Deck 8: Housing: the Cost of Shelter

Question 1

Which of the following statements is not true of mobile housing?

A)Mobile homes typically decrease in value with age.
B)Most mobile homes are permanently affixed to a housing site.
C)Mobile homes generally receive the same type of financing as traditional single family dwelling units.
D)Construction costs per square foot are considerably less than for on-site construction.

Answer 1

Mobile homes generally receive the same type of financing as traditional single family dwelling units.

Question 2

Which of the following statements is not true of cooperative housing?

A)The cooperative holds the mortgages on the individual units.
B)The cooperative has a corporate form with the individual owners holding shares in the corporation.
C)The shareholders lease the individual units from the corporation.
D)The shareholders can sell their ownership in the cooperative to anyone they want.

Answer 2

The shareholders can sell their ownership in the cooperative to anyone they want.

Question 3

A single taxpayer may

A)not exclude from current income any of the capital gain on the sale of a home.
B)exclude up to $250,000 of the capital gain every time he or she sells a home as long as they have lived in the home for a period of two years.
C)exclude up to $250,000 of the capital gain every time he or she sells a home only if they are at least 55 years of age.
D)exclude all of the capital gain on the sale of a home;however,this exclusion may only be taken once in a lifetime.

Answer 3

exclude up to $250,000 of the capital gain every time he or she sells a home as long as they have lived in the home for a period of two years.

Question 4

The Federal National Mortgage Corporation recommends that you total monthly debt payments,including housing expenses,not exceed

A)33 to 36 percent of your gross monthly income.
B)14 to 18 percent of your gross monthly income.
C)46 to 50 percent of your gross monthly income.
D)60 to 64 percent of your gross monthly income.

Question 5

Which of the following statements concerning the housing market is false?

A)There has been a recent decline in the sales of single family homes.
B)There has been a recent decline in the median price of single family homes.
C)Interest rates have sharply risen over the last decade.
D)The rate of inflation has remained relatively stable over the last decade.

Question 6

Your annual mortgage payments are $10,000 of which $8,000 represents interest payments,your marginal tax rate is about 30%,and you itemize deductions.Home ownership will reduce your tax payments by about how much?

A)$2,400
B)$3,000
C)$5,600
D)$7,000

Question 7

Which of the following statements concerning home ownership is false?

A)The U.S.government has pursued a policy of fostering home ownership through subsidies and tax breaks.
B)The government policy of fostering home ownership has been largely successful.
C)Home ownership among adults is positively related to age.
D)The 1990s experienced a decade-long fall in housing affordability.

Question 8

Which of the following statements is not true of condominium housing?

A)You will be assessed a monthly charge to pay for the upkeep of the common areas.
B)The term "condominium" does not refer to a particular type of housing unit such as a high rise apartment or an independent structure.
C)A prospective buy must be approved by the condominium association.
D)You are responsible for the financing of your residential unit.

Question 9

A decline in the Housing Affordability Index indicates that housing

A)prices and family income have declined.
B)prices and family income have increased.
C)prices have declined and family income has increased.
D)is now more difficult for the typical family to purchase and finance.

Question 10

One rule of thumb mentioned in the text is that your home purchase should price equal about

A)two and one-half times your after-tax income.
B)four times your after-tax income.
C)five times your after-tax income.
D)ten times your after-tax income.

Question 11

Recent problems in the subprime mortgage have been attributed to which of the following?

A)increased lending to borrowers with poor credit histories
B)adjustable mortgages with low initial rates
C)lax lending standards
D)All of the above have contributed to the subprime crisis.

Question 12

The subprime mortgage market consists of

A)borrowers with poor credit history and poorly documented income.
B)younger borrowers who do not have not reached peak earnings.
C)older borrowers who are retired.
D)borrowers with excellent credit records who can borrow at below prime.

Question 13

Which of the following statements is not true of condominium housing?

A)The condominium association holds the mortgages on the individual condominium units.
B)The individual owners have a shared interest in the common areas.
C)The owners are able to vote for the directors of the condominium association.
D)The owners of individual units are assessed charges for the maintenance and upkeep of the common areas.

