Quiz | December 2011
How Smart a Home BUYER Are You?
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The more you know about the home-buying process, the more money, time and hassle you'll save -- no matter what the current real estate market is doing.
Here are ten questions to see how prepared you are to buy a house. Take our QUIZ:
Here are ten questions to see how prepared you are to buy a house. Take our QUIZ:
Quiz
How Smart a Home BUYER Are You?
iStockphoto
Question 1 of 10
Which matters more: being prequalified for a mortgage or preapproved?
A. Prequalified
B. Preapproved
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Quiz
How Smart a Home BUYER Are You?
iStockphoto
Question 1 of 10
Which matters more: being prequalified for a mortgage or preapproved?
You're right! B. Preapproved is correct.
Sorry, wrong!
is incorrect.
The right answer is B. Preapproved.
Make sure you’re preapproved before you shop for a home. Prequalification is just an estimate of what the lender thinks you can afford. Preapproval requires that you submit a loan application with the necessary documentation and fee. The preapproval letter assures you and prospective sellers and their agents that you can obtain a mortgage. Without it, they may not consider your offer.
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Quiz
How Smart a Home BUYER Are You?
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Question 2 of 10
When buying a home "For Sale By Owner," you can't use a buyer's agent.
A. True
B. False
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Quiz
How Smart a Home BUYER Are You?
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Question 2 of 10
When buying a home "For Sale By Owner," you can't use a buyer's agent.
You're right! B. False is correct.
Sorry, wrong!
is incorrect.
The right answer is B. False.
Many people sell their homes themselves because they don't want to pay a 6% commission to real estate agents. But some sellers -- especially in a depressed market -- will accept buyers' agents and their 3% commission. They don't want to pay full commission, but they don't want agents to boycott their property either.
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Quiz
How Smart a Home BUYER Are You?
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Question 3 of 10
How much should you expect to pay for closing costs?
A. 1% of the purchase price
B. 3% to 6% of the purchase price
C. 10% of the purchase price
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Quiz
How Smart a Home BUYER Are You?
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Question 3 of 10
How much should you expect to pay for closing costs?
You're right! B. 3% to 6% of the purchase price is correct.
Sorry, wrong!
is incorrect.
The right answer is B. 3% to 6% of the purchase price.
In addition to a down payment, buyers should budget an extra 3% to 6% of the purchase price to cover costs at settlement. These usually include the loan origination fee, any loan discounts or "points," title insurance, attorney's fees, property taxes as well as survey, state recording and transfer taxes, and other costs.
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Quiz
How Smart a Home BUYER Are You?
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Question 4 of 10
The title insurance you're required to buy in order to get your loan is for your own protection.
A. True
B. False
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Quiz
How Smart a Home BUYER Are You?
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Question 4 of 10
The title insurance you're required to buy in order to get your loan is for your own protection.
You're right! B. False is correct.
Sorry, wrong!
is incorrect.
The right answer is B. False.
You're required to pay for lender's title insurance at settlement, but it's not for your benefit. It only shields the lender in case a problem with the property's title arises (such as unclear wills, unpaid taxes and easements).
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Quiz
How Smart a Home BUYER Are You?
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Question 5 of 10
If you draw any money from your Roth IRA to buy your first home, you have to pay it back before retirement.
A. True
B. False
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Quiz
How Smart a Home BUYER Are You?
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Question 5 of 10
If you draw any money from your Roth IRA to buy your first home, you have to pay it back before retirement.
You're right! B. False is correct.
Sorry, wrong!
is incorrect.
The right answer is B. False.
Nothing has to be repaid, ever. All your contributions can come out of a Roth at any time, tax and penalty free. And, after the account has been opened for five years, up to $10,000 of earnings can be withdrawn tax- and penalty-free for the purchase of your first home. Assume $5,000 goes into a Roth each year for five years, and the account earns an average of 8% a year. At the end of five years, the Roth would hold about $31,680 -- all of which could be withdrawn tax and penalty free for a down payment.
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Quiz
How Smart a Home BUYER Are You?
