Quiz | December 2009

Should You Buy a Home?

With prices dropping and the government offering incentives to home buyers, is now a good time to leap into ownership?

That depends on you and your finances. Take our ten-question quiz to see if you know the rules to smart home buying in any real estate market -- and find out if you're ready to make this commitment:

Quiz

Should You Buy a Home?

Question 1 of 10

So you want buy a house. What's the FIRST thing you should do before you even start looking?

A. Examine your budget
B. Pre-qualify for a loan
C. Pick a real estate agent

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Quiz

Should You Buy a Home?

Question 1 of 10

So you want buy a house. What's the FIRST thing you should do before you even start looking?

You're right! A. Examine your budget is correct.

Sorry, wrong! is incorrect.

The right answer is A. Examine your budget.

Having a household budget is your top priority. You need to know where you are financially to know exactly how much you can afford to spend on a new home. You should also draw up a mock budget for homeownership -- including your anticipated mortgage payment, higher utility bills, insurance, property taxes and maintenance costs -- to make sure you can afford the increased expenses.

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Quiz

Should You Buy a Home?

Question 2 of 10

How long should you plan to live in the house to make it financially worthwhile?

A. 1 year
B. 3 to 4 years
C. 5 to 7 years

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Quiz

Should You Buy a Home?

Question 2 of 10

How long should you plan to live in the house to make it financially worthwhile?

You're right! C. 5 to 7 years is correct.

Sorry, wrong! is incorrect.

The right answer is C. 5 to 7 years.

In overheated markets, you may have been able to flip a house for profit in less time. But with the upfront costs you'll have to pay to buy a home, it's smarter to put stick to the 5-to-7-year rule of thumb, especially in uncertain times. Consider any imminent life changes -- such as switching careers, going back to school or getting married -- that could throw a wrench into your plan.

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Quiz

Should You Buy a Home?

Question 3 of 10

When you're applying for a mortgage, what do lenders care about most?

A. Your income
B. Your down payment
C. Your credit score
D. All of the above

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Quiz

Should You Buy a Home?

Question 3 of 10

When you're applying for a mortgage, what do lenders care about most?

You're right! D. All of the above is correct.

Sorry, wrong! is incorrect.

The right answer is D. All of the above.

It's important to have ALL your financial ducks in a row. In the heady days of subprime loans and relaxed lending standards, you could fall short on at least one of these criteria. Nowadays experts say you need to measure up on all three criteria.

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Quiz

Should You Buy a Home?

Question 4 of 10

What is generally considered a reasonable monthly payment for a house?

A. 33% of your gross income
B. 50% of your gross income
C. Whatever it takes to impress your friends and family

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Quiz

Should You Buy a Home?

Question 4 of 10

What is generally considered a reasonable monthly payment for a house?

You're right! A. 33% of your gross income is correct.

Sorry, wrong! is incorrect.

The right answer is A. 33% of your gross income.

Your housing costs shouldn't eat up too large of a slice of your income. Lenders look at your so-called debt-to-income ratio. Generally, they want to make sure your monthly housing costs -- including principal, interest, taxes and insurance -- will consume no more than one-third of your monthly gross income.

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Quiz

Should You Buy a Home?

Question 5 of 10

What's the minimum FICO credit score you need to get the best rate on a mortgage?

A. 660
B. 720
C. 760

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Quiz

Should You Buy a Home?

Question 5 of 10

What's the minimum FICO credit score you need to get the best rate on a mortgage?

You're right! C. 760 is correct.

Sorry, wrong! is incorrect.

The right answer is C. 760.

You should be able to snag the best rates with a score of 760 or higher. Making sure your score is in good shape will not only help you get a loan, but also it could save you a lot of money.

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Quiz

Should You Buy a Home?

Question 6 of 10

The 20%-down-payment rule of thumb is outdated. Putting that much down is excessive and unnecessary.

A. True
B. False

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Quiz

Should You Buy a Home?

Question 6 of 10

The 20%-down-payment rule of thumb is outdated. Putting that much down is excessive and unnecessary.

You're right! B. False is correct.

Sorry, wrong! is incorrect.

The right answer is B. False.

A 10% down payment is the minimum smart buyers should aim for, but 20% is even better -- and not at all excessive. That will save you the $50 to $100 per month you would otherwise pay for private mortgage insurance. It'll also help you get a lower interest rate on your mortgage. Plus, in a slow housing market, putting down 20% will give you some equity in case you have to move sooner than expected. That equity also serves as an extra cushion of cash in an emergency.

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Quiz

Should You Buy a Home?

Question 7 of 10

In addition to your down payment, how much extra should you save to pay for closing costs?

A. 1% to 2% of the purchase price
B. 3% to 6% of the purchase price
C. 7% to 10% of the purchase price

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Quiz

Should You Buy a Home?

Question 7 of 10

In addition to your down payment, how much extra should you save 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.

You'll need to 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

Should You Buy a Home?

Question 8 of 10

Should you use your emergency savings to buy a house?

A. Yes
B. No

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Quiz

Should You Buy a Home?

Question 8 of 10

Should you use your emergency savings to buy a house?

You're right! B. No is correct.

Sorry, wrong! is incorrect.

The right answer is B. No.

You need cash on-hand to cover at least three to six months of living expenses before you buy a house -- and you should NOT raid that for your down payment or closing costs. You'll need that cushion to help you make your mortgage payments in case something happens to disrupt your steady income . It could also come in handy for home-related emergencies, such as hiring the occasional plumber.

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Quiz

Should You Buy a Home?

Question 9 of 10

Congratulations! The bank says you qualify for a $350,000 loan. You should ...

A. Take it. You'd be a sucker not to buy as much house as you can get.
B. Crunch your own numbers to see how much house you can afford.

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Quiz

Should You Buy a Home?

Question 9 of 10

Congratulations! The bank says you qualify for a $350,000 loan. You should ...

You're right! B. Crunch your own numbers to see how much house you can afford. is correct.

Sorry, wrong! is incorrect.

The right answer is B. Crunch your own numbers to see how much house you can afford..

Don't stretch your budget to the max just because the bank says you can afford it. Home ownership comes with a slew of expenses beyond the mortgage payment. Plus, factor in a cushion for changes to your financial situation, such as having a child or losing a job.

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Quiz

Should You Buy a Home?

Question 10 of 10

Ahh! A place of your own. Home ownership will make your life so much easier.

A. True
B. False

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Quiz

Should You Buy a Home?

Question 10 of 10

Ahh! A place of your own. Home ownership will make your life so much easier.

You're right! B. False is correct.

Sorry, wrong! is incorrect.

The right answer is B. False.

Owning a home takes a lot of time and energy. If something breaks, you have to fix it, or pay someone else to fix it. You're also responsible for upkeep, including yard work and shoveling snow (unless, of course, you buy a condo without a yard). Even if you can afford a house, don’t buy simply because you can. You've got to be prepared to live the lifestyle.

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Quiz

Should You Buy a Home?

Results: 0 out of 10 Right

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