The Housing Decision: Factors And Finances

Question 1

What are the typical costs of renting a home/apt?

Answer 1

Rent, renter’s insurance, and interest lost on the security deposit

Question 2

What are the typical costs of buying a house?

Answer 2

Mortgage payments, property taxes, homeowner’s insurance, estimated maintenance and repairs (1%), after tax interest lost on down payment and closing costs

Question 3

What are the financial gains of buying a home?

Answer 3

Growth in equity, tax savings for mortgage interest, tax savings for property taxes, estimated annual appreciation

Question 4

Advantages of renting

Answer 4

Mobility, fewer responsibilities, and lower initial costs

Question 5

Disadvantages of renting

Answer 5

Fewer financial benefits, restricted lifestyle, and legal details

Question 6

Benefits of owning a home

Answer 6

Pride of ownership, financial benefits, and lifestyle flexibility

Question 7

Condominium

Answer 7

An individually owned housing unit in a building with several such units

Question 8

Cooperative housing

Answer 8

A form of housing in which a building containing a number of housing units is owned by a nonprofit organization whose members rent the units

Question 9

CLUE report

Answer 9

Comprehensive Loss Underwriting Exchange report provides a 5 year history of insurance losses at a property that a home buyer is considering for purchase. This is an independent source of information.

Question 10

Earnest money

Answer 10

A portion of the price of a home that the buyer deposits as evidence of good faith to indicate a serious purchase offer

Question 11

What shouldn’t you do when you’re approved for a mortgage?

Answer 11

Don’t make significant financial transactions before closing because making a car or major credit card purchase can significantly affect your loan qualification and result in not getting a home

Question 12

Mortgage

Answer 12

A long term loan on a specific piece of property such as a home or other real estate

Question 13

What serves as collateral for the mortgage?

Answer 13

The home itself

Question 14

What are the steps to determine affordable monthly mortgage payments?

Answer 14

1. Determine your monthly gross income by dividing your annual income by 12
2. Multiply that amount by the percentage guideline for PITI plus other debt payments (33% to 50%)
3. Subtract your other debts such as monthly payments towards car loans, outstanding credit card loans, etc. And monthly payments towards property taxes and homeowner’s insurance

Question 15

How to calculate an affordable mortgage amount

Answer 15

Divide your affordable monthly mortgage payment amount by the “monthly mortgage payment per $1000 based on current mortgage rates” (found in tables online), then multiply by $1000

Question 16

How to calculate an affordable home purchase price

Answer 16

Divide your affordable mortgage amount by (1 - fractional portion of your down payment)

Question 17

Points

Answer 17

Prepaid interest charged by a lending institution for the mortgage; each discount point is equal to 1 percent of the loan amount

Question 18

Conventional mortgage

Answer 18

A fixed-rate, fixed-payment home loan with equal payments over 10, 15, 20, 35, or 30 years

Question 19

Amortization

Answer 19

The reduction of a loan balance through payments made over a period of time