Subject: Business    / Finance    

Question

1. Apply What You’ve Learned – Buying a Residence
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Please Wait . . . Please Wait… Scenario: You are a single 30-year-old with a gross annual income of $30,000. You have been renting an apartment, but you are tired of the rules set by your landlord. You would like a place that you are free to fix up the way you want it. You are considering both condominiums and single-dwelling homes and are looking at the pros and cons of owning each type of housing. You would like to begin the home-buying process as soon as possible. You have $25,000 saved for a down payment, much of which was recently inherited from your late great aunt, and your family is willing to give you an additional $15,000. You are currently repaying a school loan, a car loan, and some credit card debt. Current interest rates with home lenders are averaging around 5.0% at this time. Owning a residence is often less expensive than renting a comparable property in the long term. Which of the following reasons may explain this phenomenon? Check all that apply.
Renting often results in several additional expenses not normally associated with home ownership. Property values often appreciate over time. Tax deductions for lease payments often partially offsets the cost of housing. Rent is generally less than a mortgage payment.

Points: Close Explanation Explanation: The first step in the process of home buying is to:
Get your finances in order Attend the closing Search for a home online and in person Prepare for the closing

Points: In order to get your finances in order, you should:
Adjust your budget to fit the costs expected. Estimate your expected monthly housing costs. Do all of these Ensure that your credit bureau file is accurate.

Points: Close Explanation Explanation: Given your financial condition above and the desire for a 30-year fixed-rate mortgage that requires a 20% down payment, use the 28% front-end ratio to identify the amount of the monthly payment necessary to cover the loan’s principal, interest, taxes, and homeowners’ insurance, as well as the gross annual income required to qualify for the loan. A table that may be used to facilitate this analysis follows. Remember that for each home price-interest rate combination, the upper number reflects the monthly payment and the lower number indicates the borrower’s required annual income.
3.0%    555    693    832    971    1,109
23,800    29,700    35,700    41,600    47,500
4.0%    608    760    912    1,064    1,217
26,100    32,600    39,100    45,600    52,100
5.0%    665    832    998    1,164    1,331
28,500    35,700    42,800    49,900    57,000
6.0%    725    907    1,088    1,269    1,451
31,100    38,900    46,600    54,400    62,200
7.0%    789    986    1,183    1,380    1,577
33,800    42,300    50,700    59,200    67,600

Given your financial situation and the table above, you should be able to qualify for a home that costs between selector 1

    $180,000
    $210,000
    $120,000
    $150,000

and selector 2

    $240,000
    $210,000
    $150,000
    $180,000

. If purchased, your loan would require monthly payments of selector 3

    $832 – 998
    $665 – 832
    $1,164 – 1,331
    $636 – 795

. Points: If closing costs are estimated to be 5% of the value of the home and the lender requires a 20% down payment, do you have sufficient funds on hand to be able to afford the home's purchase?
No Yes

Points: Close Explanation Explanation: If you select a mortgage loan offer that requires a down payment of less than 20%, the lender will most likely require you to:
Make a balloon payment Purchase a home warranty policy Find a cosigner for the loan Purchase private mortgage insurance

Points: Close Explanation Explanation: The estimated monthly payments for a single-family dwelling typically include the transaction’s
loan principal and interest and property taxes (PIT) loan principal and interest only (PI) loan principal and interest, property taxes, home insurance, and realtor fees (PITIR) loan principal and interest, property taxes, and homeowner’s insurance (PITI)

Points: In contrast, the estimated monthly payments for a condominium typically include the transaction’s
None of these Loan principal and interest, property taxes, home insurance, and realtor fees (PITIR) plus any homeowners’ association fees The same elements as that required in the purchase of a single-dwelling house Loan principal and interest plus any homeowners' association fees

Points: Homeowners' association fees for a condominium unit cover all costs except
insurance on your building insurance on your personal belongings within your unit the upkeep of amenities such as the pool, tennis courts, gym, and clubhouse management and upkeep of the common grounds and outside of the buildings

Points: Close Explanation Explanation: Lenders use the selector 1

    back-end
    front-end

ratio to compare a borrower’s total monthly debt repayments (including the prospective loan’s PITI payment and any auto, credit card, or other debt obligations) to his or her gross (pre-tax) monthly income. For most reputable lenders, a ratio of selector 2

    25%
    30%
    36%
    50%

or less is desirable, and according to current legislation, the ratio cannot exceed selector 3

    50%
    30%
    43%
    25%
    36%

for a qualified mortgage. Points: If you don’t want the $15,000 of additional savings available from your family to affect your back-end ratio, then a lender may require:
None of these, as this help from your family will not affect your back-end ratio That you refuse the gift or the loan of the money A gift letter that says that the funds are truly a gift to the borrower and are being distributed from the borrower's own funds That the terms of the loan be put in writing

Points: If you need to improve your back-end ratio, you can: Check all that apply.
Stop paying your student loan Reduce the down payment on your new home Pay down or pay off your existing credit card debt Choose a home in a higher price range Increase your monthly gross income

Points: Close Explanation Explanation: Even though you own your own home, what do you need to check before you do “whatever you want" with it? Check all that apply.
Any restrictions or exclusions imposed by your homeowner’s insurance policy Any deed restrictions imposed by local zoning laws Any neighborhood and condo homeowners’ association covenants