Answer Key

Unit 1, Lesson 1

Comprehension check

1. b
2. b
3. c
4. c
5. c

Talk about it

3. Some advantages of homeownership are:

1) feeling a sense of ownership
2) peace of mind
3) the ability to make renovations on the home
4) the ability to garden and plant trees as one chooses
5) stable housing costs
6) appreciation (increase) in the value of the house
7) tax benefits.

Some disadvantages are:

1) increased responsibility
2) sometimes monthly payments are higher than rent payments
3) the need to pay property tax
4) the need to pay for homeowner’s insurance
5) the commitment to staying in one place
6) the need to maintain the property yourself
7) the responsibility of selling the house if you have to move.

Working with numbers

1. 25% = .25
2. 8% = .08
3. 10% = .10
4. 28% = .28
5. 36% = .36
6. 90% = .90

Thinking through writing

An example of a letter could be:

Dear Tom and Mary,

I understand that you are thinking about buying a house. My family and I recently bought our home and we are very happy here.

It’s a good feeling to know that this house is ours. We have plans to paint some of the rooms and to renovate the upstairs bathroom. We have put in a garden and have planted some trees. It gives us peace of mind to know that our housing costs will remain stable and that we will get tax benefits as a result of homeownership.

However, a lot of responsibility comes with homeownership. Our monthly payments are slightly more than what we were paying for rent and we have to pay property tax and homeowner’s insurance. We also need to do all the maintenance on the property ourselves. If we are ever transferred to another city because of our jobs, we would have to sell the house.

We worked hard to save enough money for the down payment. There were a lot of steps to go through in applying for a mortgage loan. But in spite of the difficulties and new responsibilities, we think the advantages outweigh the disadvantages. We were able to find the right house and everything has worked out well. We think buying your own home would be a good decision for you, too.

Sincerely,

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Unit 1, Lesson 2

Comprehension check

1. c
2. b
3. b

Working with numbers

Example 1: $1,450
Example 2: $720
1. $2,246
2. $1,458.33
3. $641 $7,692
4. $900 $10,800

Vocabulary check

1. co-borrowers
2. previous employment
3. gross income
4. debt

Thinking through writing

There are many ways to improve personal finances to save enough money to buy a home. Some possible ways include the following:

You could get a second job or, if possible, work overtime at the job you have now. You could spend less money on entertainment, discontinue cable TV, get basic telephone service only, and make fewer long-distance phone calls. You could also choose less expensive rental housing or move in with friends or family for a while. Then you could pay off car and credit card loans and be able to put more money into savings.

Perhaps you could reduce spending on food and clothing. You could take your lunch to work instead of going to a restaurant. You’ll find cutting back is a lot easier when you have a goal in mind.

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Unit 1, Lesson 3

Comprehension check

1. 111-22-3333
2. 3
3. General Hospital
4. Dean Nospil
5. August 1991
6. $2,000
7. no
8. $10

Talk about it

1. Karen Smith does pay her bills on time. There are zeroes in the columns “Amount Past Due” and “Times/Dates Past Due.”

2. Add the amounts in the column “Balance Owing.” The sum is $2,140. This is the amount of debt that has not been paid.

3. Karen has good credit. She has a car loan, a credit card, and a loan from another company. She has paid down substantial balances and has never missed a payment or had a late payment.

4. The answer for this question would depend on your own situation. If you are late paying your bills each month or if you sometimes miss payments, your credit report would not be as good as Karen Smith’s. But if you have paid off debts in the past and, like Karen, pay your current bills on time, you would have a good credit report, too.

Working with numbers

1. Add both car loans ($251 and $258) to get a total of $509 in monthly car payments.

2. There is nothing owed on the First Bankcard Center credit card and $252 owed on the Computer credit card for a total of $252 in credit card debt.

3. Add all the monthly payments to get $664.

4. Add all the unpaid balances in the last column to get $11,676 in total liabilities.

Vocabulary check

1. c
2. f
3. d
4. b
5. a
6. e

Thinking through writing

A sample letter could be the following:

Credit Reporting Agency
60 Any Road
Anytown, MA 01234

Dear Sir or Madam:

I am considering a home purchase in the near future. Please send a copy of my credit report to me at the above address. Here is the information you need to complete the credit report:

Name: John R. Doe
Address: 123 Home Street, #302, Anytown, IA 55555 (from Jan. 1995-present)
Social Security Number: 000-00-0000
Date of birth: Dec. 10, 1967
Previous addresses for the last 5 years:
234 House Drive, #5, Anytown, IA 55555 (Nov. 1993–Jan. 1995)
345 Apartment Avenue, # 100, Anytown, IA 55555 (Oct. 1992–Nov. 1993)

