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Personal Finances > Housing Decision: Factors and Finances > Flashcards

Housing Decision: Factors and Finances Flashcards

1
Q

The place where you live reflects what?

A
  • Lifestyle
  • Needs
  • Values
  • Beliefs
  • Attitudes
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2
Q

What are some trade-offs you may face when selecting housing?

A
  • Losing interest earnings on down payment for house/ security deposit for apartment
  • Loss of home-buying tax advantages and equity growth when you rent
  • Time and money for repairing/ improving a lower priced home
  • Time and effort involved when having a home built to your specifications
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3
Q

What are the advantages and disadvantages of renting an apartment?

A

Advantages: Easier to move and take care of. Minimal financial commitment

Disadvantages: No tax benefits, limitations on remodeling and privacy, may have restrictions on pets and other activities

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4
Q

What are the advantages and disadvantages of renting a house?

A

Advantages: Easy to move, less maintenance, more room than an apartment, minimal financial commitment

Disadvantages: Higher utility costs than apartment, limitations regarding remodeling and privacy

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5
Q

What are the advantages and disadvantages of owning a new house?

A

Advantages: No previous owner, established neighborhood, tax benefits

Disadvantages: Financial commitment, higher living expenses, and limited mobility

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6
Q

What are the advantages and disadvantages of owning a previously owned home?

A

Advantages: Pride of ownership, established neighborhood, tax benefits

Disadvantages: Financial commitment, possibility of repairs or replacements, limited mobility

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7
Q

What are the advantages and disadvantages of owning condominium?

A

Advantages: Tax benefits, fewer maintenance responsibilities, good accessibility to recreation and business districts

Disadvantages: Less privacy, financial commitment, uncertain demand affect property value, assessment fees

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8
Q

What are the advantages and disadvantages of owning a cooperative?

A

Advantages: Ownership in form of nonprofit organization, stable property values

Disadvantages: Difficult to sell, potential disagreements among other members, other members have have to cover costs of unrented units

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9
Q

What are the advantages and disadvantages of owning a mobile home (manufactured home)?

A

Advantages: Less expensive than other ownership options, flexibility in selection of home features/appliances

Disadvantages: May be difficult to sell in future, financing can be difficult to obtain, construction quality may be poor

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10
Q

What % of US households live in rental units?

A

35%

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11
Q

What are five factors to consider when selecting an apartment?

A

Location, building exterior, building interior, financial aspects, and layout/facilities

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12
Q

What does it mean to consider the “building exterior”?

A

Condition of building/grounds, parking facilities, and recreation.

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13
Q

What does it mean to consider the “building interior”?

A

Look at exits/security, hallway maintenance, condition of elevators, access to mailboxes

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14
Q

What are the three main advantages of renting?

A
  • Moving is easier when a location change may be needed/ desired.
  • There are fewer responsibilities involved
  • There are lower initial costs (tenets need to pay just a security deposit)
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15
Q

What is the price-to-rent ratio?

A

It is the relationship between home prices and annual rents. Real estate advisors suggest a ratio of 18 or lower when you buy.

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16
Q

What are three disadvantages of renting?

A
  • There are fewer financial benefits for tenants than homeowners (no tax deductions and little control over changes in rent)
  • Renters are restricted in what they can do (ex. may not be allowed to have pets or decorations)
  • Lease forms may contain conditions you might not want to accept
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16
Q

A lease contains information about……..

A
  • Description/address of rental unit
  • Name/address of landlord (lessor)
  • Effective date of lease and length of lease
  • Amount of security and pet deposit
  • Amount and due date of monthly rent
  • List of utilities, appliances, furniture, and other facilities included in rent
  • Conditions under which the landlord may enter the apartment
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17
Q

What is subletting?

A

Allowing someone to else to take over rent payments and live in a rental unit if you must move before the lease expires.

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18
Q

True or False. You must accept every condition on a printed lease

A

False. You could negotiate a lower rent or reduced security deposit. You can also discuss any lease terms you deem unacceptable.

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19
Q

With an oral lease, one party must give a ______ notice to other party before terminating lease or charging a rent increase.

A

30 day

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20
Q

Why are leases important?

A

They provide protection to landlord and tenant

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21
Q

What is a security deposit? What does the security deposit cover?

A

It is usually one month’s rent. It covers the cost of any damage done to the rental unit during the lease period.

