Question 1

If you have a $150,000 30-year 5% mortgage, how much of your first monthly payment of $805.50 would go toward interest?

Accepted Answer

To calculate the amount of your first monthly payment that goes toward interest, we need to start with the total mortgage amount, the interest rate, and the length of the loan. Since the mortgage is for $150,000 with a 5% interest rate over 30 years, we can use a mortgage calculator or formula to determine that the monthly payment is $805.50.

For the first payment, the interest is calculated based on the remaining principal balance of the loan. Since this is just the first payment, the entire loan balance is still outstanding, so the interest portion of the payment will be the highest it will ever be in the life of the loan.

The interest portion of the first monthly payment can be calculated by multiplying the outstanding loan balance by the monthly interest rate. The monthly interest rate is the annual interest rate divided by 12 months. In this case, the monthly interest rate is 0.05 / 12 = 0.0041667 (rounded).

So, the interest portion of the first monthly payment is:

$150,000 x 0.0041667 = $625

Therefore, the answer is B, $625.00.

Question 2

Brett bought a house five years ago for $150,000. At that time he borrowed $140,000 from his bank. The house is now worth $162,000. The current value of his mortgage must be no higher than --- for him to request termination of his PMI policy.

Accepted Answer

To determine the current value of Brett's mortgage, we need to use the 78% loan-to-value (LTV) ratio requirement for cancellation of Private Mortgage Insurance (PMI).

LTV = current mortgage balance / current house value

To cancel PMI, the LTV should be 78% or lower.

0.78 = current mortgage balance / $162,000

Current mortgage balance = 0.78 * $162,000 = $126,360

Therefore, the current value of his mortgage must be no higher than $126,360 for him to request termination of his PMI policy. Choice B is correct.

Question 3

Which of the following is NOT correct?

Accepted Answer

Keeping the lights turned off may not actually give the property a positive image as it may appear dark and uninviting to potential buyers. It's better to have the lights on to make the property appear bright and welcoming.

Question 4

Franklin wants to sell his house himself. Which of the following is NOT correct about his sale?

Accepted Answer

It is not safe or practical to show the house only when he is home alone. Franklin should ensure that someone else is present, or he should consider hiring a professional real estate agent to help with the sales process.

Question 5

Which of the following is NOT correct regarding real estate agents?

Accepted Answer

Real estate agents typically conduct showings themselves, so E is not correct. A, B, C, and D are all correct.

Question 6

Carrie bought a house five years ago for $150,000. At that time she borrowed $140,000 from her bank. The house is now worth $162,000. Her PMI will automatically be dropped when her mortgage balance drops to

Accepted Answer

PMI (Private Mortgage Insurance) is typically required when a homebuyer makes a down payment of less than 20% of the home's purchase price. It is automatically dropped when the mortgage balance falls to 78% of the original purchase price of the home. In this case, 78% of $150,000 (the original purchase price) is $117,000.

Question 7

Lonnie wanted to sell his house but didn't know what price to ask. He should consider all of the following except

Accepted Answer

While knowing the original cost of the house may be interesting information, it is not relevant to determining the current market value of the property. The other factors listed (current mortgage rates, demand in the housing market, recent selling prices of comparable homes in the area, and the appraised value of the home) are all important considerations in setting an asking price.

Question 8

Walt has decided to sell the home he has lived in for 50 years. The house has two bedrooms on the first floor, a finished basement, and a finished attic with a low ceiling. To prepare his home for sale, he should

Accepted Answer

Removing excess furniture can make areas look larger, which can make the house more attractive to potential buyers. Exaggerating the size of his yard and underestimating the cost of utilities could backfire and cause distrust with potential buyers. Keeping everything "as is" may not highlight the house's best features, and listing the house as a three-bedroom when it only has two bedrooms could also lead to distrust with potential buyers.

Question 9

Which of the following is an account used to pay property taxes and homeowner's insurance?

Accepted Answer

An escrow account is a separate account where funds can be held to pay for property taxes and homeowner's insurance. This is typically set up by the mortgage lender and the homeowner makes monthly contributions to the account as part of their mortgage payment. When property taxes or insurance bills are due, the payments are made from the escrow account.

Question 10

Given the information here, what is the total cost of renting per year? $\begin{array}{c}
\begin{array}{l}
\text{* Annual rent payments}\
\text{* Annual renter's insurance}\\
\text{* Annual interest lost on security deposit}\
\text{* Value of apartment}\
\end{array}
\begin{array}{r}
\$ 14,400 \
\$ 300 \\
\$ 10 \
\$ 150,000\
\end{array}
\end{array}$

Accepted Answer

To calculate the total cost of renting per year, we need to add all the given values.
Rent payments + Renters insurance + Interest lost on security deposit = $14,400 + $300 + $10 = $14,710
So, the total cost of renting per year is $14,710.

