$1.$ Apply What You$$ve Learned $-$ Buying a Residence

Scenario: You are a single $30-$year$-$old with a gross annual income of $$64,000.$ You have been renting an apartment, but you are tired of the rules set by your landlord. You would like a place that you are free to fix up the way you want it$.$ You are considering both condominiums and single$-$dwelling homes and are looking at the pros and cons of owning each type of housing. You would like to begin the home$-$buying process as soon as possible. You have $$25,000$ saved for a down payment, much of which was recently inherited from your late great aunt, and your family is willing to give you an additional $$15,000.$ You are currently repaying a school loan, a car loan, and some credit card debt. Current interest rates with home lenders are averaging around $7\mathrm{.}0\%$ at this time.

Owning a residence is often less expensive than renting a comparable property in the long term. Which of the following reasons may explain this phenomenon? Check all that apply.

Tax deductions for mortgage interest and property taxes often partially offset the cost.

Tax deductions for lease payments often partially offset the cost of housing.

Renting often results in several additional expenses not normally associated with home ownership.

Property values often appreciate over time.

The second step in the process of home buying is to:

Pre$-$qualify for a mortgage with a reputable lender

Prepare for the closing

Search for a home online and in person

Get your finances in order

In addition to your down payment, how much additional is typically estimated that you may pay in various closing costs?

From $1\%$ to $2\%$ of mortgage amount.

From $2\%$ to $7\%$ of mortgage amount.

From $$500$ to $$1,200$ regardless of purchase price or mortgage amount.

From $10\%$ to $12\%$ of purchase price.

Given your financial condition above and the desire for a $30-$year fixed$-$rate mortgage that requires a $20\%$ down payment, use the $28\%$ front$-$end ratio to identify the amount of the monthly payment necessary to cover the loan$$s principal, interest, taxes, and homeowners$$ insurance, as well as the gross annual income required to qualify for the loan.

A table that may be used to facilitate this analysis follows. Remember that for each home price$-$interest rate combination, the upper number reflects the monthly payment and the lower number indicates the borrower$$s required annual income.

Price of home $/$

$$120,000$

$$150,000$

$$180,000$

$$210,000$

$$240,000$

Interest rate

$3\mathrm{.}0\%5556938329711,109$

$23,80029,70035,70041,60047,500$

$4\mathrm{.}0\%6087609121,0641,217$

$26,10032,60039,10045,60052,100$

$5\mathrm{.}0\%6658329981,1641,331$

$28,50035,70042,80049,90057,000$

$6\mathrm{.}0\%7259071,0881,2691,451$

$31,10038,90046,60054,40062,200$

$7\mathrm{.}0\%7899861,1831,3801,577$

$33,80042,30050,70059,20067,600$

Given your financial situation and the table above, you should be able to qualify for a home that costs between$$120,000$ and$$150,000.$ If purchased, your loan would require monthly payments of $.$

If you select a mortgage loan offer that requires a down payment of less than $20\%,$ the lender will most likely require you to:

Purchase a home warranty policy

Purchase private mortgage insurance

Make a balloon payment

Find a cosigner for the loan

The estimated monthly payments for a single$-$family dwelling typically include the transaction$$s

loan principal and interest, property taxes, and homeowner$$s insurance $($PITI$)$

loan principal and interest only $($PI$)$

loan principal and interest, property taxes, home insurance, and realtor fees $($PITIR$)$

loan principal and interest and property taxes $($PIT$)$

In contrast, the estimated monthly payments for a condominium typically include the transaction$$s

None of these

Loan principal and interest plus any homeowners' association fees

Loan principal and interest, property taxes, home insurance, and realtor fees $($PITIR$)$ plus any homeowners$$ association fees

The same elements as that required in the purchase of a single$-$dwelling house

Homeowners' association fees for a condominium unit cover all costs except

management and upkeep of the common grounds and outside of the buildings

the upkeep of amenities such as the pool, tennis courts, gym, and clubhouse

insurance on your building

insurance on your personal belongings within your unit

Lenders use the ratio to compare a borrower$$s total monthly debt repayments $($including the prospective loan$$s PITI payment and any auto, credit card, or other debt obligations$)$ to his or her gross $($pre$-$tax$)$ monthly income. For most reputable lenders, a ratio of or less is desirable, and according to current legislation, the ratio cannot exceed for a qualified mortgage.

If you don$$t want the $$15,000$ of additional savings available from your family to affect your back$-$end ratio, then a lender may require:

None of these, as this help from your family will not affect your back$-$end ratio

That the terms of the loan be put in writing

That you refuse the gift or the loan of the money

A gift letter that says that the funds are truly a gift to the borrower and are being distributed from the borrower's own funds.

If you need to improve your back$-$ed ratio, you can : Check all that apply.

Increase your monthly gross income

Stop paying your student loan

Choose a home in a higher price range

Reduce the down payment on your new home

Pay down or pay off your existing credit card debt