Question 1

Some real estate experts estimate that remodeling a kitchen can add 130 percent of the cost of remodeling to the value of the house. A remodeled kitchen costing $8,000 could add _____ to the value of the house.

Accepted Answer

The answer of Some real estate experts estimate that remodeling...

Question 2

A cost associated with renting would be:

Accepted Answer

A security deposit is a sum of money that a tenant gives to a landlord as a guarantee that the tenant will fulfill the terms of the lease agreement, such as paying rent on time and not damaging the property.

Question 3

Gary Smith is purchasing one living unit in a building. What type of housing is Gary most likely going to live in?

Accepted Answer

A condominium is a type of housing where individuals own a specific unit within a building or complex. The owner is responsible for the upkeep, maintenance, and repair of their unit, but they also have access to shared amenities such as swimming pools, gyms, and elevators. This type of housing is popular in urban areas and provides a level of home ownership without the full responsibilities of maintaining a house and property.

Question 4

Ted pays $4,500 in real estate property taxes and is in the 28 percent tax bracket. What is the value of this federal tax deduction?

Accepted Answer

The value of the federal tax deduction is calculated by multiplying the amount of the deduction by the taxpayer's marginal tax rate. Therefore, $4,500 * 0.28 = $1,260.

Question 5

Which one of the following is an advantage of renting?

Accepted Answer

One of the benefits of renting is fewer responsibilities. When renting, the landlord is typically responsible for maintenance, repairs, and some utilities, freeing up the renter's time and money. The other options (A, B, D, and E) are advantages of owning a home.

Question 6

A contract condition that states that the agreement is binding only if a certain event occurs is a(n):

Accepted Answer

A contingency clause is a contractual provision that makes the completion of a contract dependent upon the occurrence of a stated event. It sets out one or more conditions that must be satisfied or waived before the contract can become binding. The most common contingency clauses in real estate contracts are financing, inspection, and appraisal contingencies.

Question 7

Michelle Duncan wants to know what price home she can afford. Her annual gross income is $45,000. She owes $750 per month on other debts and expects her property taxes and homeowners insurance to cost $250 per month. She knows she can get a 7.5%, 30 year mortgage so her mortgage payment factor is 6.99. She expects to make a 20% down payment. What is Michelle's affordable home purchase price? Round your answer to the nearest $100.

Accepted Answer

45,000 / 12 = 3,750; 3,750 F1F1F1S1F1F1F10 .38 = 1,425; 1,425 F1F1F1S1F1F1F10 750 F1F1F1S1F1F1F10 250 = 425; 425 / 6.99 F1F1F1S1F1F1F10 1,000 = 60,801.14; 60,801.14 / (1 F1F1F1S1F1F1F10 .20) = 76,001.43 = $76,000 rounded.

Question 8

Paula has completed a mortgage application and provided evidence of employment, income, and existing debt to the potential lending institution. Although Paula has not even begun the process of looking at possible homes to buy, she is eagerly awaiting news from the lender as to whether she has been approved for a mortgage. In what stage of the application process is she?

Accepted Answer

Paula is in the prequalification stage, where she has submitted her application and supporting documents to the lender for evaluation to determine how much she can afford to borrow. She has not yet requested an appraisal, assessment, or home inspection, nor has she reached the amortization stage, which occurs after the mortgage loan has been granted and payments begin.

Question 9

If closing costs of $1,400 are associated with the refinance of a mortgage that would reduce the monthly payment from $980 to $870, it would take approximately ____ months to cover these costs.

Accepted Answer

1,400 / (980 F1F1F1S1F1F1F10 870) = 12.73 = 13 rounded.

Question 10

Noelle and Larry have decided to perform the landscaping of their new home by themselves. They also plan to take a do-it-yourself class at a local home store so they can replace the tile in the master bathroom without using a contractor. The effect of performing these tasks themselves will result in an increase in their:

Accepted Answer

Performing the landscaping and bathroom tile replacement themselves will result in an increase in their sweat equity, which is the increase in value of a property due to their own labor and work.