Question 14

If your affordable home mortgage is $100,000 and you need a 20% down payment,your affordable home purchase price is

A)$144,000.
B)$125,000.
C)$100,000.
D)$80,000.

Question 15

Your annual mortgage payments are $10,000 of which $8,000 represents interest payments,your marginal tax rate is about 30%,and you do not itemize deductions.Home ownership will reduce your tax payments by about how much?

A)zero
B)$2,400
C)$3,000
D)$7,000

Question 16

Your annual mortgage payments are $10,000 of which $8,000 represents interest payments,your marginal tax rate is about 30%,and you itemize deductions.Your mortgage payments after taxes are how much?

A)$7,600
B)$2,400
C)$5,600
D)$13,000

Question 17

The rule of thumb for determining how much rent you can afford is that you should not spend more than a certain percentage of your after-tax income on rent and utilities.The appropriate percentage is

A)15%.
B)25%.
C)35%.
D)45%.

Question 18

The Federal National Mortgage Corporation recommends than your housing expenses not exceed what percentage of your gross monthly income?

A)16 percent
B)28 percent
C)40 percent
D)52 percent

Question 19

The Housing Affordability index is based on the

A)ability of the median income family to purchase the median priced home.
B)ratio of low income housing to all housing.
C)the cost of financing as a percentage of total mortgage payments.
D)the average length of a home mortgage.

Question 20

A review of the Housing Affordability Index indicates that since the early 1990s,housing affordability has

A)had an overall upward trend until about 2004.
B)has remained relatively constant.
C)has had an overall downward trend.
D)has had dramatic upward and downward swings.

Question 21

With an open listing agreement

A)the first agent to list your home is entitled to half the commission on the sale.
B)the first agent to list your home is entitled to the full commission on the sale.
C)any agent can broker your home.The commission goes to the agent who locates a buyer.
D)The broker who is willing to sell your home for the lowest commission receives an exclusive right to sell.

Question 22

If the listing agreement indicates the real estate agent has an "exclusive right to sell",then

A)the agent earns a commission regardless of who sells the property.
B)the agent earns a commission only if the property is sold through a real estate agency.
C)the real estate agent receives a commission only if he or she discovers a buyer.
D)the real estate agent need only provide the seller a predetermined amount of money.The agent receive the difference between the sale price and the amount promised the seller.

Question 23

Which does not make owning a home relatively more attractive than renting?

A)An increase in the rate of return on financial investments
B)An increase in your marginal tax rate
C)An increase in the expected future price of housing
D)A reduction in mortgage interest rates

Question 24

One of the hidden tax advantages of home ownership

A)is the energy credit for new home construction.
B)is deductible maintenance costs.
C)is the non-taxable imputed rental income.
D)is deductible usage fees on water and sanitation.

Question 25

Buying rather than renting a home is usually a better alternative

A)for single dwelling units.
B)for multiple dwelling units.
C)for longer holding periods.
D)for shorter holding periods.

Question 26

A listing agreement is

A)a contract between you and a local newspaper for publicity on the sale of your home.
B)a contract between you and a real estate agent concerning the sale of your home.
C)a contract between you and a potential buyer giving the signer first rights on the sale of your home.
D)a contract between you and the buyer specifying that the title on the home is free of all defects.

Question 27

The typical sales commission as a percent of the market price of the home is between

A)1 and 3%.
B)4 and 5%.
C)6 and 7%.
D)8 and 9%.

Question 28

Which of the following statements concerning the sale of a home is false?

A)The purchase contract places obligations on the purchaser,but not the seller.
B)Most home sales are closed without the aid of an attorney.
C)Earnest money is returned to the purchaser if the seller does not accept the offer.
D)A seller who is displeased with an offer to purchase can make a counter offer.

Question 29

The home appraisal conducted by the mortgage lender is primarily meant to

A)ensure the lender that upon foreclosure it can resell the home for more than the outstanding balance on the mortgage.
B)ensure the buyer is not paying more than the market value for the home.
C)ensure the government that price discrimination does not occur in the housing market.
D)provide the basis for future property tax assessments.