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22
Q

True or False. If money is deducted from your security deposit, you have the right to an itemized list of repair costs

A

True

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23
Q

What are three benefits of home ownership?

A
  1. Pride of Ownership (Getting to have a place to call your own).
  2. Financial benefits (ex. deductibility of mortgage interest/real estate payments, potential increases in value of property).
  3. Lifestyle flexibility (Owning a home allows you to express individuality through decoration and entertainment).
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24
Q

What are the drawbacks of home ownership?

A
  1. Financial uncertainty: There could be complications in obtaining money for a down payment or depletion of property value.
  2. Limited mobility: It takes more time to change locations if you own a home rather than rent
  3. Higher living costs: Owning a place is expensive since you are responsible for maintenance, repainting, repairs, and home improvements
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25
Q

Property taxes vary from area to area, but they are usually ___ to ____% of the market value of the home

A

2 to 4%

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26
Q

What are the steps you can take to appeal (try to lower) your property taxes?

A
  1. Know the appeal deadline - Call local assessor’s office and send appeal by certified mail.
  2. Check for errors - Some obvious mistakes are reporting incorrect square footage or a wrong number of rooms
  3. Determine issues to emphasize - Note items that could negatively affect the value of your home. Compare your assessment with homes of same age, size, and location
  4. Prepare for hearing - Gather evidence and prepare an organized presentation. Use photos of comparable properties. Suggest a specific corrected assessment and give your reasons.
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27
Q

List four types of housing for home buyers.

A
  1. Single-family dwellings (detached homes).
  2. Multiunit dwellings (Has more than one living unit).
  3. Condominiums (individually owned units in one building) Run by an association that owns the condos.
  4. Cooperative housing (Units in building are owned by non profit organization). Residents have right to stay in units as long as they own stock in the cooperative.
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28
Q

Mobile homes (trailer homes)

A

Housing units that are usually less than 1,000 sq. feet. Can have features like fully equipped kitchens, fireplaces, and cathedral ceilings.

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28
Q

What are some things to consider when selecting a contractor?

A
  • Do they have the needed experience for the project?
  • What arrangements are required for payments during construction?
  • Is the contractor licensed and insured?
  • Does the written contract include a time schedule, cost estimates, a description of the work, and a psyment schedule?
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28
Q

What are factory-built homes?

A

Living units that are fully or partially assembled in a factory and then moved to a living site. (ex. prefabricated home and modular home)

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29
Q

What are some factors that affect the amount you can afford for a house?

A
  • Funds available for down payment
  • Income level
  • Current living situation
  • Current mortgage rates
  • Ability to make monthly mortgage, tax, and insurance payments
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30
Q

What is a handyman’s special?

A

A home that needs work and that you can get a lower price for.

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31
Q

What is one action you can take to determine how much you can afford to spend on a home?

A

Have a loan officer at a mortgage company or other institution prequalify you

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32
Q

What are zoning laws?

A

Restrictions on how the property in an area can be used.

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32
Q

When evaluating a home to purchase, what are two important things to consider?

A

Location and school system

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33
Q

What are five main services of real estate agents?

A
  • Showing you homes in many areas based on your needs and preapproved mortgage amount
  • Presenting your offer to the seller based on a market analysis
  • Negotiating a purchase price
  • Assisting you in obtaining financing
  • Representing you at closing
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34
Q

Why is having a home inspection beneficial when buying a home?

A

It helps minimize future problems and avoid unexpected expenses

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35
Q

What are some factors to consider when offering a price for a home?

A
  1. Selling prices in area
  2. Current housing demand
  3. Length of time house has been on the market
  4. Owner’s need to sell
  5. Financing options
  6. Features and conditions of home
36
Q

Your offer for a home will be in the form of a _________

A

Purchase agreement

37
Q

When a seller’s counter offer is slightly lower than the asking price, you are expected to ………

A

Move closer to that price with your next offer

38
Q

When a seller’s counter offer is a bit off the asking price, you are expected to ………

A

You may split the difference to arrive at the purchase price.

39
Q

What is a seller’s market?

A

A situation in which housing demand is high and the owner is likely getting multiple offers so negotiating is minimized.

40
Q

What is a buyer’s market?

A

A situation in which housing demand is low and sales are slow so negotiation is more likely.

41
Q

What is your negotiating power based on when buying a previously owned home?

A

It is based on current market demand and the current owner’s need to sell

42
Q

What is your negotiating power based on when buying a new home?

