FCS 371 Practice TEST Chapter 9 PDF

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PRACTICE TEST...

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Chapter 09 1. (p. 283) Most people select a place of residence based on available financial resources, needs, and lifestyle. TRUE

2. (p. 288) Ease of mobility is an advantage of renting. TRUE 3. (p. 290) A lease protects the rights of both the tenant and the landlord. TRUE

4. (p. 293) Condominiums involve the purchase of an individual living unit rather than an entire building. TRUE

5. (p. 293) Cooperative housing is a form of housing in which the units in a building are owned by a nonprofit organization. TRUE

6. (p. 295) Many people believe that location is the most important factor to consider when selecting a home. TRUE 7. (p. 297) Current interest rates can affect the price of a home. TRUE

8. (p. 297) Negotiating a purchase price for a home usually involves an offer and counteroffers. TRUE 9. (p. 298) The amount of the down payment will affect the amount of the monthly mortgage needed to purchase a home. TRUE

10. (p. 301) Prepaid interest may be a part of a mortgage agreement. TRUE 11. (p. 301) Amortization refers to changes in the monthly payment for a variable rate mortgage. FALSE

12. (p. 302) An FHA-insured mortgage has less risk than a conventional mortgage for the financial institution. TRUE

13. (p. 303) A balloon mortgage can help a homebuyer when interest rates are high but are expected to come down in the near future. TRUE

14. (p. 307) An escrow account is designed to reduce the cost of a mortgage. FALSE 15. (p. 309) An appraisal refers to the price for which a home has been sold. FALSE 16. (p. 309) Home improvements may contribute more to the value of the home than the cost of the renovations. TRUE

17. (p. 303) The purpose of a rate cap in an adjustable rate mortgage is to limit the amount by which the interest rate can vary. TRUE

18. (p. 306) A deed is the document that transfers ownership of the property from one person to another. TRUE

19. (p. 289) Renting is more advantageous than buying a home when you are seeking: A. lower short-term living costs. 20. (p. 287) A common opportunity cost associated with renting is interest lost on money spent for: E. the security deposit.

21. (p. 289) A cost associated with home buying would be: D. property taxes. 22. (p. 289) Renting would be most appropriate for people who: C. have limited funds currently available. 23. (p. 288) Kate plans to rent instead of buying her housing. Which advantage of renting will she realize? B. lower initial costs 24. (p. 289) The legal document involved in renting an apartment is called a(n): C. lease. 25. (p. 290) What does it mean to sublet an apartment? E. obtain another tenant to complete a lease period

26. (p. 290) The purpose of a security deposit is to: A. pay for potential damages. 27. (p. 293) A condominium involves: C. ownership of an individual living unit. 28. (p. 293) Ownership of an individual housing unit in a building is commonly called: D. a condominium.

29. (p. 293) A cooperative housing arrangement involves: B. a nonprofit organization that rents units to its shareholders. 30. (p. 294) Prefabricated housing refers to: E. housing partially assembled in factories.

31. (p. 291) Which of these is a common financial benefit of home ownership? D. increased property value 32. (p. 291) Natasha and Al received a statement reporting that they paid $8,000 in mortgage interest during the past year. If they are in a 28 percent tax bracket, this deduction may reduce their taxable income by: E. $8,000.

33. (p. 301) What is the name commonly used to refer to the recent national crisis in which with many mortgages were issued to borrowers with poor credit histories, resulting in numerous loan defaults? B. subprime crisis 34. (p. 294-295) Which of the following would increase the amount that a person could afford to spend on a home? A. increase in family income

35. (p. 295) The most commonly considered factor when selecting a home is the: C. location of the home. 36. (p. 295) The purpose of zoning laws is to: A. restrict property use. 37. (p. 307) Which types of problems are least likely to be covered by a home buyer warranty? E. appliance

38. (p. 297) The purpose of a counteroffer is to: A. negotiate the purchase price. 39. (p. 297) Earnest money is used: C. as evidence of good faith by a homebuyer. 40. (p. 299) The amount of mortgage a person is eligible for would be increased by: E. by decreasing the interest rate

