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Terms and Answers to Learn
Adjustable Rate Mortgage (ARM)
Mortgage in which the interest rate changes periodically (e.g. annually)
A way for banks to transfer the risk of higher interest rates to the consumer
Equity
The value of a piece of property over and above any mortgage or liabilities related to it
Fixed Rate
An interest rate that does not change over time
Inflation Hedge
An asset rising in value, which helps one to keep up with the risking cost of inflation
Real estate can be a great inflation hedge
Multiple Listing Service (MLS)
Computer program used by real estate agents to search frequently updated listings of available properties in order to find prospective homes for their clients
Mortgage
Loan secured by the collateral or real estate property, which obligates the borrower to make a predetermined series of payments
Principal
Original amount of money invested, excluding any interest or dividends
Also called the face value of the loan
Real Estate Agent
A real estate professional who receives a commission for arranging and facilitating the sale of a property for a buyer or seller
Also referred to as a real estate broker
Why is a home a great investment
1. It is a forced savings plan
2. It’s an inflation hedge
3. It grows virtually tax free
What to look for when purchasing a home
1. Buy in the bottom price range of the neighborhood
2. Find a good location
3. Purchase one that is attractive from the street and has a good floor plan
4. Have it inspected
What are pros and cons of renting vs. owning
Renting gives you time to set up an emergency fund, get out of debt and save money for a home
However, you do not want to lose money on rent payments for a long period of time
When you are financially prepared, owning a home is a good investment
Buying a home is a _______ savings plan
forced
Buying a home is an ______ hedge
inflation
Buying a home grows virtually
tax free
T/F You can have a gain of $250,000 single or $500,000 married and pay zero tax on the sale of your personal residence if you hold it at least two years
T
T/F Buy title insurance
T
Title insurance insures you against an
unclean title
which is when your property ownership is in question
It is a good buy
T/F Always get a land survey if you are buying more than a standard subdivision lot
T
Land Survey
A survey that shows where one’s property lines begin and end
Real estate agents access to the _______ system can make a house hunting easier, but be careful. Many agents can only think like retailers, which is not what you want when buying
MLS
Appreciation
An increase in value
Buy in the ______ price range of the neighborhood
bottom
Homes appreciate in good neighborhoods and are priced based on three things
1. Location
2. Location
3. Location
T/F If possible buy near water or with a view
T
Buy bargains by _______ bad landscaping, outdated carpet, ugly wallpaper and the Elvis print in the master bedroom
overlooking
Always buy a home that is (or can be) attractive from the _______ and has a good basic _______
Always buy a home that is (or can be) attractive from the *street* and has a good basic *floor plan*
Have the home inspected mechanically and structurally by a certified
home inspector
Appraisals are an ______ of value, but it’s a better option than the current homeowner has. Always order one if in doubt
Appraisals are an *opinion* of value, but it’s a better option than the current homeowner has. Always order one if in doubt
Home inspector
An individual who inspects homes for defects prior to the closing of a home sale to protect the buyer or lender’s investment
What should you not buy
1. Trailers or mobile homes
2. Time shares
Why? value disappears
With mortgages, first remember to _____ debt
hate
The best mortgage is _______% down plan
100%
Paying cash for a home is better than borrowing
T/F Do not buy until you are ready. That means you are out of debt with a fully funded emergency fund
T
Get a payment of no more than ____% of your take-home pay
25%
You want a _____ year fixed rate loan
15 year
What is the least percentage you want to have for a down payment on a house
10%
T/F Have a fully funded emergency fund left over after closing
T
Adjustable rate mortgages (ARMs) were brought on with the advent of ______ interest rates in the early 1980s
high
DO NOT take an ARM or Balloon mortgage
The concept of the ARM is to _______ the risk of higher interest rates to the borrower and, in return, the lender gives a lower rate up front
transfer
T/F Interest only loans are a bad idea because you are only paying the interest
T
T/F You can qualify for more home with ARMs, but the risk of financial stress later is not worth it
T
T/F Reverse mortgages are a bad idea because you are putting paid for home at risk and the fees are horrible
T
Reverse Mortgages
Used to release the home equity in a property