Sincerely,
John R. Doe

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Unit 1, Lesson 4

Working with numbers

1. $500
2. $590.24
3. $2,000
4. $758.88
5. $840
6. $344.96
7. $1,080
8. $443.52
9. $504
10. $6,000

Comprehension check

1. $770
2. $554
3. $990
4. $258
5. Joe’s overtime and bonuses
6. $3,000
7. $900

Talk about it

1. Tom and Mary Miller will qualify to get a $55,000 loan. By looking at example 1 you can see that their “Allowable monthly housing costs” are $770, whereas their “Total monthly housing costs” are $554, which is well below the allowable limit. Also, their “Total monthly costs” of $862 are below their “Allowable total monthly debt” of $990.

2. Joe and Teresa Ramirez may not qualify for their loan. Although their “Total monthly housing costs” are below the “Allowable monthly housing costs,” their “Total monthly costs” of $992 are above the “Allowable total monthly debt” of $900. If Joe and Teresa could pay off their credit cards, their “Total monthly costs” would fall below the “allowable” debt limit.

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Unit 1 Review

Checking the facts

1. False. Only in special circumstances (such as some home loans for veterans) can you obtain a loan without a down payment. Most lenders require at least 5 percent of the purchase price of the house or even more.

2. True. Your income and your debt (along with the size of your down payment and current interest rates) determine the size of mortgage you can get.

3. False. You can get a copy of your own credit report through a credit reporting agency. In fact, it’s a good idea to do so early in the home-
buying process to make sure there are no errors in the report.

4. True. Except in special cases, lenders have determined that most people can only afford to spend 28 percent or less of their income on housing.

Vocabulary to remember

1. mortgage loan
2. mortgage lender
3. job history
4. credit report
5. nontraditional credit history

Working with numbers

1. .36
2. $1,458.33
3. $551.60
4. $1,188

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Unit 2, Lesson 1

Comprehension check

1. c
2. c
3. b

Working with numbers

1. 140 square feet
2. 540 square feet
3. $1,620.00
4. 58 feet
5. 6 feet

Vocabulary check

Sample: I have been thinking about what kind of house I would like. I’m not good with my hands so I don’t think I want a fixer-upper. I don’t like gardening so I don’t want a big lot. I think I’d like a townhouse because they are usually two-story. I like that. Most condominiums I’ve seen don’t have enough square feet for me and all my “junk.” I hope I can find a townhouse I can afford.

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Unit 2, Lesson 2

Comprehension check

1. b. Most newspaper ads do not give the name of the owner for
privacy reasons. It would usually not be to the advantage of the owner to tell how long the house has been on the market, especially if it has been on the market for a long time.

2. b. Most shoppers’ guides are found in supermarkets, at newsstands, and in convenience stores.

3. a. It’s important to remember that the real estate agent works for the seller, even though he or she may actually spend more time with you while showing you homes. He or she will try to get the highest possible price for the seller. In some areas you can find a buyer’s agent who will represent you.

Vocabulary check

1. $78K means $78,000
2. Yes. CHA means central heat and air
3. One bathroom
4. Ad 7, the fixer-upper
5. Ads 3 and 6

Thinking through writing

Using Ad 1, some questions to ask could include the following:

• How big is the house in square feet?
• Is the house one story or two?
• How big is the yard?
• Are there trees in the yard?
• Is the house near recreational facilities?
• How long has the house been on the market?
• What have other houses in the neighborhood sold for?
• Are other houses for sale in the neighborhood?
• Is the house close to schools, shopping, and public transportation?
• Does the house have central heat and air conditioning?
• What sort of fuel is used for heat?
• What built-in appliances come with the house?
• What construction materials were used to build the house?
• Are there children in the neighborhood?

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Unit 2, Lesson 3

Comprehension check

1. Some possible answers are:

1) Is the asking price the same as the recent sales price of similar homes in the area?
2) Is the house in good condition?
3) Does the owner need to sell the house quickly?
4) Has the house been on the market for a long time?
5) Can I afford this house?
6) Is it close enough to my work?
7) Are there good schools in the area?

2. A purchase and sales agreement (sometimes also called a contract
of sale).

3. Some possible answers are:

1) a legal description of the property
2) the amount of earnest money you are giving with the offer
3) the price you are offering
4) the size of the down payment
5) how you will finance the rest of the purchase price
6) items of personal property you wish to stay with the house,
7) the date you would like to close the sale and move in
8) the length of time the offer stands.

