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FFIINNAANNCCIIAALLLLIITTEERRAACCYY110011
SSUUPPPPLLEEMMEENNTTAALLMMAATTEERRIIAALL
TeachersEdition
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Table of ContentsPART1EXERCISESChapter
1Financial
Literacy:
the
Introduction
Exercise11RateofReturn 1
Exercise12ChapterReview 2
Chapter2TheFinancialSystemintheU.S.
Exercise21AnnualPercentageYield 3
Exercise12ChapterReview 4
Chapter3FinancialPlanningandBudgeting
Exercise31Monthly
Budget
5
Exercise32TimeValueofMoney 7
Exercise33ChapterReview 8
Chapter4BorrowingandConsumerCredit
Exercise41CostofConsumerCredit 9
Exercise42ChapterReview 10
Chapter5FinancialDecisionMakinginCollege
Exercise51ChapterReview 11
Chapter6SavingandInvesting
Exercise61Taxation 12
Exercise62ChapterReview 13
Chapter7BuyingYourFirstHome
Exercise71HomeMortgages 15
Exercise
7
2
Chapter
Review
16
AnswerKeys 17
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Table of ContentsPART2SUMMARYOFEXPERTINTERVIEWSChapter
2The
Financial
System
in
the
U.S.
KathySmith,NeighborhoodNationalBank 25
Chapter3FinancialPlanningandBudgeting
ScottBroberg,FinancialPlanner 26
Chapter4BorrowingandConsumerCredit
MannyEscuela,MoneyManagementInternational 28
Chapter5FinancialDecisionMakinginCollege
EmmiHarward,
the
Bishop
School
31
RichDusansky,UniversityofTexasAustin 33
ShannonFaulk,InsuranceAgencyOwner 34
Chapter7BuyingYourFirstHome
MarkRiedy,UniversityofSanDiego 36
ChrisSorenson,H.E.L.P. 38
JaquelineCarlisle,NID 40
MichaelSpilger,RealEstateAttorney 42
SupplementalInterviews
DionneFaulk,CaliforniaDRE 43
JeffDavi,CaliforniaDRE 43
SteveEllis,CaliforniaDRE 44
BillMoran,CaliforniaDRE 44
Tom
Poole,
California
DRE
45
WayneBell,CaliforniaDRE 46
ChrisNeri,CaliforniaDRE 46
DanSandri,CaliforniaDRE 47
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PPAARRTT11
EEXXEERRCCIISSEESS
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1
Exercise11RateofReturn
1. Aninvestorboughtastockfor$35ayearagoanditisworth$42now.Whatistheinvestorsrateofreturnonthisinvestment?
2. Jasonboughtastockfor$20ayearagoanditisworth$18.4now. WhatisJasonsrateofreturn?
3. ThestockpriceofMicrosoftiscurrently$28.76. Janetpaid$24.89forthestock3monthsago. WhatisJanetsrateofreturnontheinvestment?
4. Amyjustsold500sharesofGooglestockfor$625ashareandearneda7.20%rateofreturn. WhatpricedidAmypayforeachshareofthestock?
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Exercise12ChapterReview
1. Financeisasubjectthatdealswith____________,_____________,____________andhowtheyareinterrelated.
2. Investmentisanassetoritemthatispurchasedwiththehopethatitwill_________________or__________________.
3. Rateofreturnisthemoneyyouearnonaninvestment,statedasa____________.4. Thedegreeofuncertaintyoftherateofreturnonaninvestmentiscalled
____________.
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3
Exercise21AnnualPercentageYield
(Roundyouranswerstothenearestthousandthofapercent.)
1. BankAoffersasavingsaccountthatpays1.25%interestrate.a.
If
interest
is
compounded
annually,
what
is
the
APY
on
this
account?
b. Ifinterestiscompoundedmonthly,whatistheAPYonthisaccount?2. BankBoffersamoneymarketaccountwithaninterestrateof3.0%andquarterly
compounding. WhatistheAPY?
3. Youareconsideringthreeoptionstosaveyourmoney. TheinterestrateonAccountXis8.50%andcompoundedmonthly;theinterestrateonAccountYis8.75%and
compoundedannually;theinterestrateonAccountZis8.65%andcompounded
semiannually. Whichaccountprovidesthehighestrateofreturn?
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4
Exercise22ChapterReview
1. _________________isthecentralbankoftheUS. Itconsistsofthe_________________ and___regionalFederalReserveBanks.
2. The_________________ isresponsibleforproducingpapercurrencywhilethe_________________ isresponsibleforproducingcoinage. Bothgovernmentagencies
arepartoftheU.S.DepartmentofTreasury.
3. About___%ofthenewlyproducednotesandcoinsareusedtoreplacethosealreadyincirculation.
4. ThechairmanoftheFederalReserveBoardisappointedbythe______________ andconfirmedbythe______________ . Thecurrentchairmanis_________________ .
5. Depositoryinstitutionsrelyondepositsfromsaversastheprimarysourceofraisingcapitalandusethefundstomakeloans. Examplesofdepositoryinstitutionsinclude
_________________,_________________,_________________and
_________________.
6. The_________________istheinterestrateactuallyearnedorpaidinoneyear,takingintoaccounttheeffectofcompounding.
7. A_________________isanotforprofitinstitutionthatoffersfinancialservicestoitsmembers.
8. A_________________isafinancialinstitutionthatacceptssavingsdepositsandinveststhebulkofthefundsinhomemortgages.
9. Whenselectingabankaccount,youshouldconsiderthefollowingfactors:1)_____________,2)_____________,_____________,and_____________,and3)
_____________.
10._________________isatypeofbankaccountthatpaysafixedinterestrateforasetperiodoftime. Youdonothaveaccesstothemoneyuntiltheendoftheperiod.
11.Theprocessofearninginterestoninterestthatwasearnedinapreviousperiodiscalled_______________.
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Exercise31MonthlyBudget
1. Jerrywouldliketoprepareamonthlybudgetandhascollectedthefollowinginformationabouthisincomeandexpenses. Hehasaparttimejobandearnsabout$520eachmonth.
His
employer
withholds
10%
of
his
wages
for
taxes.
In
terms
of
spending,
Jerry
needs
to
pay
forlunchesatschoolandgasolineforhiscar,whichaverageabout$135and$60each
month,respectively. Jerryplaysmanysportsandtypicallypays$80eachmonthforthose
activities. Heestimatesthathepays$40forhiscellphoneandspendsapproximately$70
onactivitiessuchasgoingtomovies,rentingvideogamesandhangingoutwithfriends.
