Scenario: You are a single 30-year-old with a gross annual income of $30,000. 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 5.0% 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.

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.

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:

Pre-qualify for a mortgage with a reputable lender

Sign up with a real estate agent

Agree to terms with a seller

Search for a home online and in person

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

From 10% to 12% of purchase price.

From 2% to 7% of mortgage amount.

From 1% to 2% of mortgage amount.

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

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:

Make a balloon payment

Find a cosigner for the loan

Purchase a home warranty policy