Working with numbers

1. $750
2. $118
3. No. The warranty states that the company reserves the right to raise the annual renewal fee.

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Unit 2 Review

Checking the facts

1. Some possible answers are:
1) Do you want a new or an older home?
2) Where do you want to live?
3) What special features are important to you?
4) What size house do you need?
5) What style of house would you like?

2. Some possible answers are:
1) word of mouth
2) “for sale” signs
3) newspaper ads
4) shoppers’ guides
5) real estate agents.

Vocabulary to remember

1. d
2. b
3. c
4. e
5. a

Working with numbers

1. 4,200 square feet
2. 143 square feet
3. 300 feet
4. $365

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Unit 3, Lesson 1

Comprehension check

1. c
2. b
3. b
4. c
5. c

Talk about it

The following are some options to answer the questions:

1. Thirty-year repayment terms are the most common. Over 30 years, you would pay more interest, but your monthly mortgage payments would be lower than for a shorter repayment period.

2. The mortgage you choose will depend on your future needs. You might need a fixed-rate mortgage with either a 30-year or 15-year repayment term because the payment stays the same throughout the life of the loan. Or you might prefer an adjustable-rate mortgage because the payments are lower at first and you may be planning to move in a few years—before the higher interest rate goes into effect.

3. To get the best interest rate I could do three things: I could pay more points for a lower interest rate, I could lock in the interest rate, and I could compare annual percentage rates.

4. Some lenders require 20 percent of the purchase price for a down payment, but this is very difficult for first-time buyers. Some special loan programs require a down payment as low as 5 percent or 3 percent. People who qualify for a Veterans Affairs loan do not have to make any down payment.

5. You should expect to pay 3 percent to 6 percent of the purchase price of the house to cover closing costs.

Vocabulary check

1. b
2. d
3. a
4. c
5. f
6. e

Working with numbers

1. $5,000

2. $1,000

3. $3,100. Sue and her mother hope to get more than this for the sale of the furniture, but to be on the safe side they have listed the lowest possible amount they expect to earn.

4. Add lines 1 to 5 to get $10,200.

5. To get 5 percent of $45,000, multiply $45,000 by .05. The answer is $2,250.

6. Multiply $2,250 by 2 to get $4,500.

7. Multiply $294 by 2 to get $588.

8. Add $2,250 for the down payment, $2,250 for the closing costs and $588 for the two monthly payments, and Sue will need a total of $5,088 to take to the closing.

9. Add the amounts to get $1,084. This is how much Sue estimates she will spend each month.

10. No, Sue will not have six months’ savings. Add lines 1–4 under “Upcoming New Home Expenses” to get $3,200. To this amount add Sue’s down payment of $2,250 (see question 5) to get $5,450, Sue’s total upcoming expenses. Subtract $5,450 from $10,200, Sue’s total estimated assets (see question 4), to get $4,750. This is the total amount of savings Sue can apply to her monthly cash needs. Sue needs $1,084 each month to meet her monthly cash needs (see question 9). Multiply $1,084 by 6 to get $6,504. This is the amount Sue would need to cover six months of expenses in her new home. Because Sue only has $4,750, her savings cannot cover six months of expenses in her new home.

11. Sue would have more than four months of living expenses saved after she buys the house. While the lender would like to see six months of savings, four months is acceptable, especially since Sue’s mother has a guaranteed monthly retirement check.

Thinking through writing

Some things you might do to improve your finances might be the following:

• Sell furniture, a car, or appliances that you no longer need.
• Have a yard sale.
• Accept a gift of money from a relative.
• For more ideas, please refer to the answer to the Thinking through writing exercise by clicking here.

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Unit 3, Lesson 2

Comprehension check

1. False. Interest rates vary, even from day to day and each lender
may have somewhat different rates.

2. True.

3. True.

4. False. You, the buyer, are responsible for making the final walk-through. Once you sign the closing documents, you accept the house “as is.”

5. True. Even though you have been rejected by one lender, you may be accepted by another. You may also qualify for special loan programs.

Talk about it

Some loan interview “do’s” include:
1. Call ahead to make an appointment.
2. Get the lender to send a copy of the loan application ahead of time so you can fill it out in advance.
3. Make a list of the things you need to bring and get them organized ahead of time.
4. Dress professionally.
5. Be on time.

Some things you should not do before or during a loan interview:
1. Forget to bring the papers you need along with you.
2. Forget to write down the name of the person you are to meet with.
3. Forget to make copies of all the documents you need.
4. Show up late.
5. Sign anything you don’t understand.