Jerrysetsaside5%ofhismonthlyincomeforunanticipatedexpensesandplanstosaveat
least$50eachmonth.
HelpJerrypreparethebudgetusingthefollowingworksheet.MMoonntthhllyyBBuuddggeett
Category BudgetedAmount ActualAmount Difference
Income
Wages
OtherIncome
TotalIncome
Expenses
Taxes
Food
Gasoline
Sports
Entertainment
CellPhone
OtherExpenses
TotalExpenses
Contingencies
Savings
Surplus/Deficit
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2. Afterfinishingthebudget,Jerrydecidestotrackhisactualexpensesandcomparethemwiththebudgetedamounts. Hestartsaspendinglogandrecordseverypaymenthemakes.
Attheendofthemonth,Jerrysummarizeshisspendinginthefollowingcategories:
a. Food:$128b. Gasoline:$72c. Sports:$80d. Entertainment:$85e. CellPhone:$40f. SchoolFieldTrip(notbudgeted):$30
Jerrysincomefromhisparttimejobisthesameasheexpected;additionally,hereceives
$25forhisbirthdayinthemonth.
DoesJerryhaveasurplusoradeficitinthemonth? Whatisthedifferencebetweenthebudgetedandtheactualamount?
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Exercise32TimeValueofMoney
1. Howmuchmoneywillyouhavein3yearsifyousave$20inanaccountthatpaysa4.5%annualinterestrate?
2. Howmuchwill$1,000becomein50yearsifitiscompoundedat3.0%annually?3. Howmuchdoyouneedtodepositintoanaccountwitha7.5%interestrateinorderto
accumulate$200intenyears?
4. Yourbankaccountpaysa2.5%interestrate. Inordertohave$1,000infiveyearsintheaccount,howmuchdoyouneedtodeposittoday?
5. Ifyousave$1,000eachyearandtheinterestrateonyourbankaccountis5%,howmuchmoneywillyouhavein20years?
6. Iftheinterestrateonyourbankaccountis6%andyoustartsaving$500eachyearattheageof18,howmuchmoneywillyouhaveattheageof30?
7. Givenaninterestrateof4%,whatisthepresentvalueofaseriesofpaymentsof$100thatwillbereceivedeveryyearoverthenext15years?
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Exercise33ChapterReview
1. A_______________isadetailedplanoffinancialactivitythatpertainstoincomeandexpensesexpectedduringaspecificperiodinthefuture.
2. Whenyourincomeexceedsyourspending,youhavea_______________;ontheotherhand,whenyourexpensesexceedtheincome,youhavea_______________.
3. Preparingadetailedplanforfuturefinancialactivitiesmayhelpyou:a. _______________________________________________________________.b. _______________________________________________________________.c. _______________________________________________________________.d. _______________________________________________________________.
4. Listthreepossiblesourcesofincomeforteenagers:_______________,_______________,and_______________.
5. Listfivetypicalexpensesforteenagers:_______________,_______________,_______________,_______________,and_______________.
6. _______________arethingsyoumusthaveinordertosurviveormeettheminimumlivingstandards;_______________arediscretionaryexpensesthatmaybedelayedor
substitutedwithoutaffectingyourabilitytosurvive.
7. Amajordifferencebetweenshorttermandlongtermbudgetingisthatyoushouldtakeintoaccountthe______________________whenplanningforthelongrun. The
conceptbasicallymeansthatadollartodayisworthmorethanadollarinthefuture.
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Exercise41CostofConsumerCredit
1. Jackwouldliketoborrow$8,000forthepurchaseofacar. TheAPRona5yearautoloanis6.0%. WhatisJacksmonthlyloanpayment? Whentheloanispaidoffatthe
end
of
Year
5,
how
much
total
interest
will
Jack
have
paid?
2. Sharonisplanningtobuyanewcarandneedstoborrow$13,000witha5yearloan.Thebanktellsherthattheinterestratedependsonhercredit. Thefollowingtable
showstherelationshipbetweentheinterestrateandaborrowersFICOscore.
FICOScore InterestRate MonthlyPayment
720850 4.20%
690719 6.00%
660689 7.80%
620659 10.80%
Below620 18.00%
CalculateSharonsmonthlyloanpaymentgiveneachinterestrate. SharonfindsoutthatherFICOscoreis650. Comparetsomeonewithexcellent
credit(FICO>720),howmuchadditionalinterestdoesSharonneedtopayoverthe
lifeoftheloan?
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Exercise42ChapterReview
1. __________________istheuseofcreditforpersonalneedsbyindividualsandfamilies,incontrasttocreditusedbybusinessesandgovernments. Thetwobasictypesare:
a.__________________,
which
is
a
one
time
borrowing
that
has
a
specified
loan
amountandisforaspecificpurpose. Itisusuallyrepaidwithequalperiodic
paymentsovertime.
b. __________________,whichisaloanwhosemaximumamountisapprovedbythecreditorbutnotdeliveredtotheborroweratonce. Overtime,theborrower
cangetmoneyfromthelender(uptothemaximumamount),orpaybacka
portionortheentireamountoftheprincipal.
2. Thesituationwhereaborrowerfailstomaketimelypaymentofinterestand/orprincipalonaloaniscalled______________.
3. __________________isthemaximumamountyoucanborrowusingaspecificopenendcredit.
4. 4Csarethefourkeyfactorslendersofconsumercreditconsiderwhentheyassesstheriskinessofaloan:_______________,_______________,_______________,and
_______________.
5. The__________________isanumberthatsummarizesanindividualshistoryofusingcredit. ItwasdevelopedbyFairIsaacCorporationandhasarangeof____to____.
Thisscoretakesintoaccountfivecategoriesofinformation:_______________,
_______________,_______________,
_______________,
and
_______________.
6. __________________isthecostofcreditexpressedinayearlyrate;itincludestheinterestrateaswellasotherlenderfeestheborrowerisrequiredtopay.
7. Thegradualrepaymentofloanprincipalovertimeiscalled__________________.
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11
Exercise51ChapterReview
1. Whenmakingfinancialdecisions,youoftenneedtoconsidervarioustypesofcost. Forexample,__________________isthecostassociatedwithoneadditionalunitof
production,
or
with
a
specific
decision;
__________________is
the
cost
of
an
activity
thatismeasuredintermsofthevalueofthebestalternativethatisnotchosen.
2. Whenselectingacreditcard,thereareseveralfeaturesyoushouldconsider,including:_______________,_______________,_______________,and_______________.
3. __________________isthesituationwhereapersonsidentification(includingname,socialsecuritynumberand/oranyaccountnumber)isusedortransferredbysomeone
elseforunlawfulactivities.