Question 11

During the closing for a home purchase , you should

Accepted Answer

During the closing for a home purchase, the most important thing to do is to pay all closing costs, settle last-minute details, and sign documents. This is when the sale is finalized, and the buyer becomes the official owner of the property. Ordering an appraisal and scheduling an inspection are important steps in the home buying process, but they typically happen before the closing. Reviewing zoning laws may also be important, but it is not typically part of the closing process. Paying half of the settlement costs is not a common practice during a home purchase closing.

Question 12

Crystal is looking for a new apartment. What are her total annual costs associated with renting? $\begin{array}{c}
\begin{array}{l}
\text{* Annual rent payments}\
\text{* Annual renter's insurance}\
\text{* Annual interest lost on security deposit}\
\text{* Value of apartment}\
\end{array}
\begin{array}{r}
\$ 1,000 \
\$ 250 \
\$ 20 \
\$ 150,000\
\end{array}
\end{array}$

Accepted Answer

To calculate the total annual costs associated with renting, we need to add up all the annual costs:
Annual rent payments = $1,000
Annual renter's insurance = $250
Annual interest lost on security deposit = $20
Total annual costs = 1,000 + 250 + 20 = $1,270

The value of the apartment is not an annual cost, so we do not need to include it in our calculation. Therefore, choices A, B, C, and E are all incorrect. The correct answer is D, $12,270.

Question 13

Jordan earns an annual salary of $45,000. If a lender uses 33% of monthly gross income as a guideline for the maximum PITI (principal, interest, taxes, and insurance), what is the maximum mortgage that Jordan can apply for?

Accepted Answer

Jordan's monthly gross income is $45,000 / 12 = $3,750. 33% of this amount is $3,750 * 0.33 = $1,237.50, which is the maximum PITI payment Jordan can afford according to the guideline.

Question 14

If you have a $150,000 30-year 5% mortgage, how much of your first monthly payment of $805.50 would go toward principal?

Accepted Answer

The interest for the first month is calculated as 5% per year of $150,000, which is $7,500 annually or $625 monthly ($7,500/12). Subtracting this interest from the total monthly payment of $805.50 gives $805.50 - $625 = $180.50 toward the principal.

Question 15

Given the information here, what is the annual cost of owning? $\begin{array}{c}
\begin{array}{l}
\text{* Home value}\
\text{* Annual mortgage payments}\
\text{* Annual property taxes}\
\text{* Annual homeowner's insurance}\
\text{* Estimated maintenance and repairs}\
\text{* Growth in equity}\
\text{* Tax savings (mortgage interest and property tax)}\
\text{* Estimate annual appreciation}\
\end{array}
\begin{array}{c}
\$ 300,000 \
\$ 19,200 \
\$ 4,800 \
\$ 1,200\
1 \% \text{of home value}\
\$ 3,000\
\$2,800\
1.5 \% \text { of home value }\
\end{array}
\end{array}$

Accepted Answer

The annual cost of owning includes annual mortgage payments, annual property taxes, annual homeowner's insurance, and estimated maintenance and repairs, but does not include growth in equity, tax savings, or estimate annual appreciation. Therefore, the calculation is: $19,200 (mortgage) + $4,800 (property taxes) + $1,200 (insurance) + $3,000 (maintenance, 1% of $300,000) = $28,200. However, to find the net cost, subtract the tax savings: $28,200 - $2,800 (tax savings) = $25,400. The provided options do not include $25,400, indicating a possible mistake in the question or answer choices. Based on the closest available option and considering the calculation error, the intended answer might be different.

Question 16

If you are selling your house by owner, you should still enlist the assistance of

Accepted Answer

When selling your house by owner, it is important to have a lawyer or title company to assist with the contract, closing, and other legal matters. This will ensure that all legal requirements are met and that the sale is completed in accordance with local laws and regulations. While a real estate agent can be helpful with marketing efforts, it is not essential when selling by owner.

Question 17

Which of the following is the document that transfers ownership of property from one party to another?

Accepted Answer

A deed is a legal document that transfers ownership of real estate property from one party to another. It includes the names of the buyer and the seller, a description of the property, and any relevant details related to the transaction. Escrow, mortgage, PMI, and points are not documents that transfer ownership of property.

Quiz 7: Selecting and Financing Housing