Personal Finance Chapter 11 Flashcards

Questions and Answers

What does the term 'Cost of living' refer to?

The average cost of basic goods and services needed to sustain a certain standard of living (correct)

The specific amount one spends on housing only

Financial aid provided for housing expenses

The level of wealth and comfort available to a group of people

What is meant by the 'Standard of living'?

A legal agreement between tenants and landlords

The cost of monthly rent

The level of wealth, comfort, material goods, and necessities available to a group of people (correct)

The amount of debt a person accumulates

What does 'House poor' mean?

When someone spends so much of their income on the costs of homeownership that they struggle to reach other financial goals.

What is 'Renting'?

Periodic payments by a tenant to a landlord for the use of a property Signup and view all the answers

What is a 'Fixed-rate mortgage'?

A mortgage with a set interest rate for a set number of years. Signup and view all the answers

What is 'Mortgage principal'?

The amount borrowed to purchase a home. Signup and view all the answers

What are 'Amenities'?

Things that help provide convenience, comfort, or enjoyment. Signup and view all the answers

What is a 'Leasing contract'?

A legal contract that allows the renter rights to use a property owned or managed by the lessor for a period of time. Signup and view all the answers

What is a 'Legal contract'?

An agreement made between two or more parties that is enforced by law. Signup and view all the answers

What is an 'Acknowledge clause'?

The portion of a legal contract signed by both parties. Signup and view all the answers

What does 'The second foundation' refer to?

Get out and stay out of debt. Signup and view all the answers

What is a 'Mortgage'?

A loan obtained for the purchase of a home. Signup and view all the answers

What is a 'down payment'?

A lump sum of money paid by the buyer at the time of purchase. Signup and view all the answers

What is 'Private Mortgage Insurance (PMI)'?

Insurance that protects lenders against loss if the borrower defaults on the loan. Signup and view all the answers

What is 'Equity'?

The increase in value of a home over time; the difference between the amount owed and what the home could be sold for. Signup and view all the answers

If you're ________, your house payment or rent is more than you can afford and still pay your other bills.

house poor Signup and view all the answers

The total amount still owed on a house is the __________.

mortgage principal Signup and view all the answers

You'll want to have a(n) of 10-20% of the total cost of the house you want to buy.

down payment Signup and view all the answers

________ means you pay someone else each month for a place to live.

renting Signup and view all the answers

___________ refers to the average amount needed for housing, food, clothes, and other goods and services.

cost of living Signup and view all the answers

__________ is the difference between what a house is worth and what is still owed on it.

equity Signup and view all the answers

Apartment ________ such as a pool, fitness center, and other perks are nice but usually mean higher rent prices.

amenities Signup and view all the answers

An apartment lease is a ___________ for a set period of time.

legal contract Signup and view all the answers

A fixed-rate mortgage means your payment and interest rate won't ________.

change for the life of the loan Signup and view all the answers

Whether you're renting or buying, your monthly payment should be ________ of your take-home pay.

less than 25% Signup and view all the answers

Having a large down payment (at least 20%) has benefits such as ________.

lower payments each month Signup and view all the answers

Appreciation means that the value of a home you buy will continue to ________ over time.

go up Signup and view all the answers

When buying a house, you'll typically need a ______% down payment to avoid paying PMI.

20 Signup and view all the answers

What does 'preapproved' mean in the context of buying a house?

The first step in buying a house is to find out how much a bank will loan you for the purchase. Signup and view all the answers

What is another word used for 'renting'?

leasing Signup and view all the answers

What does the 'A' stand for in the home loan option referred to as an ARM?

adjustable Signup and view all the answers

Whether you rent an apartment or buy a house, try to keep your monthly payment below _______% of your take-home pay.

25 Signup and view all the answers

A loan obtained for a home purchase is a(n):

mortgage Signup and view all the answers

Study Notes

Key Financial Concepts in Housing and Real Estate

Cost of Living: The average expense required to maintain a certain standard of living, covering basic goods and services.
Standard of Living: Refers to the wealth, comfort, material goods, and necessities accessible to a specific population.
House Poor: A situation where a significant portion of income is devoted to homeownership costs, hindering the ability to meet other financial goals.
Renting: Involves making periodic payments to a landlord for the use of a property, typically on a monthly basis.
Fixed-Rate Mortgage: A mortgage that maintains a constant interest rate throughout the life of the loan, providing predictable monthly payments.
Mortgage Principal: The initial amount borrowed to purchase a home, which must be repaid.
Amenities: Features or services that enhance comfort, convenience, or enjoyment in a living space.
Leasing Contract: A legally binding agreement that grants a tenant rights to occupy a property owned by another party for a specified duration.
Legal Contract: An enforceable agreement between two or more parties, significant in transactions such as renting or buying property.
Acknowledge Clause: The section of a legal document signed by all involved parties, confirming their agreement.

Home Financing and Investment

Second Foundation: A principle advocating for individuals to eliminate debt and maintain a debt-free status.
Mortgage: A loan specifically used for purchasing a home, where the property serves as collateral.
Down Payment: An upfront payment made during the purchase of a home, usually comprising 10-20% of the property's total price.
Private Mortgage Insurance (PMI): Insurance that protects lenders in case of borrower default; this cost does not contribute to mortgage principal reduction.
Equity: The difference between a home's market value and the outstanding mortgage balance, representing the owner’s stake in the property.

Housing Costs and Budgeting

House Poor: Indicates financial strain from housing expenses that exceed affordable limits, impacting overall financial health.
Monthly Payments: Recommended to stay under 25% of take-home pay for housing, whether renting or owning.
Large Down Payment Advantages: Making a substantial down payment (at least 20%) reduces monthly payments and can eliminate PMI costs.
Appreciation: The expectation that a home’s value will increase over time, contributing to investment growth.
Preapproval: Essential first step in home purchasing, determining how much a bank is willing to lend based on financial background.

Leasing: Synonymous with renting, whereby payment is made for property use.
Adjustable-Rate Mortgage (ARM): A mortgage type where interest rates may change periodically, affecting monthly payments.
Monthly Payment Guidelines: Aim to keep housing costs below 25% of take-home pay for better financial stability.

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Test your knowledge on housing and real estate concepts with these flashcards from Chapter 11 of Personal Finance. The quiz covers essential terms like cost of living, standard of living, and being house poor. Perfect for understanding financial implications in real estate.