1. Apply What Youve Learned - Buying a Residence Scenario: You are a single 30-year-old with a gross annual income of $48,000. 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 4.0% 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. Rent is generally less than a mortgage payment. Property values often appreciate over time. Tax deductions for lease payments often partially offset the cost of housing. The gain realized from the sale of a residence is tax-exempt income under certain conditions. The second step in the process of home buying is to: Get your finances in order Pre-qualify for a mortgage with a reputable lender Prepare for the closing Attend the closing 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 loans 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 borrowers required annual income. Price of home / $120,000 $150,000 $180,000 $210,000 $240,000 Interest rate 3.0% 555 693 832 971 1,109 23,800 29,700 35,700 41,600 47,500 4.0% 608 760 912 1,064 1,217 26,100 32,600 39,100 45,600 52,100 5.0% 665 832 998 1,164 1,331 28,500 35,700 42,800 49,900 57,000 6.0% 725 907 1,088 1,269 1,451 31,100 38,900 46,600 54,400 62,200 7.0% 789 986 1,183 1,380 1,577 33,800 42,300 50,700 59,200 67,600 Given your financial situation and the table above, you should be able to qualify for a home that costs between and . 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: Find a cosigner for the loan Purchase a home warranty policy Make a balloon payment Purchase private mortgage insurance The estimated monthly payments for a single-family dwelling typically include the transactions loan principal and interest, property taxes, home insurance, and realtor fees (PITIR) loan principal and interest only (PI) loan principal and interest, property taxes, and homeowners insurance (PITI) loan principal and interest and property taxes (PIT) In contrast, the estimated monthly payments for a condominium typically include the transactions Loan principal and interest, property taxes, home insurance, and realtor fees (PITIR) plus any homeowners association fees Loan principal and interest plus any homeowners' association fees None of these 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 the upkeep of amenities such as the pool, tennis courts, gym, and clubhouse insurance on your personal belongings within your unit management and upkeep of the common grounds and outside of the buildings insurance on your building Lenders use the ratio to compare a borrowers total monthly debt repayments (including the prospective loans 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 dont want the $15,000 of additional savings available from your family to affect your back-end ratio, then a lender may require: That you refuse the gift or the loan of the money 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 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-end ratio, you can: Check all that apply. Pay down or pay off your existing credit card debt Choose a home in a higher price range Stop paying your student loan Increase your monthly gross income Reduce the down payment on your new home