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Chapter 2
concepts of home ownership
| Question | Answer |
|---|---|
| what are the two ways home ownership is viewed? | it represents life’s dream/accomplishment attained through hard work. For others, it is merely one way to satisfy need of shelter. |
| what is one of the many roles of a real estate professional? | help potential homeowners evaluate advantages and disadvantages of ownership before making big decision. |
| what is the chief motive for buying a home? | pride in ownership |
| what are the advantages of home ownership? | pride of ownership, long-term investment, control, and stability |
| what are some responsibilities that come with home ownership that can be seen as a disadvantage? | property taxes, ownership costs, maintenance costs, required compliance with zoning and other laws |
| what is control in home ownership? | Renters an only use their premises in ways allowed by lease. Owners can do what they want with their property (within limits of the law). |
| what is stability in home ownership? | Ownership, compared with renting, lasts forever. There is no expiration date, annual escalation of rent, no interference. |
| what is equity? | the difference between what one can sell the home for and what one owes on it |
| what are the 2 substantial financial benefits of home ownership? | equity buildup and tax deduction |
| what is investment in home ownership? | As market value appreciates over time and mortgage loan balance is paid down, the difference between what one can sell the home for and what one owes on it increases. |
| what can equity be used for? | can be used as collateral for home improvement loans or cashed in for other purposes as the law allows. |
| what are taxes in home ownership? | Owner obtains the benefits of deductions and equity buildup only at the price of paying the expenses that underlie the deduction |
| what type of taxes are one of the largest expenses for homeowners? | local property taxes |
| What are local property taxes based on? | assessed value of property, municipality, and need of taxing bodies |
| what are the most significant costs of ownership? | Price of property, costs of borrowing to pay for and insure it, and costs of maintaining the grounds and structures |
| what is compliance with law in home ownership? | owner need to honor zoning ordinances, encroachments, liens, usage restrictions, deed conditions |
| what is a home? | a place where human beings dwell |
| what is a single family home? | a free-standing residential building intended as a single dwelling unit. Does not share building systems with any other dwelling unit. Ex: my house |
| what is a multi-family home? | Consists of multiple dwelling units contains within a single structure or multiple buildings within a single complex. Ex: Duplex |
| what is a condominium? | Form of ownership rather than property type. Owners hold a fee simple interest (full incomplete ownership). Property is operated by an association. |
| what is a cooperative? | Like a condo, a cooperative is a unit within a larger structure with common walls and facilities, but the resident owns shares of stock in the cooperative organization and a proprietary lease to a particular unit rather than owning the unit itself. |
| what is a townhouse? | Like a single-family home but connected to one or more similar units. Unlike in a condo, the land beneath each townhouse is individually owned. |
| what is a planned unit development? | a type of subdivision in which owners of residential units belong to a homeowner’s association that owns and maintains common areas and improvements for the benefit of the members. |
| what is a retirement community? | A retirement community typically provides residential units alongside retail, exercise, recreational, and health care facilities and opportunities. |
| what is mixed used development? | contains space for commercial use alongside residential use. |
| what is manufactured housing? | factory-built as a complete unit on a permanent chassis which is transported to a dealership or home site for foundation. (after june) |
| what is modular housing? | homes that are factory built as large components that are transported to a building site for assembly. Are lifted onto a foundation and joined together to make a single structure. Same as stick-built homes. |
| what is a mobile home? | built on a permanent chassis, designed for use as a dwelling with or without a permanent foundation, transportable in one or more sections. (before june) |
| What is the difference between a mobile and manufactured home | the date they were built. |
| what is timeshare ownership ? | a fee or leasehold interest in a property whose owners or tenants agree to use the property on a periodic, non-overlapping basis. Ex: vacation and resort properties. |
| what is one of the top considerations of a homebuyer in choosing a home? | location because proximity to employment, transportation, government services, good schools, shopping, and cultural opportunities. |
| How does the age of a house and its physical condition contribute directly to desirability and pricing? | Houses that have been well-maintained, with up-to-date plumbing, electrical, HVAC, and communications systems and a good roof and foundation, are obviously more attractive to most buyers than are old houses in bad repairs. |
| what are well-established components of value in appearance and appeal? | Landscaping, decoration, exterior finish, and drive-by or curb appeal, like age and condition, |
| How do features of a neighborhood affect the desirability of a property? | Economic stability, upward trending home values, well-regulated growth, thoughtful zoning, and overall appearance of the neighborhood are key value drivers. |
| what are good predictors that home values will rise over time and make a good investment prospect? | Population growth, high quality schools, employment opportunities, desirable nearby homes, and a general trend of prosperity in the region |
| what changed under the Tax cuts and jobs act passed at the end of 2017? | Itemized deductions can now be taken only when their total exceeds the standard deduction of $12,000 for an individual, $24,000 for a married couple |
| what were the effects of the Tax Cuts and Jobs Act? | the tax benefit of deductions for such expenses as property taxes, mortgage interest, loan origination fees, discount points and mortgage insurance premiums is neutralized for many homeowners by the standard deduction |
| how are property taxes limited? | Starting with the 2018 tax year, there is a $10,000 limit on the combined deductible amount for property taxes and state and local income taxes. Prior to that year, the full amount of the taxes was deductible. |
| how are mortgage interest deduction limited? | Starting with 2018, interest on mortgage debts of up to $750,000 incurred to buy or improve a first or second residence is deductible from income. Interest on mortgage debts of up to $1 million is deductible if the loan was taken before dec 16 2017. |