4. Listfivefactorsyouwouldconsiderwhenchoosinganapartment:_______________,_______________,
_______________,
_______________,
and
_______________.
5. A______________isawrittenagreementunderwhichapropertyowner(calledthe______________)allowssomeoneelse(calledthe______________)tousethe
propertyforaspecifiedperiodoftimeinexchangeforamonetarybenefit(whichisthe
______________).
6. __________________isatypeofhomeinsurancethatprotectstheholderagainstaccidents,damagesandlossesthatoccurinarentedresidence.
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Exercise61Taxation
1. Supposeyouaresubjecttoa33%taxrateandyourinvestmentinstocksearnsa15.00%returnintheyear. Whatisyouraftertaxrateofreturn?
2. Youaresubjecttoa20%taxrateandyourgoalistoearna6.40%rateofreturnafterpayingtaxes. Howmuchbeforetaxreturndoesyourinvestmentneedtoproduceso
youcanreachyourgoal?
3. Yourinvestmentgeneratesan8.50%beforetaxreturn,butafterpayingtaxes,youactualreturnis7.14%. Whatistaxrate?
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Exercise62ChapterReview
1. ______________isanassetoritemthatispurchasedwiththehopethatitwillgenerateincomeorincreaseinvalue.__________________isthemoneyyouearnfromit,
stated
as
a
percentage.
2. Thefourstagesinthelifecycleofinvestinginclude:_______________,_______________,_______________,and_______________.
3. Abondisacontractthroughwhichagovernmentoracorporation(the______________)borrowsmoneyfrominvestors(the______________). Thesystem
thatevaluatesthepossibilityofdefaultbytheborroweriscalled_________________.
4. __________________arethosewhoseratingsarebelowinvestmentgrade(typicallyBBandbelow). Theyhavemuchhigherriskthaninvestmentgradebonds.
5. ______________isatypeofinvestmentthatreflectsownershipofacorporationrepresentedbysharesthatareaclaimonthecorporationsearningsandassets.
Investorswhoownsharesofacorporationarecalled__________________.
6. Wheninvestinginastock,yourreturnmaycomefromtwosources:1)______________aretheperiodicpaymentsthecompanymakestodistributeitsearningstoowners;2)
_________________istheamountbywhichthesalepriceofthestockexceedsitsinitial
purchaseprice.
7. Manyindexeshavebeencreatedtomeasuretheperformanceofthestockmarket. Themostrecognizedexamplesare:a. __________________,whichisbasedonthepricesof30largecompanies. Itis
theoldestandmostquotedstockmarketindicator.
b. __________________,whichisbasedonthepricesofallstockstradedontheNASDAQsystem.
c. __________________,whichisconstructedbyStandard&Poorsandbasedonthepricesof500largecorporations.
8. __________________isdefinedaslandandimprovementsontheland(suchasbuildingsandlandscaping).Examplesincludehouses,condominiumsandothertypesof
properties.Properties
that
are
purchased
for
income
producing
purposes
are
called
__________________.
9. A__________________ isanentitythatpoolsmoneyfrommanyinvestorsandinvestsinavarietyofinvestmentopportunities. Itprovidesinvestorsthebenefitof
_______________,whichmeanscombiningalargenumberofinvestmentstoreduce
risk.
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10.A__________________isacollectionofinvestmentsownedbythesameindividualororganization.
11.Listfourtypesoftaxthatindividualsandfamiliesmayneedtopay:_______________,_______________,_______________,and_______________.
12.An__________________isaspecialinvestmentaccountthatallowstheownertodeferpayingtaxesonmoneysavedforretirement.
13.Rankbankaccounts,stocks,realestateandbondsbasedonthelevelofriskinvolvedineachinvestment(fromthehighesttothelowest):1)_______________,2)
_______________,3)_______________,and4)_______________.
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Exercise71HomeMortgages
1. Considera$320,000,30yearmortgagewitha7.20%interestrate. Whatisthemonthlypayment?
2. Katieisplanningtobuyahomefor$260,000. Shehassavedsomemoneysocanaffordtopay$50,000fordownpayment. Iftheinterestrateona30yearmortgageis6.00%,
howmuchisKatiesmonthlymortgagepayment?
3. Jamesneedstoborrow$450,000forthepurchaseofanewhome. Heisconsideringtwooptions:a15yearmortgagewitha3.60%interestrateanda30yearmortgage
witha4.20%interestrate.
a. Whatisthedifferenceintermsofmonthlymortgagepayments?b. WhatisthedifferenceintermsoftotalinterestJamesneedstopayoverthelife
ofeachloan?
4. Kellyneedstoborrow$240,000withamortgageandthelendercharges2.50discountpoints. Inordertogettheloan,shealsohastopayadditionalfeesof$3,600. Whatis
Kellystotalclosingcost?
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Exercise72ChapterReview
1. The__________________isthemidpointofanorderedarrayofactualtransactionpricesofhomes. Itisacommonlyusedmarketindicatorofhousingvalue.
2. Listthreeexpensesthatusuallyneedtobepaidbyhomeowners,butnotbyapartmentrenters:_______________,_______________,and_______________.
3. Duringthehomebuyingprocess,youmayworkwithvariousrealestateprofessionals.Oneexampleisa__________________,whoislicensedtoprovideservicessuchas
showinghomes,makingoffersandcounteroffers,negotiatingprices,andassistinginthe
closing. Anotherexampleisa__________________,whotakesamortgageapplication,
processesandreviewscredit,andpreparesdocumentsforthelender.
4. Aloanthatusesrealestateascollateralforitsrepaymentiscalleda_______________.5. Therearemanydifferenttypesofmortgages. Forexample:
a. __________________:amortgagewhoseinterestrateremainsconstantovertheentirelifeoftheloan.
b. __________________:amortgagewhoseinterestratechangesperiodicallybasedonapredeterminedformula.
c. __________________:amortgagewhosemonthlypaymentsdonotincludeprincipalrepayment.
6. A__________________isaonetimefeepaidbytheborrowertoreducetheinterestrateonamortgageandisequaltoonepercentoftheamountborrowed.
7. Considerafixedratemortgagethatisamortizedover30years:a. Themonthlypayment__________________ (increases/decreases/staysthe
same)overtime.
b. Theinterestpayment__________________ (increases/decreases/staysthesame)overtime.
c. Theprincipalrepayment__________________ (increases/decreases/staysthesame)overtime.
8. AccordingtotheU.S.taxcode,onlythe__________________ portionofamortgagepaymentistaxdeductible.
9. Expensesthatarerelatedtocompletingarealestatetransactionbutseparatefromtheactualpriceofthepropertyarecalled__________________.
