Questions and Answers
What is the percentage of your gross monthly income that goes toward paying for your housing expenses called?
Housing expense ratio
Lenders include your future housing payment in your debt-to-income ratio.
False
The principal amount is the total amount borrowed.
True
Do lenders use gross income or net profits when calculating mortgage affordability for self-employed borrowers?
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An escrow account is a special account managed by the borrower that holds funds for property taxes and property insurance payments.
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Having adequate cash reserves demonstrates to your lender that you have responsibly managed your money.
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Capital - or cash to close - refers to the funds you need to save for down payment and closing costs.
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Acceptable sources of capital include:
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Lenders consider investments to be:
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To determine if you have adequate savings for mortgage sustainability, lenders average the last six months of your checking and savings account balances.
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What are the four primary factors lenders consider when determining whether to approve a loan?
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Derogatory information on your credit report may include collections, judgments, bankruptcies, and/or late payments.
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Lenders generally don't have any guidelines when it comes to the home you want to purchase.
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The home inspection is ordered through the lender and determines the market value of the home.
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Manufactured homes are the same as mobile homes and don't need to meet federal construction and safety standards.
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If you make extra payments on your loan, that can help pay down the principal faster.
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Government insured loans, such as FHA loans, are the only low down payment mortgages available.
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A fixed-rate mortgage is a loan where the interest rate stays the same for the life of the loan.
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Which of the following loans are guaranteed by the federal government?
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There may be special loan products and programs available for first-time homebuyers in your community.
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What percentage of the purchase price is required as a down payment for conventional conforming loans to avoid paying private mortgage insurance?
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Private mortgage insurance protects the borrower if they can't make their mortgage payment.
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It's okay to borrow money from a family member for your down payment, as long as you pay the family member back.
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You will need to repay the seller any property or school taxes they have already paid on the property.
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LTV stands for loan-to-value and indicates the amount of the loan you owe as a percentage of the value of the property.
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The Annual Percentage Rate (APR) is the same as the interest rate.
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What is the order of the mortgage loan process?
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Making pre-payments can help you pay off your loan sooner.
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If a lender denies your loan, they're required by law to provide the applicant with an explanation.
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If you can't qualify for a loan on your own, you may have other options including:
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You should never sign a loan document that has blank lines.
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What is negative amortization?
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A pre-payment penalty makes it costlier to pay off your loan early.
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The seven protected classes under the Fair Housing Law include race, color, national origin, religion, sex, family status, and disability.
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It's easier not to have funds caught up in an escrow account.
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Real estate agents must take a test to become licensed in their state.
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Real estate agents can help with:
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Real estate agents are generally paid a commission by the seller when the sale closes.
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The Multiple Listing Service (MLS) is an online tool that is publicly available and widely used by homebuyers.
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If a homebuyer works with a friendly real estate agent, no further 'homework' is needed.
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The neighborhood you choose to live in is not as important as the home you choose to purchase.
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When you make a purchase offer, you should always offer less than the asking price.
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Contingencies are factors that must be satisfied for the deal to go forward.
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Buyers may request that some items within the home convey with the purchase.
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Earnest money is a non-refundable fee the buyer pays to the seller upon making an offer.
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A home inspection is ordered and paid for by the seller.
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If the home inspector finds an issue, the buyer has the right to walk away from the deal with no penalty.
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Tenancy in Common allows two or more people to own a property with equal ownership.
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The lender orders an appraisal which substitutes for a home inspection.
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All perils are included in homeowner's insurance policies.
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The final walk-through gives the buyer a chance to ensure everything is in order at the property.
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The buyer will have plenty of time at closing to read all documents in their entirety.
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The mortgage secures the loan with the home as collateral.
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If you get a fixed-rate mortgage, your monthly payment won't change.
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If you have an emergency fund, you've saved enough for home maintenance and repairs.
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Property taxes and insurance are part of a monthly housing payment and will not change.
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Home equity is the difference between what your home is worth and how much you owe.
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How can you build equity?
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What is a Home Equity Line of Credit?
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Routine home maintenance refers to tasks that keep things running smooth and efficient in a home.
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When searching for a contractor, you need to only get one bid.
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What items should be included in your emergency kit?
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What should you do when disaster strikes?
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Home safety practices include:
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What is the term for someone who offers fast cash for the title to your home, leaving you with the mortgage obligation?
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What is the term for a contractor who asks for money upfront and completes little or no repair work?
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What is the term for someone offering to loan you money for home repairs while waiting for insurance payments?