| what is home acquisition debt? | a financial obligation taken on during the construction, improvement, or purchase of a primary or secondary residence. |
| what is a mortgage credit certificate? | gives a dollar for dollar tax credit of up to $2,000 on the mortgage interest a first-time buyer pays each year. This credit can be claimed without itemizing. So one can take both the standard deduction and MCC credit. |
| what is gain on sale? | the difference between the amount realized from the sale of a house and the adjusted basis of the house. |
| what is amount realized? | the selling price minus all costs of selling. |
| what is adjusted basis? | the original basis (cost) of the home plus the value of any capital improvements |
| Most homeowners' policies in Texas include which package policies? | dwelling, personal property, other structures that are detached, loss of use, personal liability, and medical payments. |
| Most Texas policies cover losses caused by what? | fire and smoke lightning aircraft vehicles vandalism theft explosion riot windstorm, hail, hurricane sudden and accidental water damage |
| Most Texas policies do not cover losses caused by what? | flooding earthquakes termites, insects, rodents frozen plumbing in unoccupied dwelling wind and hail damage to landscaping wear and tear, maintenance vacancy mold water damage from seepage |
| how can you purchase policies? | texas insurance companies sell several types of policies. Additional coverage may be purchased by adding policy endorsements |
| what are the 2 types of policies sold in texas? | all-risk and named perils |
| what do all-risk policies cover? | offers broad protection and covers all causes of loss unless specifically excluded. |
| what do named perils policies cover? | covers only the causes of loss specifically named in the policy |
| what is actual cash value? | the cost of rebuilding or replacing property minus depreciation. |
| what is underwriting? | a process insurance companies use to decide whether to sell a policy and at what rate. Each company must file its up-to-date underwriting guidelines with the Texas Department of Insurance (TDI). |
| what factors are used in setting premiums? | home's age and condition home's replacement cost construction materials location availability of local fire protection claims history credit score |
| What does CLUE stand for and what is it used for? | Comprehensive Loss Underwriting Exchange- used by insurance companies to review claims histories. Reports list the property insurance claims history of people and houses, regardless of who owned them, for the previous seven years |
| Flood insurance is not covered by homeowner policies. For protection against losses caused by floods, what must one do? | . If a property is in a special flood hazard area, a lender will require the borrower to obtain flood insurance. Can only do so if they also have TWIA insurance |
| what are the TWIA flood insurance requirements? | The requirement applies to properties: constructed, altered, remodeled, or enlarged on or after September 1, 2009 located in flood zones V, VE, or V1-V30 as defined by NFIP; and for which flood coverage is available from NFIP. |
| how to attain windstorm and hail insurance? | (TWIA), the state's insurer for windstorm and hail damage, sells coverage through local insurance agents. To buy a policy, the homeowner must have the property inspected by the appropriate authority and obtain a certificate of compliance. |
| how to attain earthquake insurance? | Some insurance companies offer a policy endorsement that covers damages caused by earthquakes. |
| what do endorsements do? | for a higher premium, can add coverage to a standard policy. Typical endorsements expand coverage for jewelry, fine arts, camera equipment, |
| what does personal umbrella liability insurance do ? | separate umbrella policy can provide more liability coverage than a homeowner’s policy provides. |
| what is renters insurance? | renter's personal property is not covered by the landlord’s policy. Renters insurance covers belongings, provides liability protection, and pays additional living expenses if a covered event forces the tenant to move temporarily. |
| what is condominium insurance and what does it do? | covers belongings, provides liability protection, and pays additional living expenses. It also covers damage to improvements, additions, and alterations to the condo. |
| what is townhouse insurance? | An individual homeowner’s policy or an association master policy may provide coverage for a townhouse owner. If the townhouse association doesn't have a master policy on the building, an individual homeowner can purchase a homeowner’s policy |
| what is mobile owner's insurance? | The owner of a mobile home without wheels and resting on blocks or a permanent foundation may be able to obtain a homeowner’s policy. But a mobile owner’s policy is used to insure most mobile homes |
| what is farmer and ranch insurance? | policies insure homes outside city limits on land used for farming and raising livestock. Coverage for certain farm equipment and outbuildings can be purchased separately. |
| what is affordability a combination of? | pricing, expenses, the ability to pay, and other investment considerations. |
| While purchase price is one of the fist expenses the homeowner takes on. What are the 8 others? | insurance, property taxes, repairs/maintenance, utilities, decoration, furnishings, insect control, association fees, etc. |
| what is the most common method of financing a home purchase? | obtaining some kind of mortgage loan. Because of the many possibilities from fixed, variable, adjustable rates, conventional, jumbo, government backed, short-term, long-term loan |
| what do all real estate loans all have in common | a lender who provides cash to cover the purchase price in return for the borrower’s repayment of the loan over time along with periodic interest payments. |
| what is PITI? | principal, interest, tax, insurance Mortgage payments typically include a portion of each |
| what is qualifying? | The process of determining whether a prospective buyer has the ability to take on a mortgage debt. The borrower’s current level of debt and income available for housing are among the factors a lender looks at. |
| how do lenders/agents calculate how much debt a borrower can take on? | income and debt ratio. Equation varies from lender, loan and period. |
| lenders take what qualification factors into consideration when determining qualification? | income stability, income growth prospects, net worth, and credit evaluation. |
| Name 12 housing types: | single-family, multi-family, condominium, cooperative, townhouse, planned unit development, retirement community, mixed use development, manufactured housing, modular housing, mobile home, timeshare |
| what are the 7 desirability features of a home? | location, age, condition, appearance, appeal, neighborhood, appreciation |
| are first time buyers given any help? | Texas programs for first-time buyers assist with down payment and interest rate |
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