10.__________________ isthecostofcreditexpressedinayearlyrate;foramortgageitincludestheinterestrateaswellasotherlenderfeestheborrowerisrequiredtopay,
suchasdiscountpoints,originationfee,brokerfee,etc.
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Chapter1AnswerKeys
Exercise11RateofReturn
1. 20.0%2. . 8.0%3. ... 15.55%4. 7.20%
6251 7.2% 583.02
Exercise12ChapterReview
1. Money;time;risk2. Generateincome;increaseinvalue3. Percentage4. Risk
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Chapter2AnswerKeys
Exercise21AnnualPercentageYield
1 1
1a. 1 . 1 1.250%
1b. 1 . 1 1.257%
2. 1 . 1 3.034%
3.
1 . 1 8.839% 1 .
1 8.750% 1 .
1 8.837%AccountXhasthehighestannualpercentageyield.
Exercise22ChapterReview
1. TheFederalReserve;BoardofGovernors;122. BureauofEngravingandPrinting;U.S.Mint3. 954. PresidentoftheU.S.;Senate;Dr.BenBernanke5. Commercialbanks,savingsandloanassociations;creditunions;mutualsavingsbanks6. Annualpercentageyield(APY)7. Creditunion8. Savingsandloanassociation9. Rateofreturn;privileges;restrictions;fees;safety10.Certificateofdeposit11.Compounding
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Chapter3AnswerKeys
Exercise31MonthlyBudget
MMoonntthhllyyBBuuddggeett
Category BudgetedAmount ActualAmount Difference
Income
Wages 520 520 0
OtherIncome 25 +25
TotalIncome 520 545 +25
Expenses
Taxes 52 52 0
Food 135 128 7
Gasoline 60 72 +12
Sports 80 80 0
Entertainment 70 85 +15
CellPhone 40 40 0
OtherExpenses 30 +30
TotalExpenses 437 487 +50
Contingencies 26 27 +1
Savings 50 50 0
Surplus/Deficit +7 19 26
1. Jerrysbudgethasa$7surplus.2. Jerryhasanactualdeficitof$19inthemonth. Thedifferenceis$26.
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Chapter3AnswerKeys(continued)
Exercise32TimeValueofMoney
1. 1 20 1 0.045 22.82
2. 1 1,000 1 0.03 4,383.91
3. 1 200
1 0.075 97.04
4. 1 1,000
1 0.025 883.85
5. 1
1 1,000 1 0.05
10.05 33,065.95
6. 1 1
500 1 0.06 1
0.06 8,434.97
7. 1 11
1001 11 0.04
0.04 1,111.84
Exercise33ChapterReview
1. Budget2. Surplus;deficit3. Avoidoverspending;assessyourabilitytoreachcertaingoals;indentifynecessary
adjustmentsinyourfinancialhabits;prepareforfinancialemergencies
4. Parttimejobs;allowances;gifts;interestonbankaccounts;othersources(Askstudentsforsuggestions)
5. Askstudentstoprovideanswers6. Needs;wants7. Timevalueofmoney
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Chapter4AnswerKeys
Exercise41CostofConsumerCredit
1.In
the
equation,
PV
is
the
amount
borrowed,
i
is
the
monthly
interest
rate,
and
n
is
the
numberofmonths.
1 11
8,0001 11 0.005
0.005
154.66
Overthe5yearperiod,Jackstotalpaymentis154.6660=9,279.60,ofwhich8,000
representsrepaymentofprincipal. Asaresult,thetotalinterestpaymentis$1,279.60.
2. Usetheformulaabovetocalculatemonthlypayments:FICO
Score
Interest
Rate
Monthly
Payment
720850 4.20% $240.59
690719 6.00% $251.33
660689 7.80% $262.35
620659 10.80% $281.36
Below620 18.00% $330.11
Sharonhastopay$40.77moreeachmonth(i.e.281.36240.59). Overfiveyears,she
willpayadditionalinterestof40.7760=$2,446.20.
Exercise42ChapterReview
1. Consumercredit;closedendcredit;openendcredit2. Default3. Lineofcredit4. Capacity;capital;collateral;character5. FICOscore;300;850;paymenthistory;amountowed;lengthofcredithistory;typesof
creditinuse;newcredit
6. Annualpercentagerate(APR)7. Amortization
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Chapter5AnswerKeys
Exercise51ChapterReview
1.Incremental
(or
marginal)
cost;
opportunity
cost
2. Interestrate(orAPR);creditlimit;feesandpenalties;incentives3. Identitytheft4. Location;quality;safety;convenience;amenities;cost(suchasrent,applicationfee,
securitydeposit,etc.);size;parking;otherfactors(Askstudentsforsuggestions.)
5. Lease;landlord;tenant;rent6. Rentersinsurance
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Chapter6AnswerKeys
Exercise61Taxation
After
Tax
Return
=
Before
Tax
Return
(1
Tax
Rate)
1. AfterTaxReturn=15%(133%)=10.05%2. BeforeTaxReturn=AfterTaxReturn(1TaxRate)=6.4%(120%)=8.0%3. TaxRate=1(AfterTaxReturnBeforeTaxReturn)=1(7.14%/8.50%)=16%
Exercise62ChapterReview
1. Investment;rateofreturn2. Accumulation;consolidation;spending;gifting3. Bondissuer;bondholders;bondratings4. Junkbonds5. Stock;shareholders6. Dividends;capitalgain7. DowJonesIndustrialAverage;NASDAQComposite;S&P5008. Realestate;commercialrealestate9. Mutualfund;diversification10.Portfolio11.Incometax;salestax;propertytax;capitalgainstax;socialsecuritytax;others12.Individualretirementaccount(IRA)13.Realestate(highest);stocks;bonds;bankaccounts(lowest)
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Chapter7AnswerKeys
Exercise71HomeMortgages
1.In
the
equation,
PV
is
the
amount
borrowed,
i
is
the
monthly
interest
rate,
and
n
is
the
numberofmonths.
1 11
320,0001 11 0.006
0.006
2,172.12
2. Katieneedstoborrow260,00050,000=$210,000 210,000
1 11 0.005
0.005
1,259.06
3. IfJamesborrowsthe15yearloan,hismonthlypaymentwouldbe$1,038.54more.However,overthelifeoftheloan,hewouldsave$209,167.20ininterestpayment.
MonthlyPayment TotalPayment
15yearMortgage 3,239.12 583,041.60
30yearMortgage 2,200.58 792,208.80
Difference 1,038.54 209,167.20
4. Eachdiscountpointisonepercentoftheamountborrowed. Kellysclosingcostsinclude240,0000.025and3,600. Thetotalequals$9,600.
