Concepts of Home Ownership

Card Set Information

Concepts of Home Ownership
2013-10-06 16:20:28

Chapter 3 Review/Materials
Show Answers:

  1. Define: Coinsurance Clause
    - A clause in insurance policies covering real property that requires the policy holder to maintain fire insurance coverage generally equal to at least 80 percent of the property's actual replacement cost.
  2. Define: Homeowner' Insurance Policy
    - A standardized package insurance policy that covers a residential real estate owner against financial loss from fire, theft, public liability, and other common risks.
  3. Define: Liability Coverage
    - Insurance that covers injuries or losses sustained within the home.
  4. Define: PITI (Principle, Interest, Taxes, and Insurance)
    - The basic costs of owning a home-mortgage; Principle and Interest, real estate Taxes, and hazard Insurance.

    - This is what lenders refer to as PITI; real estate taxes, property insurance, repayment of the mortgage loan with interest (the expenses that comprise a monthly payment).
  5. Define: Replacement Cost
    - The construction cost at current prices of a property that is not necessarily an exact duplicate of the subject property but serves the same purpose or function as the original.
  6. True or False:

    A home is an investment that can appreciate in value and provide federal income tax deductions.
  7. What does "FHA" stand for?
    - Federal Housing Administration
  8. What does "VA" stand for?
    - Deparment of Veteran Affairs
  9. True or False:

    The Federal Housing Administration (FHA) and the Department of Veteran Affairs (VA) have programs with low down payments and lower credit score requirements than most other mortgage terms.
  10. Which of the following is NOT a cost or expense of owning a home?

    a. Interest paid on borrowed capital.
    b. Homeowners' insurance.
    c. Maintenance and repairs.
    d. Taxes on personal property.
    d. Taxes on personal property.
  11. Homeowners may deduct all of the following expenses when preparing their income tax return EXCEPT:

    a. real estate taxes.
    b. mortgage interest on a first home.
    c. mortgage interest on a second home.
    d. mortgage interest on a third home.
    d. mortgage interest on a third home.
  12. A building that is remodeled into residential units and is no longer used for the purpose for which it was originally built is an example of a(n):

    a. converted-use property.
    b. urban homesteading.
    c. planned unit development.
    d. modular home.
    a. converted-use property.
  13. A high-rise development that includes office space, stores, theaters, and apartment units is an example of which of the following?

    a. Planned unit development
    b. Mixed-use development
    c. Proprietary lease properties
    d. Special cluster zoning
    b. Mixed-use development
  14. Each room of a house was preassembled at a factory, driven to the building site on a truck, and then lowered onto its foundation by a crane. Later, workers finished the structure and connected plumbing and wiring before the owners moved in. Which term BEST describes this type of home?

    a. Mobile
    b. Modular
    c. Manufactured
    d. Converted
    b. Modular
  15. Five years ago, a woman bought a home for $250,000. Home values in her area have improved, and the current market value of her house has increased by 15 percent. If she has $95,875 left to pay on her mortgage loan, what is her current equity in her home?

    a. $138,712
    b. $154,125
    c. $191,625
    d. $250,000
    c. $191,625
  16. For which of the following risks would a homeowner have to purchase a special policy in addition to a typical basic or broad-form home owners' insurance policy?

    a. The cost of medical expenses for a person injured in the policyholder's home.
    b. Theft
    c. Vandalism
    d. Flood damage
    d. Flood damage
  17. A man wants to buy his first home but doesn't know how much he can afford to pay. He has a gross monthly income of $3,000. According to the traditional lender's rule of thumb formula, what is the total housing expense (principal, interest, taxes, and insurance) he can bear?

    a. $1,080
    b. $840
    c. $648
    d. $1,152
    b. $840
  18. A married couple bought their house ten years ago for $150,000. Last week, they sold their home for $225,000. Based on these facts, how much capital gains tax will the couple have to pay this year?

    a. None
    b. $7,550
    c. $11,325
    d. $75,500
    a. None
  19. Which of the following BEST expresses the concept of equity?

    a. Current market value minus capital gain.
    b. Current market value minus property debt.
    c. Current market value minus cost of land.
    d. Replacement cost minus depreciation.
    b. Current market value minus property debt.
  20. A couple bought a house in 1968 (when they were 21 years old) for $25,000 and have lived in it ever since. Today, the neighborhood is very fashionable, and the house sells for $450,000. How much of the gain is taxable on the couple's joint return this year?

    a. $25,000
    b. All
    c. None
    d. $637,000
    c. None
  21. A married couple files a joint income tax return and has lived in their home for 20 years. A single homeowner has lived in a home for five years. A father and daughter bought their home together las year. Based on these facts, which statement is TRUE if all three homes are sold today:

    a. All of these homeowners qualify for a $500,000 exclusion from capital gains taxation on the transaction.
    b. A $500,000 exclusion applies to the couple as well as to the father and daughter; a $250,000 exclusion applies to the single homeowner.
    c. A $500,000 exclusion applies to the married couple; a $250,000 exclusion applies to the single homeowner; and no exclusion applies to the father and daughter.
    d. Only the married couple qualifies for any exclusion from capital gains taxation.
    c. A $500,000 exclusion applies to the married couple; a $250,000 exclusion applies to the single homeowner; and no exclusion applies to the father and daughter.
  22. Theft, smoke damage, and damage from fire are covered under which type of homeowners' insurance policy?

    a. Basic form
    b. Broad form
    c. Coinsurance
    d. National Flood Insurance Program Policies
    a. Basic form
  23. A community that merges housing, recreation, and commercial units into one self-contained development is called a:

    a. MUD (Mixed-use development)
    b. PUD (Planned unit development)
    c. cooperative
    d. condominium
    b. PUD (Planned unit development)
  24. All of the following damages would be covered by a basic-form homeowners' insurance policy EXCEPT:

    a. glass breakage
    b. riot
    c. frozen pipes
    d. vandalism
    c. frozen pipes
  25. Efforts to increase home ownership include all the following EXCEPT:

    a. requiring lower down payments.
    b. offering adjustable-rate mortgages.
    c. penalizing first-time homebuyers for using funds from IRAs.
    d. lowering closing costs for first-time homebuyers.
    c. penalizing first-time homebuyers for using funds from IRAs.
  26. The real cost of owning a home includes certain costs/expenses that many people overlook. Which of the following is NOT such a cost/expense of home ownership?

    a. Income lost on cash invested in the home.
    b. Interest paid on borrowed capital.
    c. Maintenance and repair expenses.
    d. Personal property taxes.
    d. Personal property taxes.
  27. Damage from which of the following is NOT covered in a basic homeowners' policy?

    a. Fire and lightning
    b. Explosion
    c. Windstorm and hail
    d. Flood
    d. Flood
  28. Most homeowners' insurance policies contain which clause?

    a. Property improvement clause
    b. Coinsurance clause
    c. Co-ownership clause
    d. Property devaluation clause
    b. Coinsurance clause
  29. That portion of the value of an owners' property that exceeds the amount of their mortgage debt is called:

    a. equality
    b. escrow
    c. surplus
    d. equity
    d. equity