Are You Ready to Buy a Home?

Are You Ready to Buy a Home?

Are you ready to test your knowledge about buying a home? This ten-question multiple-choice quiz will explore what actions need to be taken when purchasing a home. After completing all ten questions, click "What's my grade?" at the end of the quiz to see how you did.

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Before you start looking at houses, you should:
It is easy to get excited by the thought of buying a new home. A new home is the opportunity to start a new exciting part of your life in an area of town you've always wanted to live in and to decorate your new home in a style that suits your tastes. When you buy a home, it is also easy to become overwhelmed, which is why it helps to have a knowledgeable real estate agent help guide you through the purchase. But the most important question to ask before you take steps toward buying a home is figuring out how much home you can afford and set a shopping budget. Once you've set a budget, then you can begin the home-shopping process.

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When you're ready to make an offer on a home, you should base your offer on:
When buying a home, the most important factor is understanding the home's real market value and making your offer based on that. The best way to do that is to determine what other comparable homes in the same general vicinity of your target home have sold for recently. Look at barometers such as cost per square foot as a baseline, but then make adjustments based on other aspects of the property, such as location, lot size, and home features such as flooring, swimming pool, etc. Those factors can move the home value up or down. Also, consider whether you're going to have to put more money into the home via improvements that will bring the home up to today's living standards. Your realtor or family and friends can help you with the legwork, but make sure you understand the home's underlying value before making your offer.

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If you've worked with a specific lender and have a tentative commitment for mortgage funding based on a review of your income, asset, and debt documentation, you've been:
Getting 'pre-qualified' for a mortgage is typically the first step in the mortgage process and the easiest to get through as it involves having your lender take a look at your finances, including income, debt, and other assets, and letting you know the size of mortgage for which you would qualify. Getting 'pre-approved' requires you to formally fill-out a mortgage application, provide documentation of income and give permission for the lender to pull a full credit report so that they can evaluate your finances and credit history in detail. If you've been pre-approved, the lender will provide you with a written commitment for an exact maximum loan amount. Getting pre-approved puts you in a better position to have your offer accepted by the home seller as your offer will not be contingent on you being approved for financing.

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When saving to buy a home, your savings plan should account for the following:
When buying a home, you'll be expected to have a sizable downpayment to put down on the home and need to be prepared for the closing costs associated with your mortgage loan. Realtor commissions are paid by the seller and are not the buyer's responsibility.

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When researching the home's price, you'll be able to afford which of the following will be a contributing factor?
Mortgage lenders will focus on several different ratios in taking you through the mortgage approval process. Your debt-to-income ratio is all of your monthly debt payments divided by your gross monthly income. In contrast, your housing ratio only looks at your total monthly housing expenses, divided by your income. Your housing expenses include mortgage principal, interest payments, property taxes, insurance, and homeowner association fees. Finally, your loan-to-value ratio represents the outstanding mortgage balance divided by the appraised value of the home. Typically, lenders see high LTVs as riskier loans.

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To qualify for a lender's best interest rates on a mortgage, your FICO score should be at least:
According to the credit bureau Experian, while basic FICO scores range from 300 to 850, credit scores in the range of 740 to 799 are considered very good and should qualify you for most lenders' best rates. Scores above 800 are considered exceptional, while scores between 670 and 739 are typically considered acceptable — anything below 669 is typically labeled as a subprime borrower.

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Which of the following are you not responsible for paying as part of closing costs when you obtain a mortgage to purchase?
The costs of a home appraisal and loan origination fees are all typically part of the mortgage approval process. Simultaneously, lender's title insurance, which protects your lender against problems with the title to your property, is usually required to obtain a loan. Those costs are typically passed on to the consumer. This information is disclosed to the home purchaser in both the Loan Estimate and Closing Disclosure documents that your lender provides you with. Realtor fees are negotiated between the home seller and the selling realtor. The home seller is responsible for those fees.

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Before deciding to move from being a renter to being a home buyer, how long should you be planning to stay in your new residence for the move to make financial sense?
While 'your mileage may vary' is probably a more accurate answer, most experts recommend that you plan on staying in your home for 5 to 7 years for the home purchase to make financial sense. Here's why. With each home purchase, you're going to pay closing costs typically in the range of 3% to 6% of the home value. Secondly, when you sell your home, you're going to pay around 6% of the sales price in realtor fees. If your home value appreciates at a typical rate of 2% per year, you'll build sufficient equity in a 5 year period to roughly cover those closing and realtor fee costs. If you move sooner, you may be leaving the transaction with less equity in your home than when you bought the home.

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The acronym 'PITI' stands for:
PITI or Principal, Interest, Taxes, and Insurance is an acronym for a mortgage payment that is the sum of monthly principal, interest, taxes, and insurance.

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If you are a first-time homebuyer, which of the following cannot be used as a source of your down payment?
Most homebuyers look at their own assets, such as personal checking, savings accounts, and investments, as their only cash source for a down payment. However, most lenders will allow you to use gift money from an immediate family member (provided you can provide a gift letter for documentation purposes). Also, most 401(k) plans allow for hardship withdrawals that allow you to withdraw funds without penalty for a permitted purpose. Among permitted purposes is the purchase of your first home.

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