Exercise72ChapterReview
1. Medianhomeprice2. Mortgagepayment;property(orrealestate)tax;repair&maintenance;hazard
insurance
3. Realestateagent;mortgagebroker4. Mortgage5. Fixedratemortgage;adjustableratemortgage;interestonlymortgage6. Discountpoint7. Staysthesame;decreases;increases8. Interest9. Closingcosts10.Annualpercentagerate(APR)
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PPAARRTT22
SSUUMMMMAARRYYOOFFEEXXPPEERRTTIINNTTEERRVVIIEEWWSS
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Chapter2TheFinancialSystemintheU.S.
KathySmith,BankBranchManager
NeighborhoodNationalBank
Whataresomeoftheproductsandservicesofferedbyabank?
Checkingaccounts,savingaccounts,bankCDs,moneymarketsaccounts,businessaccounts,
loans,debitcards,andonlinebillpay.
Whyisitimportantforahighschoolstudenttoopenabankaccount?
Tolearnfinancialresponsibilities Toknowhowtobalanceoutaccountwithmoneytheyearned Toearnmoneyonsavingaccount Togrowupinafinancialsoundworld
Whatshouldsomeoneconsiderwhenchoosingabank?
Thelocationofthebank Willhe/shebecomfortablewiththebank Thebanksproducts&services
Howsafeisthemoneyyoudepositinabank?
Itssafeandsecured. TheFDICinsuresupto$250,000. Additionalbenefits:interest;notheftorrobbery!
(FormoreinformationaboutFDIC,gotohttp://www.fdic.gov/deposit/.)Whatsthebiggestmistakeyouseeclientsmakeintheiraccounts?
Balancingcheckingaccounts Clientsneededucationandthehelpofthefinancialinstitution.
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Chapter3FinancialPlanningandBudgeting
ScottBroberg,Financial planner
Whatdoes
afinancial
planner
do?
He/shehelpspeopleestablishgoals(savemoneyforretirement,buyinghouse,gotocollege)
andcreate/developtheplantogettotheirgoal. Thereisnoguaranteethatitwillworkoutas
planned. However,planningaheadhelpsyoualongthewaywhenlifechanges.
Whocanbenefitfromtheservicesofafinancialplanner?
Everybodycanusefinancialadviceinsomeshapeorform.
Practicalityissue:Howmuchwouldyoupayfortheadvice?
Youmaygetadvicefromotherplaceswhenyoufirststartoutyourcareertheneventuallywork
yourway
into
afinancial
planner
office
once
you
have
more
complexity
to
your
financial
situation.
Atwhatpointshouldsomeoneseektheservicesofafinancialplanner?
Today,assoonaspossible,becausetimeisshortandweneedtomakethemostofthetimewe
haveandthelimitedassetswehaveinourlife. Youngpeoplebeginningtosavemoneymaygo
toafinancialplannerandpayaonetimefeetogetguidancetomoveahead. Onceyoustartto
accumulateassets,thenitmakemoresensetohaveanongoingrelationshipwithafinancial
plannerthatyoupayonaregularbasis.
Whatshouldonelookforinafinancialplanner?
1. Goodfit!(comfortablewith,trustthathe/shecanhelpyou)2. Comfortabletosharefinancialinformationtotheindividual3. Howmuchareyoupaying? Areyougettingagoodvalueforwhatyouarepaying
him/her?
Whatsthebestfinancialadviceforhighschoolstudents?
Spendlessthanyouearn! Thisalsoappliestoallincomelevels!
Whatsthebestagetostartworkingwithafinancialplanner?
Today! Thinkaboutwhereyouareatthispresentsituationandstarttoplanoutforyour
future. Planthenextstep!
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Whenyouareinhighschool,thinkaboutwhereyouaregoingtocollege,howyouaregoingto
payforcollege,andwhetherornotyouhavetoworkthroughoutcollege. Whenyouarein
collegethinkaboutwhatkindofcaryoucanafford,whereyouwanttolive,whereyoushop.
Whats
the
biggest
mistake
you
see
people
make
with
their
money?
Overspendingoncarsforyoungpeople.
Advice:Saveupmoneyandbuyacaronyourown. Donotgooutfinancingavehicle.
Whataresomegoodfinancialhabitstobegincultivating?
Decidewhatthemostimportantfinancialgoalisforyou. Setthegoal,andsavemoneytoget
there. Savemoneyupforthatinliquid,andgoouttomakethatpurchase.
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Chapter4BorrowingandConsumerCredit
MannyEscuela, Regional Director, Education, CommunityRelations &Development
MoneyManagementInternational
Whatdoesyourorganizationdo?
Itisthelargestconsumercreditcounseling&serviceeducationcompanyinthecountry.
Whatsortsofservices?
BudgetandDebtCounseling DebtManagement ForeclosurePrevention BankruptcyCounseling BankruptcyEducation FinancialWorkshops
Whatshouldhighschoolstudentsbethinkingaboutintermsoftheirfinances?
Studentsshouldhavearolemodeltoemulateandseehowresponsiblehe/she(therolemodel)
bothearnandspendhis/hermoney.
Howcanstudentsprotectthemselvesfromaggressivecreditcardmarketing?
Parentsshouldknowtheirkidsneedsandeducatethekids. Teachersororganizations(likeDRE)shouldbringfinancialliteracyintoschooland
educatekidssotheyunderstand.
(Interestingfact: Therewasalawpassedonrestrictingaggressivecreditcardmarketingon
campus. However,theaveragestudentdebtincreases. Thelawonlylimitedoncampus,but
thecreditcardcompaniesarenowusingsocialmedia.)
Whatsthedifferencebetweenacreditcard,debitcard,&securedcreditcard?
Adebitcardallowseasieraccesstothemoneythatsalreadyinyourchecking/savingaccount,
anditsonlygoodforthemoneythatyouhaveinyouraccounteventhoughithasVisa/Master
logoon
your
card.
Acreditcardgivesyouaccesstoasetamountofmoneybasedonacertaincreditlimitfor
whichyouhavequalified. Youhavetopaythemoneybackplusinterest. Highschool/college
studentinterestrateis1625percent.
Securedcreditcardisonlygooduptothelimitforwhichyouhavemadethedeposit.
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Referparentsto:
http://www.crediteducation.org/
http://www.moneymanagement.org/
Are
all
credit
cards
bad?
Lookonvarieswebsitetowhatisavailableintermofinterestrate.
http://www.cardtrak.com/
http://www.bankrate.com/
Getlowrate,noannualfee
Arepaydayloansagoodidea?
