Home Buying

Question 1

What is credit?

Answer 1

Credit is borrowed money that you can use to purchase goods and services when you need them.

Question 2

Revolving credit

Answer 2

given a maximum credit limit, you can make charges up to that limit. Each month you carry a balance and make a payment.

Question 3

Charge cards

Answer 3

while they often look like revolving credit cards and are used in the same way, charge accounts differ in that you must pay the total balance every month.

Question 4

Service Credit

Answer 4

agreement with service providers with the agreement that you will make a payment each month.

Question 5

Installment Credit

Answer 5

a creditor loans you a specific amount of money and you agree to repay the money and interest in regular installments of a fixed amount over a set period of time.

Question 6

How to keep good credit?

Answer 6

use the card regularly
pay off the amount each month
Pay on time
keep the amount you borrow low
look at your statement each month. Be on the lookout for fraudulent charges.

Question 7

How to get a bad credit score?

Answer 7

late payments
Defaulting on payments/loans
the creditor “charges off” your debt
Your account goes to a collection agency
bankruptcy
Foreclosure

Question 8

How to repair bad credit?

Answer 8

pay down credit card balances and refrain from making new purchases. You may want to put your card in “time out”
consider a credit-builder loan with a bank or financial institution
refrain from closing old credit card accounts once you have them under control, as this can affect your credit utilization and make it harder to build a solid credit history
consider paying outstanding collection accounts
check your credit report. “clean up” any false information

Question 9

ARM

Answer 9

adjustable-rate mortgage - a mortgage in which the interest rate changes periodically

Question 10

APR

Answer 10

annual percentage rate - a percentage of the amount of the home loan that represents the total annual cost of the loan

Question 11

Appraisal

Answer 11

a report by a professional giving their opinion of the value of a property

Question 12

Appreciation

Answer 12

an increase in the value of real estate

Question 13

Credit Report

Answer 13

a report carried out by a credit reporting agency and used by the lender to determine whether an applicant is eligible for credit

Question 14

Depreciation

Answer 14

the loss of value in real estate

Question 15

Down Payment

Answer 15

the portion of the amount for the purchase of real estate that is given in advance by the borrower

Question 16

Escrow

Answer 16

an item of value held by a third party delivered upon the fulfillment of an agreed-upon condition

Question 17

First Mortgage

Answer 17

a mortgage having priority over all other liens

Question 18

Equity

Answer 18

the difference between the value of a house and the outstanding balance of the lien (mortgage) on the property

Question 19

Interest Rate

Answer 19

the percentage of an amount of money that is paid for the use of that money over a period of time

Question 20

Lien

Answer 20

a right to keep possession of property belonging to another person until adept owed by that person is discharged

Question 21

Mortgage

Answer 21

a legal document that transfers interest in a property and serves as a security for payment of a debt

Question 22

PITI

Answer 22

The acronym for Principle, Interest, Taxes, and Insurance, usually the four parts of your mortgage payments

Question 23

Principal

Answer 23

The amount of the debt.

Question 24

PMI

Answer 24

(Private Mortgage Insurance) Insures the lender against loss caused by the borrower’s failure to make the payments.

Question 25

Term

Answer 25

The period of time over which a loan is paid.

Question 26

Title

Answer 26

Evidence that establishes ownership of a property.

Question 27

Conventional mortgage.

Answer 27

The interest rate stays the same over the term of the loan. You will need PMI if you have less than a 20% down payment. A FICO score of 620 or better is needed. A debt-to-income ratio between 45-50% is also needed.

Question 28

Fixed-rate mortgage.

Answer 28

The principal and interest amount will stay the same during the life of the loan. The interest rate can be higher than an Adjustable Rate Mortgage.

Question 29

Adjustable Rate Mortgage

Answer 29

The interest rate will change at different times during the life of the loan. The interest rate can go up or down, and so will your monthly payment.

Question 30

FHA Loan

Answer 30

A FICO score of 580 or greater and at least a 3.5% down payment is needed. You will need PMI and you may pay that during the entire life of the loan. Many 1st time homeowners have an FHA loan.

Question 31

closing costs

Answer 31

costs a homeowner must pay before they take possession of the house

Question 32

What are two ways to get an idea of how much house you can afford?

Answer 32

Banks and financial institutions that lend money will normally lend two and a half to three times your annual gross income (income before taxes, adjusted for your other debts and credit history.)

Another way they look at it is that your total housing costs, including mortgage payments, property taxes, and insurance should not be greater than 28% of your gross monthly income. If you include your other debt payments, then it should not exceed 36%.