A

It is based on a slow market

43
Q

What is earnest money?

A

A portion of the purchase price deposited as evidence of good faith that the buyer’s purchase offer is serious.

44
Q

What happens to the earnest money during the closing of the home purchase?

A

It is applied towards the down payment

45
Q

A (small or large) down payment makes it easier to obtain a mortgage. What % should that amount be?

A

Larger. 20% or more.

46
Q

What are some common payment sources for a down payment?

A
  • Personal savings
  • Investments
  • Assistance from relatives
47
Q

If a down payment is less than 20%, a home buyer must get _____________

A

Private mortgage insurance

48
Q

What should a home buyer do with PMI after building up 20% equity in a home? Which act requires this action?

A

Terminate it. The Homeowners Act

49
Q

What is a common mistake of home buyers? How can they prevent this?

A

Not planning for additional costs. Creating a budget and determining the amounts of closing costs, moving, property taxes, insurance, utilities, furniture, repairs, condo fees, and association dues.

50
Q

Mortgage

A

Long-term loan on a specific piece of property such as a home or other real estate.

51
Q

How long are mortgage payments usually made for?

A

10 - 30 years.

52
Q

What are some common sources for home financing?

A
  • Banks
  • Credit unions
  • Mortgage companies
53
Q

Which months are the best time to buy a home? Which month is the best time to sell?

A

Jan. or Feb. for buying. June for selling.

54
Q

What are the three phases of applying for a mortgage?

A
  1. Complete mortgage application. In application, borrower will provide evidence of employment, income, asset ownership, and existing debt amounts.
  2. Lender obtains credit report and verifies the borrower’s financial status. The lender with then approve or deny the mortgage.
  3. Lender will charge a fee of up to $500. Purchase contract becomes legally binding. Borrower may lock in interest rate for 30-90 days or float (lock in rate at later date).
55
Q

How do you calculate your affordable monthly mortgage payment?

A
  1. Determine your monthly gross income (annual income divided by 12)
  2. Multiply the monthly gross income by the percentage that lenders use for PITI (principal, interest, taxes, and insurance). It is usually 33% for just PITI and 38% for PITI plus other debt payments
  3. Subtract other debt payments (ex. payments on an auto loan) and an estimate of monthly costs of property taxes and homeowner’s insurance.
56
Q

How do you calculate an affordable mortgage amount?

A
  1. Divide monthly mortgage payment by the monthly mortgage payment per $1000 based on mortgage rates (ex. 8%, 30 year loan).
  2. Multiply amount by $1000
57
Q

How do you calculate an affordable home purchase price?

A
  1. Divide affordable mortgage amount by 1 - fractional portion of your down payment (ex. 1 - .2 (20% down payment)).
58
Q

What are points? Why are they important to consider when comparing mortgage companies?

A

Points are prepaid interest rates charged by the lender. They lower the interest rate. Typically, lenders offer more of them with lower mortgage rates.

59
Q

In what scenario would a lower rate with more points be beneficial?

A

If you plan to live in the home for a period of time (ex. over five years).

60
Q

In what scenario would a higher rate with fewer points be beneficial?

A

If you plan to sell the home in the next few years

61
Q

What are the three main types of mortgage lenders?

A

Retail banks, correspondent lenders (independent mortgage banks), and mortgage wholesalers/brokers

62
Q

What are the pros and cons of a conventional 30 year mortgage?

A

Pro: Fixed monthly payments provide certainty of principal and interest payments

Con: Higher interest rates than adjustables

63
Q

What are the pros and cons of a conventional 15-20 year mortgage?

A

Pros: Lower rate than 30 year fixed; faster equity buildup and quicker payoff of loan

Cons: Higher monthly payments

64
Q

What are the pros and cons of a FHA/Va fixed rate mortgage (30 and 15 year)?

A

Pro: Low down payment requirements and fully assumable with no prepayment penalties

Cons: Shifts far greater interest rate risk onto borrowers than fixed-interest loans. Risk of higher monthly payments in future years.

65
Q

What are the pros and cons of an interest-only mortgage?

A

Pro: Lower payments

Con: No decrease in amount owed. No building equity unless home value increases.

66
Q

What is an adjustable-rate mortgage? (Aka variable-rate mortgage or flexible-rate mortgage)

A

A mortgage that has an interest rate that increases or decreases during the life of the loan. With this type of mortgage, borrowers bear the risk of future interest rates increasing.