Question 11

James Monroe is a member of a nonprofit organization that allows him to rent a living unit in a building. What type of housing is James most likely living in?

Accepted Answer

A cooperative is a type of housing where members own shares in the building and have the right to occupy a living unit. This allows for affordable housing options as members can collectively manage the building and keep costs low.

Question 12

A _________ is a building that contains exactly two separate homes.

Accepted Answer

A duplex is specifically designed to contain two separate homes under one roof, making it the best choice for this question. The other options do not necessarily imply the presence of two separate homes.

Question 13

Jennifer Garland is purchasing a home that was assembled in a factory and then moved to the living site. What type of housing is Jennifer purchasing?

Accepted Answer

Jennifer Garland is purchasing a home that was assembled in a factory and then moved to the living site. This matches the definition of a prefabricated home.

Question 14

The appraised value of your home is the:

Accepted Answer

The appraised value of a home is an estimate of its current market value, determined by a licensed appraiser. It is used in real estate transactions to set the sale price, determine the amount of a mortgage, and to verify that the property is worth the amount of the loan. It is different from the price paid for the home and the amount remaining after the down payment. It may impact property taxes, but it is not necessarily the same as the tax assessment value. Lastly, it is not determined by an offer from a potential buyer, but rather a professional appraiser.

Question 15

A renter is required to pay a security deposit of $800, on which 4 percent interest will be paid. What amount would the person earn each year?

Accepted Answer

800 F1F1F1S1F1F1F10.04 = $32

Question 16

The assessed value of your home is the:

Accepted Answer

The assessed value of your home is the value assigned by the local government for the purpose of calculating property taxes. It is typically based on factors such as the home's size, age, and location, and may be lower than the actual market value of the property.

Question 17

Which one of the following is an advantage of buying?

Accepted Answer

Buying a property can offer tax benefits, such as deductions for property taxes and mortgage interest. This can provide some financial relief and make the investment more attractive. The other options listed are not advantages of buying.

Question 18

Duane Miller wants to know what price home he can afford. His annual gross income is $60,000. He has no other debt expenses and expects property taxes and insurance to cost $400 per month. He knows he can get a 6%, 15 year mortgage so his mortgage payment factor is 8.43. He expects to make a 10% down payment. What is Duane's affordable home purchase price? Round your answer to the nearest $100.

Accepted Answer

First, we need to calculate the maximum monthly mortgage payment Duane can afford:

- Annual gross income: $60,000 
- Monthly gross income: $60,000 / 12 = $5,000 
- Monthly property taxes and insurance: $400 
- Maximum monthly mortgage payment: ($5,000 - $400) * 0.28 = $1,292

Next, we can use the mortgage payment factor to calculate the maximum loan amount:

- Mortgage payment factor: 8.43 
- Maximum loan amount: $1,292 / 8.43 = $153,127

Finally, we can calculate the maximum home purchase price by adding the down payment:

- Down payment: 10% of purchase price = 0.1 * P 
- Maximum purchase price + down payment = Maximum loan amount 
- P + 0.1P = $153,127 
- 1.1P = $153,127 
- P = $139,206

Rounding this answer to the nearest $100 gives us an affordable home purchase price of $164,800 (Choice C).

Question 19

What is the most popular type of home ownership?

Accepted Answer

Single family dwellings are the most popular type of home ownership, as they offer greater privacy and control over the property compared to other options such as condominiums, duplexes, or cooperatives. Prefabricated homes may offer some advantages in terms of cost and speed of construction, but they are less widely used and may be subject to zoning restrictions in some areas.

Question 20

A loan based on the equity of the home that provides the homeowner with tax-free income and which is paid back when the home is sold is called a(n):

Accepted Answer

The loan described is a reverse mortgage, which is specifically designed to provide tax-free income to homeowners based on the equity of their home, and the loan is paid back when the home is sold. This is different from a conventional mortgage, which is used to purchase a home, a growing equity mortgage which gradually increases payments over time, a second mortgage which is an additional loan on top of an existing mortgage, or an adjustable rate mortgage which has fluctuating interest rates.

Quiz 9: The Housing Decision: Factors and Finances