Stayawayasmuchaspossible. Highinterestrate!
Whatareyourguidelinesonsavings?
Utilizeemployermatching. Saveatleast10%ofyourincomeforanemergencyfundandyourfinancialgoals.
Howisyourcreditscorecalculated?
Twoareashavethemostimpactonthescore:
Theamountofmoneytheyowed(30%) Theirhistoryofrepayingtheirdebt(35%)
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Chapter5FinancialDecisionMakinginCollege
EmmiHarward,HeadofCollege Counseling
The BishopSchool
Whatsortsofthingsshouldcollegeboundstudentsconsiderintermsofpayingfortheir
collegeeducation?
Whattheywanttostudy Whattheywanttogetoutofthecollegeexperience Figureouttheirfundingsources(private/publicschooltuition,scholarship,outside
sourcesoffunding,financing)
Whatcollegefinancingresourcesareavailabletostudents?
Highschool/collegecounselor Websites(aboutstateaids/fedaids) Parents Internet
http://scholar.dlhjr.com/
Whenstudentsarelookingatpayingforcollege,whatshouldtheyconsider?
Valuevs.costofeducation
Isacollegeeducationworththeinvestment?
Fouryearcollegebecomesbasicrequirementformanyprofessionalorganizations. Itmakes
sensetostartlookingforfundingandfinancingearly.
Whatcanstudentdotoplanaheadforpayingfortheircollegetuition?
Talktofamilytoseeifthereisfinancialresourcefamilycanoffer Federal/stateaid Resourcefromhighschool Collegewebsite Community Savemoney
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TaliAbramson,PropertyManagementDirector
Whatqualitiesdoyoulookforinatenant?
Fairhousing(nodiscriminationbasedonrace,color,nationalorigin,religion,sex,familial
status)
Payrentontime Greatcredithistory
Howcanprospectivetenantsbestpreparethemselvestorentanapartment?
Atleast18 Withcredithistory Renterswithoutcredit/rentalhistoryrequireextramonthof
depositorneedtogetacosigner.
What
sort
of
things
should
first
time
renters
be
thinking
about
when
they
look
for
a
place?
Cleanness,people(friendlystaffs),andlocation
Whattypesofquestionsshouldprospectivetenantsaskthelandlordorpropertymanager?
School?Library?Acceptpets?Funiture?Whataretheoptionswhenyouneedtobreakupthe
lease?
Whatstheadvantageofrentingfromapropertymanagementcompanyoveranindividual
landlord?
Less
maintenance
issues,
landlord
might
have
financial
problems
and
you
end
up
paying
the
rentandgettingevicted!
Whatsthebiggestmistakeyouseetenantsmake?
Tenantsdidntmanagetheirexpectationsrightatthebeginningandendedupbreakingthe
lease.
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RichDusansky,Economics Professor
UniversityofTexas Austin
Whatdidyoudiscoverwhenyourecentlywenttobuyahouse?
Myidentitywasstolen!
Howwasyouridentitystolen?
Someonegotmysocialsecuritynumberandmyname,createdfalseW2,electronicallysentto
IRS,andgotahugerefund.
Whowasresponsibleforstealingyouridentity?
AringinBrooklyn,NewYork
Whatlessonhaveyoulearnerfromyourexperience?
Takepreventivemeasurement(creditmonitoring). Becarefullywhengettingphonecallsaskingyoursocialsecurity,gettingemailinquiries
foryourSSN,bankaccountnumber.
Getcreditfreezesonoonecangetyourcreditreport.Didtheidentitytheftaffectyourhomepurchase?
Withhelp,thedealwasclosedtimely. Ifnot,Imightlosethedeposit($10,000)Iputdownfor
purchasingthehouse.
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Shannon Faulk,InsuranceAgencyOwner
Whoneedsinsuranceandwhy?
Peoplewhohaveacquiredpersonalbelongingsintheirlife Itwillprotectthemfromdisasters,
accidentsandnotcausefinancialruinfortheirfamily.
IsrentersInsuranceagoodidea?
Renterinsuranceisagoodcoveragetohave.Itcoversindividual&personalbelongs,theftand
liabilities. Itisforpeoplewhodonotowntheirhome.
Whatarethelegalrequirementsforhomeownerinsurance?
Purchasinghomeownersinsuranceisalegalrequirementwhenyouveborrowedmoneyfrom
alender,suchasabank,topayforyourhome.Whenyouborrowmoneyfromalender,youare
enteringintoacontractwiththatlender. Purchasingahomeownersinsurancepolicymore
oftenthannotcanbefoundinthetermsandconditions.Ifyourlendermakesitarequirement
foryoutopurchasehomeownersinsurance,andtheyusuallydo,thenyoumustpurchase
homeownersinsurance.
HowdoesPMIinsuranceaffectthecostofyourmonthlymortgage?
PMIisextrainsurancethatlendersrequirefrommosthomebuyerswhoobtainloansthataremorethan80percentoftheirnewhome'svalue.Inotherwords,buyerswith
lessthana20percentdownpaymentarenormallyrequiredtopayPMItoprotectthe
lenderifthehomebuyersgointodefault.
Itsadditionalinsurancecoverageonthemortgage. Itaddsadditionalcostonthemortgage.PMIchargesvarydependingonthesizeofthedownpaymentandtheloan,
buttheytypicallyamounttoaboutonehalfof1percentoftheloan.
Keeptrackofyourpaymentsontheprincipalofthemortgage.Whenyoureachthepointwheretheloantovalueratiohits80percent,notifythelenderthatitistimeto
discontinuethePMIpremiums.
Whatshouldsomeonelookforinaninsuranceagent?
Knowledge Integrity Expertise
Whatisyourbestadviceonpurchasingcarinsurance?
Doresearchfirst. Lookforbestproduct.
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Findinsuranceagentwithexpertise.Someothernotesoncarinsurance
Newdriverusuallypaysmoresincenoexperience. Thecostwillbedifferentbasedontypeofvehicle,typeofpolicy(individualorfamily). Youshouldconsiderifliabilityinsuranceistherighttypeforyou.
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Chapter7BuyingYourFirstHome
MarkRiedy, ProfessorUniversity ofSanDiego Whyaremortgagesimportant?
Aninstrumenttiesyoutothehouseandforcesyoutomakepaymentsontime. Ifyoudont
payitontime,youmayloseyourhouse.
Howimportantaremortgagestothestateofthehousingmarkets?
Thestateofmortgageschangeddramaticallyoverthelast20years. Nowpeoplegetcana
mortgagebetterfittedtotheirneeds.
Whatare
some
of
the
different
types
of
mortgages
available?