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What is the term for a homeowner charged rent to remain in their home with promises of mortgage debt relief?
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It's important for consumers to be aware of online scams and practice good cybersecurity habits.
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What is selling your home for less than what you owe on the mortgage called?
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What permits a qualified buyer to take over your mortgage debt and payments?
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What term is used when the loan servicer allows you some time to sell your home during a foreclosure?
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What does the loan servicer accept in exchange for cancellation of your mortgage debt?
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Which of the following are alternatives to foreclosure?
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Homebuyers who don't have a 20% down payment saved might have which options?
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Many lenders require an escrow account to hold funds for property taxes and property insurance payments.
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When determining whether to make a loan to a homebuyer, lenders consider which aspect?
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It's not possible for people with student loan debt to become homeowners.
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How can you build home equity?
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What makes up a credit score based on the FICO model?
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The first step in the homebuying process is to apply for a loan.
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Your PITIA payments may change each year, even if you have a fixed-rate mortgage.
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What is your income before taxes and other deductions called?
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Contingencies are items within a property that the homebuyer would like to have included in the purchase.
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Study Notes
Housing Expenses and Ratios
- Housing expense ratio measures the percentage of gross monthly income dedicated to housing costs, including principal, interest, taxes, insurance, and association fees.
- Debt-to-income ratio excludes future housing payments; it only accounts for current outstanding debts.
Loan Information
- The principal amount refers to the total amount borrowed.
- Self-employed borrowers' mortgage affordability calculations depend on net profits.
- An escrow account is not managed by the borrower; it is typically managed by lenders for paying property taxes and insurance.
Financial Preparedness
- Cash reserves indicate financial responsibility, reassuring lenders of the borrower's ability to handle emergencies.
- Capital required for closing includes down payment and closing costs, which can come from various sources, including family gifts or assistance programs.
- Investments considered by lenders include IRAs, bonds, CDs, stocks, and 401(k) plans.
Approval Factors
- Lenders evaluate four primary factors known as the 4 C's: Credit, Capacity, Capital, and Collateral.
- Derogatory information on credit reports includes collections, bankruptcies, and late payments, which negatively influence creditworthiness.
Property and Mortgage Guidelines
- Lenders have guidelines regarding the condition and type of home for purchase, irrespective of the borrower's credit status.
- Home inspections are not ordered by lenders; they provide an appraisal to assess the market value of the property.
- The distinction exists between manufactured homes and mobile homes, which must adhere to federal standards.
Loan Types and Down Payments
- Fixed-rate mortgages maintain the same interest rate throughout the loan, while other loan types, such as VA, USDA, and FHA loans, are government-backed options with various requirements.
- To avoid private mortgage insurance (PMI), a 20% down payment is generally necessary for conventional loans.
Pre-Payment and Penalties
- Making extra payments on loans can help reduce principal and save on interest.
- Pre-payment penalties can impose additional costs for paying off a loan early and should be avoided.
Fair Housing and Real Estate Practices
- The Fair Housing Law protects against discrimination based on race, color, national origin, religion, sex, family status, and disability.
- Real estate agents must be licensed and assist in various stages of the homebuying process, including negotiations and offer submissions.
Contingencies and Buyer Rights
- Contingencies are necessary conditions that must be fulfilled for real estate transactions to proceed.
- Buyers can request that certain items, like appliances, convey with the purchase of a home.
Home Equity and Repair Options
- Home equity represents the value of a home against the remaining loan amount.
- To increase home equity, homeowners should pay down the principal and make capital improvements.
Scams and Fraud Awareness
- Be cautious of scams related to home titles, home improvement loans, and post-disaster financing.
- Consumers should maintain good cybersecurity habits to protect against online scams.
Home Buying and Closing Process
- Buyers should carefully review all documents before closing, which usually occurs within a tight timeframe.
- Home inspections are the buyer's responsibility, and they can walk away from deals if issues are found, provided there is a contingency in their offer.
Emergency Preparedness
- Households should maintain an emergency kit, including essentials like water, food, and a first aid kit.
- Effective home safety practices include maintaining landscaping and ensuring functional electrical systems.
Credit and Financing Considerations
- Credit scores are affected by factors such as the amount owed (30% of score), and improving credit is essential for securing favorable loan terms.
- Consumers can still qualify for loans despite student loan debt, with various paths available to homeownership and financial stability.
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Description
Test your knowledge on key terms related to housing finance with these flashcards. Learn about important concepts like housing expense ratio and debt-to-income ratio that are essential for understanding mortgage lending. Perfect for students and professionals in the finance sector.
