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Chapter 7

Terms in this set (38)

advantages of renting
-easy to move
-fewer responsibilities for maintenance
-minimal financial commitment
disadvantages of renting
- no tax benefits
- limitations regarding remodeling
- restrictions regarding pets, other activities
advantages of buying
- pride of ownership
- financial benefits
- lifestyle flexibility
disadvantages of buying
- financial commitment
- higher living expenses than renting
- limited mobility
lease
a legal document that defines the conditions of a rental agreement
security deposit
is usually required when you sign a lease and is often one month's rent
5 steps of the home-buying process
1. determine home ownership needs
2. find and evaluate a property to purchase
3. price the property
4. obtain financing
5. close the purchase transaction
2 important motives of many home buyers
stability of residence and a personalized living location
major financial benefit on home buying
mortgage interest and real estate may be deducted on your federal income taxes
disadvantages of home ownership
- obtaining money for down payment and securing mortgage financing
- changing property values can affect financial investment
single family dwellings
Include previously owned houses, new houses, and custom-built houses
multiunit dwellings
dwellings with more than one living unit
condominiums
individually owned housing units in a building
cooperative housing
form of housing in which the units in a building are owned by a nonprofit organization - shareholders purchase stock to obtain the right to live in a housing unit
factory-built houses
living units that are fully or partially assembled in a factory and then moved to the living site (prefabricated home, modular home, mobile home/manufactured home)
building a home
for people who want certain specifications.
_______ is the considered the most important factor when buying a home
location
what factors affect your offer price on a home
recent selling prices in the area, current housing demand, length of time the home has been on the market, owner's need to sell, features and conditions of the home, mortgage amount for which you qualify
earnest money
a portion of the purchase price deposited as evidence of good faith
common down payment sources
personal savings, sales of investments or other assets, and assistance from relatives
Private Mortgage Insurance (PMI)
usually required if the down payment is less than 20% - protects the lender from financial loss due to default
The Homeowners Protection Act requires that a PMI policy be terminated automatically when the equity reaches ________ percent of the property value at the time the mortgage was executed
22
payments on a mortgage are usually made over a time period ranging from __________
10 to 30 years
major factors that affect mortgage affordability
income, other debts, down payment amount, loan length, current mortgage rates
points
prepaid interest charged by the lender
Each discount point is equal to ____ percent of the loan amount and is a premium paid for obtaining a lower mortgage rate
1
Mortgage payments are set to allow amortization of the loan. What is amortization?
the balance owed is reduced with each payment
Adjustable Rate Mortgage (ARM)
has an interest rate that increases or decreases during the life of the loan - also known as flexible-rate mortgage or variable-rate mortgage
ARMs usually have a _______ (lower/higher) initial interest rate than fixed-rate mortgages
lower
rate cap
restricts the amount by which the interest rate can increase or decrease during the ARM term
payment cap
keeps the payment on an adjustable-rate mortgage at a set level or limits the amount payments can rise
refinance
obtain a new mortgage on your current home at a lower interest rate
closing
a meeting of the buyer, seller, and lender of funds, or representatives of each party, to compete the transaction
closing costs
also referred to as settlement costs, are the fees and charges paid when a real estate transaction is completed
costs associated with a closing
title search fee, title insurance, attorney's fee, property survey, appraisal fee, recording fees, settlement fees, wire transfer fee, lender's origination fee, reserves for home insurance and property taxes, interest paid in advance and points, real estate broker's commission
escrow account
money, usually deposited with the lending institution, for the payment of property taxes and home insurance
True or False
Home buying is the most expensive decision most people will undertake
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appraisal
an estimate of the current value of the property - can provide a good indication of the price you should set
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