Vocabulary check

Once you have picked a lender, you must call for an appointment for a loan interview. Usually it takes a lender from four to eight weeks to process a loan. The lender will order a property appraisal to compare the home you would like to buy with others in the area to see if the home is being sold at market value. If your loan application is accepted you will get a commitment letter in the mail. Now you are ready to schedule the closing.

On the day before the closing, you will want to have a walk-through inspection to make sure everything is working (and to be sure the seller has really moved out)! At the closing you will have to sign a large number of legal documents. Only then will you finally have the title to your house and be ready to move in.

Thinking through writing

Some options for answers could be the following:

Friends or family members can tell you what happened to them when they went through the home-buying process.

A real estate sales professional can remind you of things you need to do before closing, such as ordering homeowner’s insurance or calling utility companies.

The lender can keep you informed of where you are in the loan process.

A home inspector can make you aware of problems in the house that should be fixed before the closing.

A real estate attorney can make sure all the paperwork is in order.

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Unit 3 Review

Checking the facts

1. False. In an adjustable-rate mortgage the interest rate varies over time.
2. False. Closing costs are usually about 5 percent of the purchase price of a house.
3. False. It usually takes from four to eight weeks from loan application to closing.
4. True. There are a number of programs available to help low-income home buyers get a loan.
5. False. The most common length of repayment is 30 years.

Vocabulary to remember

1. repayment term
2. annual percentage rate (APR)
3. points
4. down payment

Working with numbers

1. $1,140. Multiply $38,000 by .03 to get the answer.
2. $500. Multiply $50,000 by .01 to get the answer.

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Unit 4, Lesson 1

Vocabulary check

1. smoke detector
2. thermostat
3. main electrical switch
4. fire extinguisher
5. water shut-off valve

Talk about it

Some additional things you might like to know could include the following:

• Location of shopping mall, museums, art galleries, or community swimming pool.
• Is the roof original or has it been replaced? If so, when?
• When was the house last painted?
• How old is the carpet?
• Have there ever been plumbing problems?
• Have there been leaks in the basement?
• Are there drainage problems in the yard?
• How old is the siding?
• When was the central heating and air conditioning (CHA) system last serviced?
• When was the chimney last cleaned?
• What are some local newspapers?

Comprehension check

1. False. The full warranty is for one year.
2. True.
3. False. Most service warranties will not cover teaching you how to use the appliance. The dealer who sells it to you may show you how to use it when you go to the showroom.
4. True. Warranties are for household use.
5. True. If the serial number has been scratched out or changed, the warranty is no longer valid.
6. False. You should contact the dealer first for the service person nearest you.

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Unit 4, Lesson 2

Working with numbers

1. $440. Add their rent, electricity, water, and gas payments together to get the answer.

2. About $12.50 a week. They spend $50 a month. Divide by four weeks to get $12.50 a week.

3. $730. Add their housing costs, the phone cost, and the day care
payment to get the total.

4. $344. If he works 8 additional hours a week, that is about 32 hours a month. Multiply $10.75 by 32 hours to get $344. Remember, that is before taxes and other deductions are taken out. His additional take-home pay would be less. He estimates his take-home would be about $290.

5. If they can save $730 on housing costs and child care every month and if Joe makes an extra $290 a month, that would add up to a savings of $1,020. If you multiply this figure by 12, you will see that they could save up to $12,240. They would just meet their goal with this plan.

Talking it over

Some options could be the following:

Needs:
Food, clothing, shelter, transportation to work, day care, telephone

Wants:
Cable TV, attending the movies frequently, making long-distance phone calls to friends or family, car phone, going on vacation, buying new clothes, buying new furniture, buying alcoholic beverages or cigarettes, eating out at restaurants, buying a new car

Vocabulary check

1. net income
2. take-home pay
3. expenses
4. utilities
5. deductions
6. itemizing

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Unit 4 Review

Checking the facts

1. True.
2. True.
3. False. You can become unconscious quickly if you stay in a house or car with gas fumes. You should leave right away and call 911 or the gas company from a nearby phone. You can call 911 on a pay phone without using money.
4. False. A limited warranty usually only covers parts.
5. True.

Vocabulary to remember

1. water shut-off valve
2. smoke detectors
3. manual, warranty
4. household budget
5. deductions

Working with numbers

1. She will save $60 each month, which will be $360 in six months.

2. He will have $33 net income (take-home pay) each week. Add the number of hours he works (one hour a day for five days and eight hours on weekends means he works 13 hours each week) and multiply that by his hourly take-home pay ($3). That total is $39. Subtract the $6 amount for bus fare to get his $33 net income each week.

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