StandardMortgage:30yearfixedrate,interestrateontheloanneverchanged Nowwehavedifferentduration,variableratesformortgages.
Whyshouldahighschoolstudentcareaboutwhatsgoingoninthehousingmarket?
Thinkaheadabouthowtoqualifyforbuyingahouseandprepareearly. Takegoodcareofyourcreditscore.
WhatmakestheCaliforniahousingmarketunique?
TheCaliforniahousingmarketisthemostcreativeonesincethehousedemandsaremorediverse.
Thehousingmarketwentdownin2008duetohighpricesanddecreasinghousingdemand. Thehomepricewentdown,andhomeownercouldntpaythemortgage.
Housingmarketwillhavecycles. Since2008,thehousingpriceswentdowndramatically,especiallyinCalifornia. Thehousingmarketwillbemoreaffordablefor
highschoolstudentswhentheyarereadytobuyahouseinthefuture.
Whatlessonscanbelearnedfromthehousingmarketcrash?
Makesureyouhaveajob,agoodpayingjob. Studymortgagemarket,workwithlender,andfindthebestmortgagetofityourneeds. Dontbemisledthatthehousingpriceswillalwaysgoup! Itwillcomedown. Thatbeingsaid,buyinghouses,especiallyinCalifornia,isagoodinvestmentoveryour
lifetime,butkeeprisksinmind.
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Howhavethehousingandmortgagemarketschangedovertime?
Housingmarketdemonstratescycles. Differentpartsofcountryreacttoeconomicsituationdifferently.
Whats
the
impact
of
the
credit
score
on
the
mortgage
payment?
Creditscoredoesacouplethings:
Ifyourcreditscoreislow,youmaynotbeabletoborrowatall. Ifyouhavealowcreditscore,lendersmaychargehigherinterestratesormakeyoupay
points.
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Chris Sorenson,Founder
HomeownershipEducation LearningProgram (H.E.L.P).
Whatquestionsshouldaprospectivehomebuyeraskarealtor?
Who
are
your
team
members?
How
do
you
choose
your
team
member
(loan
officers,
loanoriginators)? Arethereanybenefitstoyoudirectlyorindirectlybyreferringmeto
them?
WhatcanIexpectfromyoufromtheprequalificationphase,thehomesearchphase,theescrowphase,thepostclosingphase?
Whatdoyouexpectfrommeasabuyer?Gettheanswersinwritingtomitigatetheexpectationsbeingletdown.
Whatsthemostimportantqualityforarealestateprofessionaltohave?
Integrity
(put
clients
interest
above
their
own)
Whatoptionsdobuyershaveiftheyreunhappywiththeiragent?
Ifbuyerentersintocontractualagreementwiththeagentthatrepresentsthem(enlisted
agent),itwillbeverydifficulttobreak. Youshouldonlyentertheagreementafteryoureviewit
verycarefullyanddecidethisistherightpersonforyou. Youalsoneedtomakesureyouand
youragentmatchpersonalities.
Stepsyoucantake:
Contactthebrokerofrecordthatthesalespersonisworkingforandrepresenting.
Make
sure
that
the
Board
of
Realtors
that
these
individuals
belong
to
are
made
aware
of
thechallenges.
ContactDepartmentofRealEstate,andfileacomplaint.Whoistheidealprospectivehomebuyer?
Buyerswhospendextensivetimegoingovertheirindividualbudget Buyerswhounderstandtheborrowingprocess Buyerswhoaredecisiveaboutwhatkindofhometheywanttobuy
Isit
always
better
to
buy
than
rent
ahome?
Buyinghomeisalargecommitment. Thereareawholelotofissuesinrespecttomaintenance,
tax,andinsurance. Buyershouldconsideritasaverylongtermstrategyandseeifitisrightfor
them.
Whatadvicewouldyougiveahighschoolstudentwhowantstobuyahomeoneday?
Withcompoundinterest,puttingalittlemoneyawayeveryweekwilladduptoahugeamount.
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Decidewhatyouwant. Decidewhatyouarewillingtogiveup. Deicidewhatyourprioritiesare. Gotowork.
Howcanpeoplereachyouiftheyhavequestionsorneedhelp?
Course:
http://www.dre.ca.gov/pdf_docs/re18.pdf
Website
http://www.freehomeownershiphelp.org/
Email
info@freehomeownershiphelp.org
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Jaqueline Carlisle, Executive Director
NIDHousingCounselingAgency
Whatarethebiggestobstaclestobuyingahome?
Intimidation
factors:
intimidated
by
the
process,
by
engaging
something
new,
by
too
muchinformation
Credit Downpayment&closingcost
Whatisthemostimportantthingapersoncandotobecomefinanciallyliterate?
Availingthemselvestoeducationopportunitiesthatareavailable Knowing&understandingthetruecostofhomeownership
What
are
the
steps
to
home
ownership?
Educateyourselfabouttheprocess. Maintainstableemployment,atleast2years. Knowyourcredithistory;knowwhatisonyourcreditreport. Correctthemistakeson
thecreditreport.
Haveabudget. Doapersonalbudgetanddeterminehowlargeamonthlypaymentyoucanaffordandcomfortablypay.
Researchasmuchinformationasyoucan. Preapproval Knowwhatyourprioritiesare.(Isitclosetoyouremployment? Isitclosetoyourchilds
school?) Itcannarrowyoursearchforthehouse.
Searchforarealestateprofessionalthatcanhelpyou.Lookupthelicensehistory.Makesureyouarecomfortablesharingyourinformationwithhim/her.
Signcontracts. Makesureyoudoresearchandunderstanditbeforeyousignit.Howcansomeonegetthemostoutofhomeownership?
Buywhatyoucanafford. Affordabilityisoneofthebiggestobstaclespeopleexperiencedinnotgettingthemostoutofhomeownership.
Propertymaintenanceandrepair. Knowingitsimportantforongoingmaintenanceofyourpropertysoyouwonthavebigchunksofunexpectedexpenses.
Budgetingisthekey. Budgetformaintenance,repairandlongtermthingsthathavetobedonetokeepitwellmaintained.
Energyefficiencyupgrades
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Yourhomeshouldbetheplaceyoufeelcomfortableandyoucanenjoy. Itshouldnotbea
causeofstressinyourlife. Withproperplanningandequippingyourselfbasedonthe
affordabilityandoverallcostofthehomeownership,yourhousecanbeabeautifulhomethat
youcanenjoy!
Whyishomeownershipcounselingmoreimportantthanever?
Thereisalotofinformationoutthere. Somearecorrect;someareincorrect. Itcanbereally
confusing.Withcounseling,itcanhelpyounavigatethebulkinformationoutthere.