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Question 6 of 10
Adjustable-rate mortgages can still be a good deal for some people, even when rates are rising.
A. True
B. False
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Quiz
How Smart a Home BUYER Are You?
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Question 6 of 10
Adjustable-rate mortgages can still be a good deal for some people, even when rates are rising.
You're right! A. True is correct.
Sorry, wrong!
is incorrect.
The right answer is A. True.
True, but you must manage the risk of a rising interest rate. Start by choosing an ARM with an initial fixed-rate period that matches how long you plan to own the house, say, 5 or 7 years. And, to protect against the possibility that you can’t sell when you want or need to, make sure that you can afford the monthly payment if the rate rises to the limit of the cap on the first rate adjustment, typically 2 percentage points.
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Quiz
How Smart a Home BUYER Are You?
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Question 7 of 10
About how much will a home inspection typically cost you?
A. $75 - $100
B. $300 - $400
C. $800 - $1,000
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Quiz
How Smart a Home BUYER Are You?
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Question 7 of 10
About how much will a home inspection typically cost you?
You're right! B. $300 - $400 is correct.
Sorry, wrong!
is incorrect.
The right answer is B. $300 - $400.
Plan on paying between $300 and $400. That fee may vary by region and sometimes on the age, size and construction of the house. When you make an offer on a home, make it contingent on a satisfactory home inspection. Use the inspector’s report for further price negotiations if the property needs any major repairs.
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Quiz
How Smart a Home BUYER Are You?
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Question 8 of 10
Who needs private mortgage insurance?
A. Buyers with a down payment less than 20%
B. Buyers with a down payment more than 20%
C. It's optional for all buyers
D. It's mandatory for all buyers
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Quiz
How Smart a Home BUYER Are You?
iStockphoto
Question 8 of 10
Who needs private mortgage insurance?
You're right! A. Buyers with a down payment less than 20% is correct.
Sorry, wrong!
is incorrect.
The right answer is A. Buyers with a down payment less than 20%.
If your down payment on a home is less than 20% of the appraised value, you will have to pay for private mortgage insurance. This protects the lender if you default on your loan. PMI costs about 0.5% to 1.5% of the amount of the loan per year. So, for a $200,000 mortgage, you'd pay about $1,000 annually.
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Quiz
How Smart a Home BUYER Are You?
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Question 9 of 10
You find a condo you like. Your realtor tells you two other units in the building sold for $200,000 and $225,000. What should you offer?
A. $185,000
B. $200,000
C. $212,500
D. Hold on. You need more information
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Quiz
How Smart a Home BUYER Are You?
iStockphoto
Question 9 of 10
You find a condo you like. Your realtor tells you two other units in the building sold for $200,000 and $225,000. What should you offer?
You're right! D. Hold on. You need more information is correct.
Sorry, wrong!
is incorrect.
The right answer is D. Hold on. You need more information.
That's not enough info to make your decision. You should find out when those sales took place, what the properties were originally listed for and how long they were on the market. Then consider the asking price for the unit you want and make allowances for the current market climate -- is it a buyer's market or a seller's? Plus, you'll want to know how the units compare in size, style, amenities and location in the building.
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Quiz
How Smart a Home BUYER Are You?
iStockphoto
Question 10 of 10
As a new homeowner, what costs can you deduct from income when you file your federal taxes?
A. Mortgage interest
B. Property taxes
C. Points paid at settlement
D. Private mortgage insurance
E. Everything except D
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Quiz
How Smart a Home BUYER Are You?
iStockphoto
Question 10 of 10
As a new homeowner, what costs can you deduct from income when you file your federal taxes?
You're right! E. Everything except D is correct.
Sorry, wrong!
is incorrect.
The right answer is E. Everything except D.
In the past you probably took the standard deduction when you filed your federal income taxes. But once you own a home, itemizing may make sense—and save you a lot on your tax bill. In the year you buy a house, you can not only write off discount points you may have paid when you took your mortgage, but you can deduct points that the seller paid for you! (The deduction for the cost of private mortgage insurance premiums ended Dec. 31, 2011.)
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Quiz
How Smart a Home BUYER Are You?
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