Determining Affordability: Calculate Your Home Budget

Question 1

Which of the following factors does NOT affect housing affordability?

Accepted Answer

Age

Answer

Income

Answer

Debt

Answer

Interest rates

Question 2

If your monthly expenses are $1,500 and your gross income is $4,000, what is your debt-to-income ratio?

Accepted Answer

37.5%

Answer

50%

Answer

62.5%

Answer

75%

Question 3

Which of the following is a type of mortgage loan that requires a lower down payment but typically carries a higher interest rate?

Accepted Answer

FHA loan

Answer

Conventional loan

Answer

VA loan

Answer

USDA loan

Question 4

What is the primary purpose of private mortgage insurance (PMI)?

Accepted Answer

To protect the lender from losses in case of borrower default

Answer

To reduce the amount of down payment required

Answer

To lower the interest rate on the loan

Answer

To increase the loan term

Question 5

What is a key difference between a fixed-rate mortgage and an adjustable-rate mortgage (ARM)?

Accepted Answer

Fixed-rate mortgages have an interest rate that remains constant throughout the loan term, while ARMs have an interest rate that may change periodically.

Answer

ARMs typically have higher interest rates than fixed-rate mortgages.

Answer

Fixed-rate mortgages are more suitable for short-term homeowners, while ARMs are better for long-term homeowners.

Answer

Fixed-rate mortgages require a higher down payment than ARMs.

Question 6

What is the main purpose of conducting a home inspection?

Accepted Answer

To assess the condition of the property and identify potential issues

Answer

To determine the value of the property

Answer

To provide a warranty for the property

Answer

To ensure the property meets building codes

Question 7

What is the concept of an "escrow account" related to mortgages?

Accepted Answer

An account used to hold funds for property taxes and insurance premiums, ensuring timely payments on behalf of the homeowner

Answer

A type of savings account for home maintenance

Answer

A fund used to cover unexpected expenses

Answer

A line of credit available to homeowners

Question 8

Which of the following factors is NOT considered when determining housing affordability?

Accepted Answer

Down Payment

Answer

Income

Answer

Debt

Answer

Expenses

Question 9

If your debt-to-income ratio is 40%, what percentage of your monthly income goes towards debt payments?

Accepted Answer

40%

Answer

20%

Answer

30%

Answer

50%

Question 10

What is the maximum allowable debt-to-income ratio for a conventional mortgage?

Accepted Answer

43%

Answer

33%

Answer

50%

Answer

55%

Question 11

What happens to your monthly mortgage payments and overall affordability when you increase your down payment?

Accepted Answer

Monthly payments decrease, and affordability increases.

Answer

Monthly payments increase, but affordability decreases.

Answer

There's no change in monthly payments or affordability.

Answer

Monthly payments increase, and affordability increases.

Question 12

When calculating your debt-to-income ratio, you divide your total monthly debt payments by:

Accepted Answer

Your gross monthly income

Answer

Your net monthly income

Answer

Your total monthly income

Answer

Your disposable monthly income

Question 13

Which of the following is NOT a factor considered when determining home affordability?

Accepted Answer

Your age

Answer

Your monthly income

Answer

Your monthly debt obligations

Answer

Your monthly expenses

Question 14

What is the primary purpose of a down payment?

Accepted Answer

To reduce the amount you borrow

Answer

To improve your credit score

Answer

To lower your monthly mortgage payments

Answer

To avoid paying private mortgage insurance

Question 15

Which of the following is considered a closing cost?

Accepted Answer

Loan origination fee

Answer

Insurance premium

Answer

Property taxes

Answer

Moving expenses

Question 16

What does the term "escrow" refer to in relation to mortgages?

Accepted Answer

An account where funds are held for property taxes and insurance

Answer

A type of loan that is secured by your home

Answer

The process of getting a mortgage

Answer

The amount you pay for your mortgage each month

Question 17

Which of the following is NOT an advantage of homeownership?

Accepted Answer

No maintenance responsibilities

Answer

Tax benefits

Answer

Building equity

Answer

Forced savings

Question 18

What is the most important consideration when determining home affordability?