Question 30

The Multiple Listing Service (MLS)provides

A)a fee-splitting arrangement among sales agents who are members of the Multiple Listing Service.
B)for multiple media advertising on the sale of your home.
C)sales announcements in newspapers throughout the nation.
D)your sales agent with an exclusive right to sell your home.

Question 31

In the process leading to the sale of a home,which of the following comes first?

A)The real estate agent simultaneously provides the potential parties to the sale a purchase contract containing the agent's best estimate of an agreeable price.
B)An escrow agent simultaneously provides the potential parties to the sale a purchase contract containing the average value of the ask and the bid.
C)The buyer makes an offer to purchase by providing the seller with a signed purchase contract.
D)The seller makes an offer to sell by providing the buyer with a signed sales contract.

Question 32

When purchasing a home you first should consult an attorney

A)before signing a purchase agreement.
B)after signing a purchase agreement,but before closing on the purchase.
C)only after the title search is complete.
D)In most cases there is no need to consult an attorney when purchasing a typical single family dwelling unit.

Question 33

Which item below would most likely not favor buying (versus renting)a personal residence?

A)You expect inflation to increase.
B)You expect an increase in income taxes.
C)You expect mortgage rates to rise.
D)You anticipate relocating frequently because of your job.

Question 34

Your annual mortgage payments are $10,000 of which $8,000 represents interest payments,your marginal tax rate is about 30%,and you itemize deductions.Home ownership will reduce your tax payments by about how much?

A)$2,400
B)$3,000
C)$5,600
D)$7,000

Question 35

When a potential buyer makes an offer to purchase,he or she places a deposit on the home.This is known as

A)an advance payment.
B)earnest money.
C)closing costs.
D)buyer's insurance.

Question 36

Which of the following is not a tax advantage associated with home ownership?

A)Deductible property taxes
B)Imputed non-taxed rental income
C)Capital gain tax exemption
D)Tax deductible repayment of loan principal

Question 37

The real estate agent typically represents

A)only himself or herself,and neither the buyer or the seller of the home.
B)only the real estate agency,and neither the buyer or the seller of the home.
C)the seller of the home.
D)the buyer of the home.

Question 38

Renting is generally the least costly alternative

A)for those who move often.
B)when property taxes are high.
C)for smaller families.
D)when interest rates are low.

Question 39

"Earnest money" is equal to

A)the down payment on the home.
B)closing costs.
C)the deposit on the purchase of the home.
D)the sales commission.

Question 40

A net listing agreement

A)provides the seller a predetermined amount of money from the sale of the home.
B)provides the seller's agent a predetermined amount of money from the sale of the home.
C)provides the buyer's agent a predetermined amount of money from the sale of the home.
D)specifies the total commission to be paid to the buyer's agent and the seller's agent.

Question 41

Fixed rate mortgage typically have a

A)higher initial interest rate than comparable adjustable rate mortgages.
B)lower initial interest rate than comparable adjustable rate mortgages.
C)identical initial interest rate to that on comparable adjustable rate mortgages.
D)an initial rate that may be above or below that on comparable adjustable rate mortgages.

Question 42

On a fixed rate mortgage,

A)the contract rate and the monthly interest payment remain constant over the term of the loan.
B)the contract rate and the monthly mortgage payment remain constant over the term of the loan.
C)the contract rate and the monthly repayment of principal remain constant over the term of the loan.
D)the contract rate,the monthly mortgage payment,the monthly interest payment,and the repayment of principal remain constant over the term of the loan.

Question 43

Closing costs are also termed

A)settlement costs.
B)recognition costs.
C)listing costs.
D)buyer costs.

Question 44

"Marketable title" exists when

A)the home is reasonably priced.
B)there are several claims on the title.
C)the title is free from all claims by third parties.
D)you list the home with a real estate agent.

Question 45

Points paid at closing are for payment of

A)finance charges.
B)loan processing.
C)property taxes.
D)inspections.

