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Homework answers / question archive / Chapter 9 The Housing Decision True/False Questions 1)

Chapter 9 The Housing Decision True/False Questions 1)

Finance

Chapter 9 The Housing Decision

True/False Questions

1). Most people select a place of residence based on available financial resources, needs, and lifestyle.

2. Budget guidelines are available to assist people in deciding how much to spend on housing.

 3. Opportunity costs of housing can refer to time and effort involved in finding and repairing a place to live along with lost interest earnings on security deposits and down payments.

4. Ease of mobility is an advantage of renting. 

5. A lease protects the rights of both the tenant and the landlord. 

6. A security deposit is a fee charged to help you find an apartment or house to rent.

7. Condominiums involve the purchase of an individual living unit rather than an entire building.

 

8. Cooperative housing involves the renting of a living unit by the people involved in ownership of the building on a nonprofit basis.

9. Ease of mobility is a common advantage associated with home ownership.

10. Many people believe that location is the most important factor to consider when selecting a home.

11. Current interest rates can affect the price of a home.

12. Negotiating a purchase price for a home usually involves an offer and counteroffers.

13. The amount of the down payment will affect the amount of mortgage a person can afford.

 14. Qualifying for a mortgage is similar to obtaining other forms of credit.

 15. Prepaid interest may be a part of a mortgage agreement.

 

 

16. Amortization refers to changes in the monthly payment for a variable rate mortgage.

17. An FHA-insured mortgage has less risk than a conventional mortgage for the financial institution.

18. Adjustable rate mortgages with a payment cap can result in a situation of negative amortization.

19. A buy down results in reduced mortgage payments during the first few years of the loan as a result of an interest rate subsidy from a builder or real estate developer.

 20. A balloon mortgage can help a homebuyer when interest rates are high but are expected to come down in the near future. 

21. An escrow account is designed to reduce the cost of a mortgage. 

 22. An appraisal refers to the price for which a home has been sold.

 23. Home improvements may contribute more to the value of the home than the cost of the renovations.  

Multiple Choice Questions

24. Renting is more advantageous than buying a home for

A) lower short-term living costs.

B) financial benefits.

C) long-term investment purposes.

D) receiving tax benefits.

E) permanence of residence.

25. A common opportunity cost associated with renting is

A) interest lost on the down payment.

B) interest lost on closing costs.

C) property taxes.

D) maintenance costs.

E) interest lost on the security deposit.

26. A cost associated with home buying would be

A) renter's insurance.

B) the security deposit.

C) annual appreciation of the property.

D) property taxes.

E) interest lost on the security deposit.

27. Renting would be most appropriate for people who

A) want to reduce their taxes.

B) have difficulty establishing credit.

C) have limited funds currently available.

D) enjoy remodeling their residence.

E) desire the financial benefits of increased equity.

28. Brenda Williams plans to rent instead of buy her housing. What advantage of renting will Brenda encounter?

A) tax advantages

B) lower initial costs

C) community pride

D) financial benefits

E) home improvement flexibility

29. The main financial benefit of renting is

A) tax deductions.

B) increased equity.

C) investment value growth.

D) lower initial costs.

30. The legal document involved in renting an apartment is called a(n)

A) service contract.

B) mortgage.

C) lease.

D) security deposit.

E) escrow account

31. What is the purpose of subletting an apartment?

A) to increase the rent

B) to lower maintenance costs

C) to convert the units to condominiums

D) to meet certain government housing regulations

E) to obtain another tenant to complete a lease period 

32. The purpose of a security deposit is to

A) pay for potential damages.

B) cover the costs of utilities.

C) pay for the tenant's portion of real estate property taxes.

D) cover increases in monthly rent.

E) meet government housing regulations for a safe building.

33. A condominium involves

A) renting a mobile home.

B) part ownership of a building by a nonprofit organization.

C) ownership of an individual living unit.

D) government-subsidized housing.

E) renting a house with the option to buy.

34. Ownership of an individual housing unit in a building is commonly called

A) a cooperative.

B) modular housing.

C) manufactured housing.

D) a condominium.

E) zoned housing. 

35. A cooperative housing arrangement involves

A) government-supported rental units.

B) a nonprofit organization.

C) individual ownership of a living unit in a building.

D) factory built and on-site assembly.

E) housing units owned by a real estate developer.

 

36. Otto Putman rents a living unit as a result of his membership in a nonprofit housing organization. What name is commonly used for this type of housing?

A) modular housing

B) government-supported housing

C) cooperative housing

D) a condominium

E) zoned housing

37. Prefabricated housing refers to

A) nonprofit ownership.

B) government leasing of living units.

C) rental units available to government employees.

D) ownership available to low-income individuals.

E) partially assembled housing in factories.

38. A common financial benefit of home ownership is

A) a low security deposit.

B) tax deductibility of the down payment.

C) amortization of the growth of equity.

D) increased property value. 

39. Lonette 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 would reduce their taxable income by

A) $1,000.

B) $2,240.

C) $3,000.

D) $4,000.

E) $8,000.

40. A common financial risk of home ownership is that

A) interest rates may change with a conventional mortgage.

B) property values may decrease.

C) mortgage interest is not tax deductible.

D) only a portion of real estate taxes are tax deductible.

41. Which of the following would increase the amount that a person could afford to spend on a home?

A) increased family income

B) increased interest rates

C) decreased down payment

D) many other financial obligations

E) high monthly living expenses

42. The most commonly considered factor when selecting a home is the

A) size of the home.

B) condition of the home.

C) location of the home.

D) local zoning laws.

E) current interest rates.

