Rob's Buyer's Quiz
Should I refinance? Is now a good time to buy a house?
What is an ARM?
Take the Rob Penrose Home Buyer's Quiz
and learn about terms and concepts you will encounter as you
search for the mortgage that is right for you.
Question One:
According to most mortgage lenders, you can qualify for a mortgage amount
of about four times your gross annual salary. TRUE or FALSE?
This is false. Most lenders agree that you can afford a home that is 2
to 2 1/2 times your gross salary.
Question Two:
What is the maximum mortgage amount homeowners may deduct from their
federal income tax for mortgage interest paid for first and second homes,
and any improvements made to those homes?
The answer is 1 million dollars. (By the way, if you are currently in
this situation, please give us a call for some special Jumbo rates. We'd
love to hear from you!)
Question Three:
A 15year fixedrate mortgage saves you nearly 60 percent of the total
interest costs over the life of a loan when compared to a 30year
mortgage. TRUE or FALSE?
True. You may also shorten the life of a 30year loan (and thus save
interest costs) by making additional principal payments on your loan along
with your normal payments. These are known as curtailments.
Question Four:
Mortgage lenders refer to a homeowner's monthly payment as "PITI" because:

Homeowner's should be "pitied" because of their monthly payments.

It
includes principal, interest, taxes and insurance.

"Piti"
is the French word for "mortgage payments".

PITI is short for "Pay It on Time In full.
The answer is b: It includes Principal, Interest, Taxes
and Insurance.
Question Five:
A "jumbo" loan is:

A
mortgage that is really too big for you to afford.

A
loan that you pay monthly for a time and then pay one "jumbo" payment on
the remaining principal.

A
mortgage that is larger (more than $214,600) than the limits set by the
Federal National Mortgage Association (FNMA) and the Federal Home Loan
Mortgage Corporation (FHLMC).

A
loan to buy a house with more than four bedrooms.
The answer is c: A jumbo loan is any mortgage larger
than the limit set by FNMA and FHLMC, commonly know as "Fannie Mae" and
"Freddie Mac", respectively. This amount changes nearly every year due to
inflation and current economic trends.
Question Six:
A "buydown" refers to:

A
discount on the home price so you can afford it.

A
discount on the loan's interest rate during the first years of the loan
to make financing easier to qualify for.

Money you pay the lender to give you a lower interest rate.

Buying a cheaper house than you live in now; also called a "tradedown".
The answer is b: A "buydown" is a temporary reduction
in the rate of a mortgage, usually for the first two or three years. One
common example is a 3/2/1 buydown. On a 9% fixedrate loan this would make
the first year's interest 6%, the second 7%, the third 8% and the fourth
through the last 9%. However, you would qualify at the 6% rate. This is a
very attractive option for buyers with some extra cash who would like to
qualify for a more expensive home.
Question Seven:
Typical closing costs can range from:

10
to 15 percent of the loan amount.

3
to 8 percent of the loan amount.

8
to 10 percent of the loan amount.

1
to 3 percent of the loan amount.
The answer is d: You can count on your closing costs
being anywhere from 1 to 3 percent of the total loan amount. Where you
fall in this range depends on the type of loan (FHA, VA or Conventional),
whether or not you've financed some of the closing costs (like firstyear
insurance), etc. A good rule of thumb is to stick with up to 3% as an
estimate and you'll be safe.
Question Eight:
Making and extra mortgage payment each year shortens the life of a 30year
loan by:
The answer is a: Amazing, but true.
Question Nine:
A "convertible" mortgage is one which:

Allows you to buy a car with the house.

Allows the homeowner to decrease the loan's interest rate without
refinancing the mortgage.

Can
be used like a giant credit card.

Allows you to make an adjustable rate mortgage (ARM) into a fixedrate
mortgage when interest rates are low.
The answer is b and d: The "convertible" means that you
can convert an ARM into a fixedrate mortgage (usually during certain
periods) for a nominal fee, without refinancing the loan or changing the
terms. This is especially attractive if the new fixed rate is lower than
your previous ARM rates (i.e. interest rates are falling).
Question Ten:
Lenders normally recommend refinancing a mortgage if:

The
market rate is one or more percentage points below the rate on the loan.

The
homeowner has no equity in the property.

The
homeowner doesn't want to pay any taxes.

The
homeowner has a "convertible" mortgage.
The answer is a: It is does not usually pay to
refinance your home if the spread between your current rate and the rates
you can get on a new loan are less than one percent apart.
Question Eleven:
When discussing "points", your lender means:

The
things you really like about your new house.

Prepaid interest. Each point equals 1 percent of the loan amount.

A
rating system used by lenders to qualify applicants.

The
number of traffic violations that show up on your credit report.
The answer is b: By paying points up front (at the time
of closing), you may lower your overall interest rate. For example, on a
$100,000 loan, you may have an interest rate of 6%. By paying one point
($1,000) extra at closing, you may be able to lower your interest rate to
5.75%. Make sure your lender explains the points and interest rates
available to you for the loan you choose.
Question Twelve:
What is a deed of trust?

Money you have received before you have actually qualified for the loan.

A
special document waiving your right of rescission.

A
document used in place of a mortgage in some states.

A
special mortgage you can get if the lender knows you.
The answer is c: Every state has their own rules,
regulations and terms concerning the borrowing of money for a house.
Question Thirteen:
A title search:

Examines the homebuyer's background to see if he or she is descended
from royalty.

Examines local public land records to determine the legal ownership of a
property.

Looks for books in the public library that tell about home financing.

Verifies the property's past owners.
The
answer is b: The title company is responsible for making sure that you are
the new freeandclear owner of the property you are buying. In addition,
their insurance fee will cover you in the case where they have made a
mistake and someone else claims a lien or right to your property.