67
Q

What is a rate cap?

A

A limit on the increases or decreases in the interest rate charged on an adjustable-rate mortgage.

68
Q

What is a payment cap?

A

A limit on the payment increases for an adjustable-rate mortgage

69
Q

What is negative amortization? How does it affect home equity?

A

An increased loan balance due to increasing interest rates. Causes the amount of home equity to decrease.

70
Q

What should you consider when evaluating adjustable-rate mortgages?

A
  1. Determine frequency and restrictions for interest rate changes
  2. Consider frequency and restrictions for monthly payments
  3. Investigate if loan will be extended due to negative amortization. Determine limits on negative amortization
  4. Know what index the lending institution uses to set the mortgage rate
71
Q

What is an interest-only mortgage?

A

A mortgage that allows a home buyer to pay only interest for a certain period of time. Once initial period ends, mortgage adjusts to being interest only at new payment amount. Payments are lower in first few years but will increase later in the loan.

72
Q

What is a buy down? What happens after a buy down period ends?

A
  • Interest rate subsidy from home builders/real estate developers that reduces the mortgage payments during the first few years of the loan.
  • After buy-down period, mortgage payments increase to the level that would have existed without the financial assistance.
73
Q

What is a second mortgage (home equity loan)?

A

It is a loan that allows for a homeowner to borrow on the paid-up value of the property. The homeowner will then repay the amount monthly at a fixed rate of interest.

74
Q

Is interest on a home equity loan tax deductible?

A

Yes

75
Q

What are reverse mortgages (home equity conversion mortgages)?

A

A loan for elderly homeowners who need tax-free income. Is paid back (with interest) when the home is sold or the homeowner dies.

76
Q

What does it mean to refinance a mortgage?

A

It means to obtain a new mortgage at a lower rate and payment.

77
Q

What should you consider before refinancing your mortgage?

A

Consider refinancing costs in relation to the savings with lower monthly payments and how long you plan to live in the home.

78
Q

What calculation could you do to assess if you should refinance your mortgage?

A

Divide the costs of refinancing by the amount saved each month to determine the amount of months to cover your costs.

79
Q

What should you do before finalizing a home purchase?

A

Do a walk-through to inspect the condition and facilities of the home you plan to buy. Take photos or a video to collect evidence for any last-minute items to negotiate.

80
Q

What are closing costs (settlement costs)?

A

Fees and charges paid when a real estate transaction is complete.

81
Q

What is title insurance?

A

Insurance that protects owner and lender against financial loss resulting from future defects in the title and from unforeseen property claims not excluded by the policy during the mortgage term.

82
Q

What are the ten closing costs that the buyer will be responsible for?

A
  • Title search fee
  • Title insurance
  • Attorney’s fee
  • Appraisal fee
  • Recording fees
  • Settlement fee
  • Wire transfer fee
  • Lender’s origination fee
  • Reserves for home insurance/property taxes
  • Interest paid in advance and “points”
83
Q

Deed

A

Document that transfers ownership of property from one party to another

84
Q

Mortgage insurance

A

Insurance that protects lenders from loss resulting from a mortgage default

85
Q

Escrow account

A

Money for the payment of property taxes, homeowner’s insurance, and private mortgage insurance.

86
Q

True or False. Making your house look presentable will help in getting a fast and favorable sale

A

True

87
Q

What are some ways that you can make your home more presentable for buyers?

A
  • Painting the interior and exterior
  • Make needed repairs
  • Clean windows
  • Remove excess furniture and dispose of unneeded items (makes house look larger)
88
Q

Appraisal

A

Estimate of current value of property

89
Q

What are some factors that influence the asking price for a home?

A

Selling prices of comparable homes, housing market demands, and available financing based on current mortgage rates

90
Q

When selling on your own, when should you use the services of a lawyer or title company?

A

With contracts, closing, and other legal matters

91
Q

As a security measure, you should only show your home when __________

A

Two or more adults are at home

92
Q

What are some services that real estate agents will provide?

A
  • Suggest a listing price based on market analysis
  • Provide advice on features to highlight, hosting open houses, and coordinating showings to potential buyers
  • Help negotiate selling price
  • Guide you through closing
93
Q

What is the most important thing to consider when selecting an agent?

A

How much attention and assistance you want during the home-selling process.

Personal Finances (6 decks)

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