $34 500.

Accepted Answer

The answer of For a 25-year mortgage of $300 000...

Question 14

The interest you would pay on a $200 000 mortgage,amortized over 25 years,with an interest rate of six percent compounded semi-annually,would be $300 000.

Accepted Answer

Using a mortgage calculator, the total interest paid on a $200,000 mortgage amortized over 25 years with a 6% interest rate compounded semi-annually would be approximately $138,316.68, not $300,000.

Question 15

A house valued at $288 000 with a down payment of $63 000 will result in an extra charge for a high ratio mortgage.

Accepted Answer

A high ratio mortgage is typically required when the down payment is less than 20% of the property value. In this case, the down payment of $63 000 is over 20% of the property value of $288 000, so a high ratio mortgage would not be required and there would be no extra charge.

Question 16

If the average price of homes you are considering went from $300 000 to $330 000 last year,it would make sense to estimate that they should be worth around $439 000 in three more years.

Accepted Answer

The assumption of a linear or consistent percentage increase in home prices year over year cannot be accurately applied without specific annual growth rates. The example provided suggests a 10% increase from $300,000 to $330,000 in one year, but extrapolating this to predict a price of $439,000 in three years assumes a continued or compounded rate of increase that is not specified or necessarily realistic.

Question 17

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

Accepted Answer

When you need to move quickly and the home does not appreciate in value, you may struggle to sell the property at a price that covers the remaining mortgage. This could result in a financial loss.

Question 18

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

Accepted Answer

Online realtor services often charge lower commissions than traditional full-service real estate companies because they operate with lower overhead costs and may offer more a la carte services, allowing for savings to be passed on to the customer.

Question 19

Refinancing a home may incur penalties which outweigh the benefits of acquiring a lower interest rate,so should therefore be thoroughly investigated before acting.

Accepted Answer

Refinancing a home often involves fees such as prepayment penalties, origination fees, and closing costs, which could negate any possible savings from a lower interest rate. Therefore, before refinancing, it is important to consider all fees and calculate whether the potential savings outweigh the costs.

Question 20

Jane's monthly gross income is $4000 and her debt payments are $400 per month.Given GDS of 30 percent and TDS of 40 percent,she will be able to qualify for mortgage-related debt payments of $1200 per month.

Accepted Answer

To calculate the Gross Debt Service (GDS), we need to divide the total monthly mortgage-related payments (including principal, interest, property taxes, and heating expenses) by the gross monthly income and multiply by 100:

GDS = (Total monthly mortgage payments / Gross monthly income) x 100

Assuming Jane's GDS is 30%, we can figure out the maximum mortgage-related debt payments she can afford:

GDS = (Total monthly mortgage payments / Gross monthly income) x 100
30 = (Total monthly mortgage payments / $4,000) x 100
Total monthly mortgage payments = $1,200

This means that Jane will be able to qualify for mortgage-related debt payments of $1,200 per month, which is less than her current debt payments of $400 per month, so she should be able to qualify for a mortgage if she meets other criteria (e.g., credit score, down payment, etc.). Therefore, the answer is A.

Quiz 7: Managing Your Financial Resources - Purchasing and Financing a Home