43. As Wally Quinten conducts an investigation of property value factors, most real estate experts tell him that most influences the housing values in an area.

A) community pride

B) style of homes

C) zoning laws

D) age of neighborhood

E) quality of schools

 

44. The purpose of zoning laws is to

A) restrict property use.

B) encourage new housing development.

C) minimize people moving from an area.

D) reduce real estate property taxes.

E) assist real estate agents in finding homes for sale.

45. Restrictions on how property in an area can be used are

A) cooperative agreements.

B) zoning laws.

C) common areas.

D) title insurance provisions.

E) refinancing clauses.

46. A real estate agent can best assist a homebuyer by

A) obtaining funds for a down payment.

B) setting the purchase price.

C) offering new home warranties.

D) assisting in getting a mortgag

47. The purpose of a counteroffer is to

A) negotiate the purchase price.

B) reduce mortgage payments.

C) lower real estate property taxes.

D) avoid paying points at closing.

E) avoid paying the real estate agent's commission.

  

48. Earnest money has the purpose of

A) paying real estate property taxes.

B) reducing the mortgage interest rate.

C) serving as good faith by a homebuyer.

D) paying the real estate agent's commission.

E) being a mortgage application fee.

49. The amount of mortgage a person is eligible for would be increased by

A) higher interest rates.

B) a lower down payment.

C) high debt obligations.

D) a low family income.

E) lower interest rates.

50. Which of the following would increase the speed of equity growth for a homebuyer?

A) making a down payment of 10 percent instead of 20 percent

B) obtaining a mortgage interest rate of 9 percent instead of 8 percent

C) obtaining a 15-year mortgage instead of a 30-year mortgage

D) making larger deposits to the escrow account 

51. What is prepaid interest charged by a mortgage company?

A) escrow

B) points

C) origination fee

D) title fee

E) deed 

52. Todd Foley is applying for a $100,000 mortgage. He can get a $600 monthly payment for principal and interest and no points, or a $520 monthly payment with 2 points? How many months will it take Todd to cover the cost of the discount points if he takes the lower monthly payment?

A) 6

B) 10

C) 18

D) 25

E) 48 

53. A conventional mortgage usually involves

A) a variable interest rate.

B) a government guarantee.

C) a balloon payment.

D) equal payments.

E) a payment cap. 

54. Which of the following is an example of a conventional mortgage?

A) an FHA mortgage

B) a buy down

C) a fixed rate mortgage

D) a shared appreciation mortgage

E) a home equity loan

55. A VA-guaranteed loan program provides assistance to

A) military veterans.

B) recent college graduates.

C) low-income homebuyers.

D) government employees.

E) the elderly.

56. A possible disadvantage of FHA and VA mortgages can be

A) high risk.

B) a longer processing time.

C) high interest rates.

D) increased monthly payments.

E) down payment requirements

57. The purpose of a rate cap with an adjustable rate mortgage is to

A) minimize interest costs.

B) prevent changes in the amount of the monthly payment.

C) increase negative amortization.

D) restrict the amount by which the interest rate can increase.

E) lower the escrow account.

58. Negative amortization is the result of

A) a lower amount owed on the mortgage.

B) a higher amount owed on the mortgage.

C) a lower escrow account.

D) lower interest rates.

E) a lower down payment.

59. Fran Laurel expects her income to rise every few years as she gains experience in her career. Which mortgage has payments that rise to different levels every 5 or 10 years?

A) buy down

B) shared appreciation mortgage

C) growing equity mortgage

D) balloon mortgage

E) graduated payment

  

60. 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?

A) FHA-insured loan

B) balloon mortgage

C) buy down

D) shared appreciation mortgage

E) growing equity mortgage

61. A short-term mortgage with a very large final payment is called a 

mortgage.

A) balloon

B) graduated payment

C) growing equity

D) shared appreciation

E) negative amortization 

62. A home equity loan is also referred to as a mortgage.

A) shared appreciation

B) graduated payment

C) growing equity

D) second

E) buy down

63. Refinancing of a mortgage is recommended when

A) interest rates rise.

B) interest rates fall.

C) the escrow account balance declines.

D) two or more points are required by the lender at the time of closing.

 

 

64. Which of the following is an example of a closing cost?

A) origination fee

B) mortgage application fee

C) earnest money

D) title insurance

E) down payment 

65. The purpose of title insurance is to

A) transfer ownership of property.

B) reduce the chance of a decrease in property value.

C) guarantee the boundaries of the property.

D) protect an owner from changes in mortgage interest rates.

E) cover the closing costs of a real estate transaction.

66. Which document is used to transfer ownership of property from one party to another?

A) title

B) escrow account

C) settlement statement

D) appraisal

E) deed 

67. Which of the following expenses is paid from an escrow account?

A) title insurance

B) property insurance

C) points

D) loan application fee

E) real estate agent's commission

 

68. The purpose of an appraisal is to

A) estimate the current value of a home.

B) reduce the amount paid for property taxes.

C) qualify for a reduced mortgage rate.

D) eliminate the need for home insurance.

69. If you sell your home without the use of a real estate agent, you should still make use of a

A) broker.

B) insurance agent.

C) lawyer.

D) contractor.

E) rental agent 

70. The most common service provided by a real estate agent when selling your home is

A) providing legal advice.

B) qualifying buyers for a mortgage.

C) screening potential buyers.

D) making needed repairs.

Essay Questions

71. What factors influence the type of housing a family will select?

72. Gerry Intel is considering buying a home. What actions would you recommend for her to take to accomplish this goal of buying a home?

73. John Ashforth needs to sell his home because of a job transfer to another city. What actions should John take to sell his home?

Option 1

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