Question 46

You are least likely to favor added points over a higher contract rate if you are

A)likely to move in a few years.
B)a high income individual.
C)likely to remain in the home for the duration of the mortgage.
D)a low income individual.

Question 47

Title insurance protects you from

A)claims on your home to enforce payment on your personal debts.
B)loss of title due to fire or water damage.
C)previous claims on the title.
D)recall on the home mortgage.

Question 48

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

A)Points
B)Broker's commission
C)Earnest money
D)Title charges
E)Recording fees

Question 49

A warranty on the sale of an existing home typically

A)covers all defects for a 10-year period.
B)covers the structural integrity of the home.
C)is similar to an extended warranty on the home appliances.
D)has low or nonexistent deductibles.

Question 50

In the calculation of the Annual Percentage Rate on a home mortgage

A)only the contract rate is considered.
B)only points are considered.
C)only closing costs are considered.
D)all finance charges are considered.

Question 51

Fixed-rate mortgages usually have

A)level monthly payments over the life of the loan.
B)a level interest rate,but the monthly payment typically varies as credit conditions warrant.
C)monthly payments that are relatively large in the early years,but decline as the principal on the loan is reduced.
D)a balloon payment when the mortgage matures.

Question 52

Adjustable rate loans

A)have less variability than flexible rate loans.
B)are also called flexible rate loans.
C)are tied to different indexes then those determining flexible rate loans.
D)are for shorter periods than flexible rate loans.

Question 53

The purpose of the title search is to ensure that the

A)title is free of claims from third parties.
B)buyer has adequate funds for a down payment.
C)appraisal is correct.
D)bank has title to the funds it is lending.

Question 54

A title search is conducted

A)at the closing.
B)before the closing but after the offer to purchase.
C)before the offer to purchase.
D)after the closing.

Question 55

A written document transferring ownership of the home to the buyer is known as the

A)title.
B)listing agreement.
C)offer to purchase.
D)deed.

Question 56

In the terminology used by lenders,one "point" is equal to

A)$100.
B)$1,000.
C)one percent of the purchase price.
D)one percent of the amount borrowed.

Question 57

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 58

Additional points on a home mortgage will

A)lower the APR.
B)lower the required earnest money.
C)move interest payments to the front of the mortgage.
D)decrease the required down payment on the home.

Question 59

Concerning an adjustable rate loan,which of statements is false?

A)Lenders are required to describe circumstances that will lead to rate changes.
B)Lenders are required to provide examples of the payment changes that may occur.
C)The APR will reflect the interest payments you will actually incur over the life of the mortgage.
D)The APR will take into account the points on the loan.

Question 60

The mortgage contract rate

A)takes into account all finance charges including points.
B)is greater than the APR.
C)cannot change over the life of the loan.
D)is the interest rate applied to the unpaid mortgage balance.

Question 61

Negative amortization results when

A)the monthly interest payment on the home mortgage declines.
B)the remaining loan balance declines.
C)the monthly mortgage payment is less than the monthly interest on the remaining loan balance.
D)the monthly mortgage payment is just equal to the monthly interest on the remaining loan balance.

Question 62

Private mortgage insurance

A)is typically required when the down payment is less than 20 percent.
B)is required on all home mortgages.
C)is desireable low cost insurance against defective title.
D)can not be cancelled during the entire term of the mortgage.

Question 63

Federal Housing Administration (FHA)insurance protects

A)you against defective title.
B)the bank against defective title.
C)the lender against loss on the mortgage.
D)the borrower against foreclosure on the mortgage.

Question 64

"Conventional financing" consists of all home loans

A)made through the banking system.
B)that are neither government-insured nor guaranteed.
C)that are insured by the Federal Housing Administration.
D)with fixed interest rates.

Question 65

Option and 2/28 mortgages

A)have contributed to the subprime mortgage crisis.
B)are used by high income individuals in need of jumbo financing.
C)are subsidized by the federal government.
D)have a high initial rate that declines when the borrowers credit rating improves.

