Housing and Real Estate (Ramsey Classroom) Chapter 11: Questions and Answers Graded A+

Housing and Real Estate (Ramsey Classroom) Chapter 11: Questions and Answers Graded A+ What is the main benefit of buying a home over renting? Buying builds equity and long-term wealth. What is equity in a home? Equity is the difference between what you owe on the mortgage and what the home is worth. Why is it important to have a down payment when buying a house? A down payment lowers your loan amount and reduces monthly payments. What is the general recommended amount for a down payment on a home? A 20% down payment is ideal to avoid private mortgage insurance (PMI). Why should you avoid using all your savings for a down payment? You need an emergency fund for unexpected expenses after buying a home. 2 What does a mortgage pre-approval tell you? It gives you an idea of how much a lender is willing to lend based on your finances. What is the difference between a fixed-rate mortgage and an adjustable-rate mortgage (ARM)? A fixed-rate mortgage has a constant interest rate, while an ARM can change over time. Why should you aim for a 15-year mortgage instead of a 30-year mortgage? A 15-year mortgage saves money on interest and helps you pay off your home faster. What is PMI (Private Mortgage Insurance), and why do you need it? PMI is required if you put down less than 20% and protects the lender in case of default. Why is it important to get a home inspection before purchasing a property? A home inspection reveals potential problems with the house that may not be visible. How can having a budget help you with housing costs? A budget ensures you don’t overspend on housing and helps you plan for other expenses. 3 What should be the maximum percentage of your monthly income that goes toward your mortgage payment? It should not exceed 25% of your take-home pay. What is the best way to save for a down payment on a home? Create a separate savings account specifically for your down payment goal. How does your credit score affect your ability to buy a home? A higher credit score typically leads to lower interest rates and better loan terms. What is a closing cost in real estate? Closing costs are fees paid at the time of purchasing a home, such as title fees, inspections, and lender fees. What is the purpose of having homeowner’s insurance? Homeowner’s insurance protects your property and belongings from damage or loss. What is the primary disadvantage of renting instead of buying a home?