Accepted Answer

Ensuring you can comfortably repay your mortgage

Answer

Getting the best possible interest rate

Answer

Finding the most expensive home you can afford

Answer

Improving your credit score

Question 19

When the housing market favors sellers, which factor can make it harder for buyers to purchase a home?

Accepted Answer

More competition from other buyers

Answer

Lower interest rates

Answer

Increased negotiating power for buyers

Question 20

When budgeting for a home, what could happen if you don't plan for future costs like maintenance and repairs?

Accepted Answer

Unexpected financial difficulties

Answer

Having to wait longer to buy a home

Answer

Losing value in your home

Question 21

How does understanding opportunity cost impact decision-making when evaluating long-term housing expenses?

Accepted Answer

Opportunity cost helps determine the total expenses associated with homeownership, including both direct and indirect costs.

Answer

Opportunity cost is a negligible factor when considering housing costs.

Answer

Understanding opportunity cost suggests that renting is always financially superior to buying a home.

Answer

Opportunity cost is not relevant when evaluating different mortgage interest rate options.

Question 22

When comparing adjustable-rate mortgages (ARMs) and fixed-rate mortgages, which of the following best describes the risks and benefits of each type?

Accepted Answer

ARMs have lower initial interest rates but unpredictable monthly payments, while fixed-rate mortgages offer stability with consistent payments.

Answer

Fixed-rate mortgages are always a better choice than ARMs.

Answer

ARMs are only suitable for short-term homeownership.

Question 23

Which of the following is **not** a factor that affects your ability to afford a home?

Accepted Answer

Your age

Answer

Your income

Answer

Your debt

Answer

Your expenses

Question 24

If your monthly income is $5,000 and your monthly expenses are $2,500, what is your debt-to-income ratio?

Accepted Answer

25%

Answer

50%

Answer

75%

Answer

100%

Question 25

What are two potential advantages of making bi-weekly mortgage payments rather than monthly payments?

Accepted Answer

Paying off your mortgage sooner

Accepted Answer

Saving money on interest

Answer

Lowering your monthly payment

Question 26

When calculating affordability, which of these is NOT considered a housing expense?

Accepted Answer

Car payment

Answer

Mortgage payment

Answer

Property taxes

Answer

Homeowners insurance

Question 27

Which of the following expenses is considered 'fixed' and remains relatively consistent month-to-month?

Accepted Answer

Car payment

Answer

Groceries

Answer

Entertainment

Answer

Clothing

Question 28

When applying for a mortgage, which debt-to-income ratio (DTI) is generally considered the maximum allowable?

Accepted Answer

28% of gross monthly income towards debt payments and 36% towards total housing expenses

Answer

36% of gross monthly income towards debt payments and 28% towards total housing expenses

Answer

45% of gross monthly income towards debt payments and 45% towards total housing expenses

Answer

50% of gross monthly income towards debt payments and 50% towards total housing expenses

Question 29

Which of the following is NOT typically considered a closing cost associated with purchasing a home?

Accepted Answer

Security deposit for utilities

Answer

Loan origination fee

Answer

Title search and insurance

Answer

Property appraisal

Question 30

What is the primary purpose of obtaining mortgage pre-approval?

Accepted Answer

To determine the maximum loan amount you qualify for

Answer

To secure financing for a specific property

Answer

To obtain a lower interest rate on your mortgage

Answer

To guarantee that a seller will accept your offer

Question 31

In the context of mortgage payments, what is the difference between 'principal' and 'interest'?

Accepted Answer

Principal is the amount borrowed, while interest is the cost of borrowing that amount.

Answer

Interest is the amount borrowed, while principal is the cost of borrowing that amount.

Answer

Principal and interest are the same thing.

Answer

Principal is the total cost of the mortgage, while interest is the monthly payment.

Question 32

Which government agency insures mortgages for low- to moderate-income homebuyers?

Accepted Answer

FHA (Federal Housing Administration)

Answer

FEMA (Federal Emergency Management Agency)

Answer

USDA (United States Department of Agriculture)

Answer

VA (Department of Veterans Affairs)

Question 33

Which of the following factors would NOT significantly affect the value of a home?