Question 66

Convertible home mortgages permit the borrower to

A)convert an adjustable-rate mortgage to a fixed rate mortgage at some future time period.
B)convert a 15-year mortgage to a 30-year mortgage.
C)convert a 30-year mortgage to a 15-year mortgage.
D)avoid a repayment of the outstanding loan balance at the sale of a home and thus provide seller financing.

Question 67

The acceleration clause allows

A)you to repay a loan before it becomes due.
B)the lender to speed up the rate at which the loan becomes due.
C)the buyer to speed up the closing on the home.
D)the seller to speed up the closing on the home.

Question 68

Possible negative amortization resulting from a rise in the interest rate on a adjustable rate mortgage may be avoided by

A)raising the rate cap.
B)lowering the payment cap.
C)shortening the term of the mortgage.
D)increasing the monthly payment.

Question 69

Adjustable rate mortgages

A)impose both higher risk and higher initial interest payments on the borrower.
B)impose higher risk on the borrower,but offset the additional risk with lower initial interest payments.
C)offer both lower risk and lower initial interest payments for the borrower.
D)offer lower risk for the borrower,but offset the lower risk with higher interest payments.

Question 70

Two organizations that help low-income earners obtain mortgages are the

A)VA and the FRB.
B)FRB and the FHA.
C)DOL and the VA.
D)VA and the FHA.

Question 71

If you expect interest rates to rise in the future,which type of mortgage loan (shown below)would you prefer?

A)Graduated payment
B)Adjustable rate
C)Shared appreciation
D)Fixed rate

Question 72

Which of the following statements concerning shared appreciation mortgages is false?

A)Even when the value of the home declines,the lender receives a minimum percentage of your equity in the home.
B)They typically have a lower contract rate than traditional home mortgages.
C)They typically allow you to qualify for a more expensive home.
D)If you have not sold the home when the mortgage matures,you still have to pay the lenders' share of the home's appreciation.

Question 73

Amortization is represented by

A)an increase in market value resulting from inflation.
B)the reduction in market value resulting from usage.
C)the periodic repayment of debt.
D)an increase in market value resulting from population growth.

Question 74

The "due on sale clause" requires

A)the buyer to pay the entire amount due at closing.
B)the seller to pay all of the buyer's points at closing.
C)repayment of the balance on the home loan when the property changes hands.
D)the seller to pay all property taxes that have become due between the last tax assessment and the sale of the home.

Question 75

Suppose you have a adjustable rate mortgage with a present interest rate of 13%.The current rate is set according to an interest rate index that had a rate of 15% when the current rate on your home loan was determined.Assuming that adjustments are unlimited in either direction,what is the interest rate on your home mortgage in the next adjustment period if the interest rate index is at 14%?

A)12%
B)13%
C)14%
D)15%

Question 76

A "payment cap"

A)limits interest rate increases and decreases on an adjustable-rate loan.
B)limits interest rate increases on adjustable-rate loans.
C)limits interest rate decreases on adjustable-rate loans.
D)limits neither an increase or a decrease in the interest rate on adjustable-rate mortgages.

Question 77

Escrow accounts

A)are required on all conventional financing.
B)held by banks must earn interest.
C)ensure that borrowers will make payments on housing-related expenses such as insurance and taxes.
D)cannot be forced upon a borrower by a lender.

Question 78

On adjustable rate loans,the Annual Percentage Rate

A)takes into account the initial contract rate on the loan,but not future contract rates.
B)takes into account the initial contract rate,and the highest possible contract rate given the terms of the loan.
C)takes into account the average expected contract rate over the duration of the loan.
D)is not published because future contract rates can not be known with certainty.

Question 79

2/28 mortgages have a below market interest rate for some initial period because

A)the lender expects to receive higher payments after the readjustment.
B)the borrower has a high credit score.
C)initial rates are subsidized by the government.
D)the lender shares in the appreciation in the market value of the home.

Question 80

A "periodic rate cap"

A)reflects current credit conditions in the home loan market and is set by the Home Loan Board.
B)reflects current credit conditions in the home loan market and is set according to the National Contract Rate.
C)limits interest rate changes on a home mortgage during any one adjustment period.
D)is set by the lender on all fixed-rate mortgages.