Question 1

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

Accepted Answer

A home equity loan is also known as a second mortgage, as it is a loan that is taken out in addition to the first mortgage on the property.

Question 2

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

Accepted Answer

Even if you sell your home without a real estate agent, you may still need legal advice and representation. A lawyer can help you understand the legal requirements and procedures for selling a home in your state, review and draft contracts, and ensure that the transaction is lawful and fair. A broker, insurance agent, contractor, and rental agent may be helpful in other aspects of the home selling process, but a lawyer is essential for protecting your legal rights and interests.

Question 3

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

Accepted Answer

A conventional mortgage refers to a loan that is not guaranteed or insured by a government agency such as the Federal Housing Administration (FHA) or Department of Veterans Affairs (VA). A fixed-rate mortgage is a common type of conventional mortgage where the interest rate remains the same throughout the term of the loan.

Question 4

Refinancing of a mortgage is recommended when:

Accepted Answer

Refinancing of a mortgage is recommended when interest rates fall because it allows the borrower to obtain a new mortgage with a lower interest rate, which can result in lower monthly payments and potentially save money over the life of the loan. The other options listed are not necessarily reasons to refinance a mortgage.

Question 5

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

Accepted Answer

The most common service provided by a real estate agent when selling your home is screening potential buyers. This includes verifying their financial ability to purchase the home and ensuring they are serious about buying. While real estate agents may provide some legal advice, they are not licensed attorneys and should not be relied upon for legal matters. Qualifying buyers for a mortgage and attending home inspections are typically the responsibility of the lender and home inspector, respectively. Similarly, making needed repairs is typically the responsibility of the homeowner.

Question 6

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

Accepted Answer

A deed is a legal document that transfers ownership of property from one party (the grantor) to another (the grantee). It includes a description of the property, details about the transfer, and any relevant conditions or restrictions. Other documents like titles, escrow accounts, settlement statements, or appraisals may be involved in the process of transferring property ownership, but the deed is the essential document for this purpose.

Question 7

The purpose of title insurance is to:

Accepted Answer

Title insurance is designed to protect an owner from potential unknown claims on a property. This can include issues with the title such as liens or encumbrances, as well as any legal disputes that may arise regarding ownership.

Question 8

A possible disadvantage of FHA and VA mortgages can be:

Accepted Answer

FHA and VA loans often have longer processing times due to additional paperwork and requirements compared to conventional loans.

Question 9

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?

Accepted Answer

100,000 F1F1F1S1F1F1F10 2% = 2,000; 2,000 / (600-520) = 25

Question 10

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

Accepted Answer

Title insurance is a type of insurance that protects the home buyer from any disputes over ownership of the property. It is typically required by the lender and is considered a closing cost. Home inspection fees (A), realtor fees (B), earnest money (C), and down payment (E) are not considered closing costs.

Question 11

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

Accepted Answer

Decreasing the interest rate would lower the amount of interest paid on the mortgage and therefore increase the amount of mortgage a person is eligible for.

Question 12

A conventional mortgage usually involves:

Accepted Answer

A conventional mortgage typically involves equal payments over a specified term. Variable interest rates, government guarantees, balloon payments, and payment caps are not necessarily associated with conventional mortgages.

Question 13

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

Accepted Answer

Obtaining a 15-year mortgage instead of a 30-year mortgage would increase the speed of equity growth for a homebuyer because the shorter loan term means that a larger proportion of each mortgage payment goes towards principal rather than interest. This leads to faster equity buildup.

Question 14

Which one of these situations creates negative amortization?

Accepted Answer

Negative amortization occurs when the borrower's mortgage payment is less than the interest charged each month. This results in the unpaid interest being added to the principal balance, causing the loan balance to increase rather than decrease over time. Therefore, paying less than the monthly interest on a mortgage creates negative amortization.

Question 15

A VA-guaranteed loan program provides assistance to:

Accepted Answer

The VA-guaranteed loan program specifically provides assistance to military veterans, helping them to obtain mortgages for homes.

Question 16

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 mortgage is a type of mortgage where the builder or real estate developer subsidizes the interest rate of the mortgage for a certain period of time, typically the first few years. This results in a lower monthly payment for the borrower during the subsidized period, which can make the home more affordable. After the subsidized period ends, the interest rate and monthly payment adjust to the market rate. This can be a good option for a newly married couple who may have limited income at the beginning of their marriage, but expect their income to increase in the future.

Question 17

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

Accepted Answer

Property insurance is typically paid from an escrow account. This is because the lender wants to ensure that the property is insured in case of damage or destruction, since they have a financial interest in the property. Other expenses such as title insurance, points, loan application fees, and real estate agent commissions are typically not paid from an escrow account.

Question 18

What is prepaid interest charged by a mortgage company called?

Accepted Answer

Prepaid interest charged by a mortgage company is called "points".

Question 19

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

Accepted Answer

The purpose of a rate cap with an adjustable rate mortgage is to restrict the amount by which the interest rate can increase, providing protection to the borrower against sudden and significant increases in interest rates, and therefore, monthly payments.

Question 20

The purpose of an appraisal is to:

Accepted Answer

The purpose of an appraisal is to estimate the current value of a home. This is usually done to determine the fair market value of the property and help the lender decide how much money to lend to the borrower.

Quiz 9: The Housing Decision: Factors and Finances