Accepted Answer

Your personal preferences and tastes

Answer

Location and desirability of the neighborhood

Answer

Size and layout of the property

Answer

Age and condition of the home

Question 34

For a conventional mortgage, what is the recommended down payment amount?

Accepted Answer

20%

Answer

5%

Answer

10%

Answer

15%

Question 35

How do property tax rates vary across different locations, and how does this affect the affordability of housing in those areas?

Accepted Answer

Property tax rates are set by local governments and can vary significantly from one location to another, impacting housing affordability.

Answer

Property tax rates are the same across the country, so they do not affect housing affordability.

Answer

Property taxes are not a major factor in determining housing affordability.

Answer

Property taxes are only charged on commercial properties, not residential properties.

Question 36

For long-term stability in monthly payments, which mortgage type is preferable?

Accepted Answer

Fixed-rate mortgage

Answer

Adjustable-rate mortgage

Question 37

Which of the following is NOT a primary factor that impacts housing affordability?

Accepted Answer

Current weather conditions

Answer

Monthly living expenses

Answer

Debt-to-income ratio

Question 38

What does the debt-to-income ratio measure?

Accepted Answer

The percentage of your monthly income that is spent on debt payments

Answer

The amount of debt you have compared to the value of your assets

Question 39

Which of the following expenses is typically NOT included in a housing affordability assessment?

Accepted Answer

Groceries

Answer

Property taxes

Answer

Mortgage payment

Answer

Homeowner's insurance

Question 40

Which of these actions will improve your affordability score?

Accepted Answer

Reducing your debt

Answer

Increasing your expenses

Question 41

What is a primary purpose of a home inspection?

Accepted Answer

To identify potential issues with a property prior to purchase

Answer

To determine the property's resale value

Question 42

What is a crucial step in determining your genuine housing needs?

Accepted Answer

Considering your lifestyle and future plans

Answer

Selecting the largest home within your financial reach

Question 43

Which of the following is a potential advantage of homeownership?

Accepted Answer

Potential appreciation in property value

Answer

Unlimited subletting rights

Question 44

Which of the following is considered a fixed expense?

Accepted Answer

Mortgage payment

Answer

Groceries

Answer

Gas

Answer

Entertainment

Question 45

What is the purpose of calculating a debt-to-income ratio?

Accepted Answer

To determine the percentage of your gross monthly income that goes towards debt payments.

Answer

To assess your creditworthiness

Answer

To estimate your monthly mortgage payment

Question 46

What is the generally accepted affordability guideline for housing expenses?

Accepted Answer

Monthly housing payment should not exceed 28% of gross income.

Answer

Monthly housing payment should be less than 50% of net income.

Answer

Housing expenses should not exceed 10% of your total assets.

Question 47

What is a primary benefit of creating a budget?

Accepted Answer

It helps you track your income and expenses to make informed financial decisions.

Answer

It is a requirement for getting a mortgage.

Answer

It guarantees you will save money.

Question 48

What is a key advantage of using a mortgage calculator?

Accepted Answer

It provides an estimate of your monthly mortgage payment and potential closing costs.

Answer

It guarantees you the lowest interest rate available.

Answer

It will pre-approve you for a mortgage.

Question 49

What is a key difference between a fixed-rate mortgage and an adjustable-rate mortgage?

Accepted Answer

A fixed-rate mortgage has a constant interest rate for the life of the loan, while an adjustable-rate mortgage has an interest rate that can change over time.

Answer

Adjustable-rate mortgages always have lower interest rates than fixed-rate mortgages.

Answer

Fixed-rate mortgages are typically shorter than adjustable-rate mortgages.

Question 50

What is a primary role of a real estate agent in a home purchase?

Accepted Answer

To guide you in finding a suitable property, negotiating the purchase price, and facilitating the closing process.

Answer

To provide legal advice regarding the purchase.

Answer

To conduct a home inspection.

Question 51

What is the final stage in the home buying process?

Accepted Answer

Closing

Answer

Pre-approval

Answer

Loan application

Answer

Home inspection.