41. (p. 299) Which of the following would increase the speed of equity growth for a homebuyer? C. obtaining a 15-year mortgage instead of a 30-year mortgage 42. (p. 301) What is prepaid interest charged by a mortgage company called? B. points 43. (p. 301) Todd Foley is applying for a $100,000 mortgage. He can select either a $600 monthly payment with no points or a $520 payment with two points. How many months will it take Todd to cover the cost of the discount points if he takes the lower monthly payment? D. 25 44. (p. 301) A conventional mortgage usually involves: D. equal payments. 45. (p. 301) Which of the following is an example of a conventional mortgage? C. a fixed-rate mortgage 46. (p. 302-303) A VA-guaranteed loan program provides assistance to: A. military veterans. 47. (p. 302-303) A possible disadvantage of FHA and VA mortgages can be: B. a longer processing time. 48. (p. 303) The purpose of a rate cap with an adjustable rate mortgage is to: D. restrict the amount by which the interest rate can increase.

49. (p. 304) Which one of these situations creates negative amortization? B. paying less than the monthly interest on a mortgage

50. (p. 304) A newly married couple is having trouble affording a home. What type of mortgage arrangement would reduce the monthly payment as a result of an interest rate subsidy from a builder or real estate developer? C. buy-down 51. (p. 303) A short-term mortgage with a very large final payment is called a ____________ mortgage. A. balloon

52. (p. 304) A home equity loan may also be referred to as a ____________ mortgage. D. second 53. (p. 305) Refinancing of a mortgage is recommended when: B. interest rates fall.

54. (p. 306) Which of the following is an example of a closing cost? D. title insurance 55. (p. 306) The purpose of title insurance is to: C. protect an owner from unknown claims on the property. 56. (p. 306) Which document is used to transfer ownership of property from one party to another? E. deed

57. (p. 307) Which of the following expenses is paid from an escrow account? B. property insurance 58. (p. 309) The purpose of an appraisal is to: A. estimate the current value of a home. 59. (p. 309) If you sell your home without a real estate agent, you should still employ the services of a(n): C. lawyer.

60. (p. 310) The most common service provided by a real estate agent when selling your home is: C. screening potential buyers. 61. (p. 288) Which one of the following is an advantage of renting? C. fewer responsibilities 62. (p. 291) Which one of the following is an advantage of buying? B. tax benefits 63. (p. 289) A cost associated with renting would be: D. security deposit. 64. (p. 293) A is a building that contains exactly two separate homes. B. duplex 65. (p. 293) Gary Smith is purchasing one living unit in a building. What type of housing is Gary most likely going to live in? A. condominium 66. (p. 293) 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? C. A cooperative 67. (p. 294) 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? D. prefabricated home 68. (p. 292) What is the most popular type of home ownership? E. single family dwelling

69. (p. 293) The assessed value of your home is the: A. value used to calculate property taxes. 70. (p. 301) The appraised value of your home is the: B. estimated current market value. 71. (p. 299) 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%, 30year 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. A. $76,000 72. (p. 299) 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%, 15year 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. C. $164,800 73. (p. 305) 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(an): D. reverse mortgage. 74. (p. 289) 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? C. $32 75. (p. 305) 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. C. 13 76. (p. 291) 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? D. $1,260.

77. (p. 295) 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. D. $10,400

78. (p. 298) A contract condition that states that the agreement is binding only if a certain event occurs is a(n): B. contingency clause.

79. (p. 301) 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? B. prequalification 80. (p. 295) 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: D. sweat equity.

81. (p. 294) Which type of home is most apt to depreciate in value? B. mobile home 82. (p. 296) Brett has hired a professional to assess the soundness of the roof, foundation, and building materials of a potential home he is considering. The professional will also be checking other aspects of the home including the plumbing, heating, and cooling systems. Brett is paying for a(an): C. inspection.

83. (p. 307) Legislation that requires that loan applicants be given certain information, including an estimate of closing costs, before the closing is known as: A. Real Estate Settlement Procedures Act...