The homeowner either makes no payments and the interest is added to the lien of the property, or the homeowner receives monthly payments thereby increasing the debt each month
Dumb idea
T/F Most reverse mortgages are fraud
T
Accelerated or Biweekly Payoff
Paying someone a fee to make this happen is a bad idea
Allows you to make a half-payment every two weeks, which equals to 13 payments a year. The reason it pays off early is because you make one extra payments year
T/F Pay someone a fee for the accelerate or biweekly payoff
F. Do not pay a fee for this option
T/F You should keep your mortgage for the tax advantages
F
Accelerate Payments
Biweekly mortgage payments that allow for one additional payment on your mortgage annually
___________ are usually through the Federal National Mortgage Association (FNMA) and privately insured against default
Conventional
Conventional Loans
Mortgage obtained through the Federal National Mortgage Association (FNMA), which insures against default
Generally includes a down payment of 5-20% or more
Private Mortgage Insurance (PMI)
Policy paid by the mortgage borrower that protects the lender against loss resulting from default on a mortgage loan
Foreclosure insurance
On conventional loans, down payments ranges from what percent or more
5-20%
T/F Conventional loans are available in all forms and formats
T
_____ which is insured by the U.S. department of housing and urban development (HUD), the federal government
FHA
T/F Recommend a FHA loan
F
FHA loans have down payment as low as
3% and are used on lower-priced homes
T/F FHA loans are currently more expensive than conventional financing and should be avoided
T
FSH loan
Type of loan that is issued by the Federal Housing Authority
Geared toward providing a mortgage to moderate and low income families that would not otherwise be able to afford a mortgage
VA loans are insured by the
Veterans Administration (VA)
T/F If veteran use veteran loan
F. May be better to buy a conventional loan
T/F The VA loan is designed to benefit the veteran, the seller pays everything, allowing a true zero-down purchase
T
T/F With a good down payment, the conventional loan is a better deal than the VA loan
T
______ financing is when you pay the owner over time, making him/her the mortgage holder
Owner
Owner Financing
Type of mortgage in which the existing owner acts as the mortgage holder
Payments are made to the owner rather than to a mortgage company or bank
T/F Owner financing is a great way to finance because you can be creative in the structure of the loan
T
Example: No payments for a year, interest rate that graduate, or a discount for early payoff
Your rent or house payments should never be more than
25% of your take-home pay
T/F Always work with a good real estate agent and make sure to have the home inspected
T
T/F Stay away from Adjustable Rate Mortgage and interest-only loans
T
If you must take out a mortgage, do not so until you have a
1. Fully funded emergency fund
2. Debt-free
3. At least a 10% down payment
T/F When you buy a home with a down payment of 20% you can avoid PMI
T. PMI is private insurance that protects lender against loss resulting from default on a mortgage loan
The value of your house over and above the mortgage
Equity
Listing service real estate agents use
MLS
Protects you from an unclean title
Title insurance
Loan secured by the collateral of a specific real estate property
Mortgage
Shows where property lines are
Land survey
The face value of your mortgage, not including interest
Principal
An increase in value
Appreciation
An agreement that ensures that structural soundness of a house
Home warranty
T/F Baby Step #7 is to pay off your home
F. Baby step #7 is to build wealth and give
Baby Step #6 is to pay off your home early
T/F The best mortgage is an adjustable rate mortgage
F. Try to pay 100% down, if not possible then use a 15% fixed rate loan
T/F Real estate agents are usually worth the price
T
T/F Friends or relatives always make the best real estate agents
F
T/F Your rent or mortgage payment should be at least 25% or more of your take-home pay
F. No more than 25%
What type of mortgage is an ARM
A. Advanced Rate Mortgage
B. Adjustable Rate Mortgage
C. Average Rate Mortgage
D. None of the above
B. Adjustable Rate Mortgage
Which is not a type of mortgage?
A. Reverse
B. Veterans Administration
C. Lease to own
D. Conventional
C. Lease to own
Which is not an investment benefit of homeownership?
A. Lower tax bracket
B. Grows virtually tax free
C. Inflation hedge
D. Forced savings plan
A. Lower tax bracket
How much do you need for a down payment in order to avoid paying PMI
A. 0%
B. 10%
C. 20%
D. 50%
C. 20%
Which is true about owner financing?
A. The buyer makes payments to the owner
B. You can be creative in structuring the terms of the loan
C. You can include a discount for early payoff
D. All of the above
D. All of the above
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