Whatdoesyourorganizationdo?
TheNationalInvestmentDivisionHousingCounselingAgency(NIDHCA)isaHUDapproved
nonprofitorganizationwith25yearsofexperienceinhousingcounselingandcommunity
building. NIDHCAhastakenaleadingroleinadvocatingforourdevelopingpoliciesthatwould
effectivelyaddressthehousingandcommunitydevelopmentneedsofunderserved
communitiesinneedoftraditionalresources,productsandservices.
http://nidonline.org/index.html
Whatsortofresourcescanyousuggestforthoseinterestedinpurchasingahome?
HUD(Housingand UrbanDevelopment)http://portal.hud.gov/hudportal/HUD
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Michael Spilger, Real EstateAttorney
Whatdoesarealestateattorneydo?
Therearealotofdifferentareasinrealestatelaw. Itcoverslanduse,landlord,tenant,
commercialleasing. Mypracticefocusesonbuyers/sellers,borrowers/lenders,onrealestate
saletransactions.
Whenshouldsomeoneseekouttheservicesofarealestateattorney?
Youusuallydontneedarealestateattorneywhenbuyingahouse.Itonlyhappenswhen
somethinggoeswrongandthedealgoesbad.
Whatsthedifferencebetweenshortsaleandaforeclosure?
Ashortsaleoccurswhenapropertyissoldatlessvaluethanitowesandthelenderagreesto
acceptadiscountedpayoff. Foreclosureistheprocessofthelendertakingpossessionofa
mortgagedpropertyasaresultofsomeone'sfailuretokeepupmortgagepayments.
ExampleofShortSale:
Iftheunpaidbalanceofaloanis,say,$100,000andapropertysellsfor$90,000,underashort
salethelendermightaccept$90,000aspaymentinfull.
Howdoesaforeclosureorshortsaleaffectthecreditscore?
Foreclosurewillaffectyourcreditscorefrom200to250points. Ashortsalewillaffectyour
creditscorefrom150to200. Youareintroubleanyway.Thewaitingperiodtogetaloanfora
personwhohasshortsalerecordissomewherebetween2to3years. Forpeoplewitha
foreclosurerecord,thewaitingperiodwilladdanotheryearortwo.
Whenisitimportanttoreadoverthetermsofarealestatedocument?
Youshouldhaveanattorneylookingovertheselfcreatedforms.Thebiggestblunderisnot
havingalloftheinspectionsbeforeyouclosethedeal. Thestandardcontractallowscontingent
onthebuyersapprovalofphysicalinspection,buyercheckingoutonschoolsystem,and
zoning. Thatisthehomeworkbuyersneedtodo. Hirephysicalinspectortocheckonthe
property. Ifinspectorredflagsanissue,youshouldhaveitcheckoutbylicensedrepairmen
beforeyouclosethedeal.
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SupplementalInterviews
Dionne Faulk,ManagingDeputyCommissioner
California DepartmentofReal Estate
WhatisthepurposeoftheCaliforniaDepartmentofRealEstate?
Tosafeguardandtopromotethepublicinterestinallrealestatematters. Weprotect
consumersandsafeguardalltheirrealestateinterest,issuelicensesforrealestate
corporations,realestatebrokers,realestateagents. Wealsoinvestigaterealestatefrauds.
Wealsoverydynamicfinancialliteracyoutreachprogram. Weimplementtheprograma
coupleyearsagoandyoucanfinditavailableatallCaliforniacommunitycolleges. Thenameof
theprogramis FinancialSensetoWhitePicketFence. Iteducatesthecollegestudentson
financialliteracymatters. Wealsoarecurrentlyimplementingafinancialliteracyprogramin
allof
the
high
schools.
The
goal
is
to
educate
high
school
students
on
financial
literacy
matter
beforetheygraduate.
YoucancheckoutofalltheinformationonDREswebsite.
http://www.dre.ca.gov/
JeffDavi,FormerCommissioner
California DepartmentofReal Estate
Whatisyourbestadviceforafirsttimehomebuyer?
FindarealestateagentwhoislicensedbystateofCaliforniaandwithwhomyouenjoyworking.
Getpreapprovedforyouloan. Buyapropertythatmeetsyourbudget. Learnthemarketinwhichyouarebuying. Relyonyourrealestateagentandusetheirexpertisetomakeinformeddecisions.
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Steve Ellis,AssistantCommissioner
California DepartmentofReal Estate
Whatarethefirststepssomeoneshouldtakewhentheydecidetheywanttopurchasea
home?
Getprequalified!Prequalifiedmeansaloanofficerhasdeterminedaborroweriscreditworthy
andfinanciallyabletoqualifyforacertainloan.
Bill Moran,Assistant Commissioner,Enforcement
California DepartmentofReal Estate
Whatsortsofresourcesareavailabletoconsumerswhowanttoknowtheyredealingwith
reputablepeopleduringthehomebuyingprocess?
CheckDepartmentofRealEstatewebsite(http://www.dre.ca.gov). ChecklocalBetterBusinessBureau. CheckinternetserviceproviderssuchasYelp,Angieslist. Checkinternetsearchengines.
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TomPoole,Assistant Commissioner
California DepartmentofReal Estate
Whatsortofloantermsshouldsomeonelookforbeforesigningonthedottedline?
Beforesigningforit,youshoulddoduediligenceanddoyourhomework.Breakdowntheloan
intermsoftermsandconditions&costsandexpenses.
Theareasyoushouldlookatforloantermsare:
Theinterestratethatisbeencharged Fixedoradjustableratemortgage Thetermoftheloan,15,30yearsorhybrid Isthereaprepaymentpenaltyassociatedwiththeloan? Istheloanfullyamortized? Whatisyourmonthlypayment?
Theareas
you
should
look
at
for
costs
and
expenses
are:
Appraisalfee Escrowfee Tileinsurance Processingfee Points
Howcanapotentialhomebuyerprotectthemselvesduringtheloanprocess?
Youshoulddoduediligenceanddoyourhomework.
Pullyoucreditrecord. Ifthereisamistake,correctit. Applyforloans. Comparedifferentloanoffers.
Whatsortsofresourcesareavailabletoassistsomeoneinprotectingthemselves?
ThebrochureUsingtheservicesofamortgagebrokerprovidedbyDRE(http://www.dre.ca.gov/pdf_docs/re35a.pdf).
DRECaliforniaRealEstateandFinancialServicesLicenseInformation.http://www.dre.ca.gov/gen_lic_info.html
NationalMortgageLicensingSystem(NMLS)http://www.nmlsconsumeraccess.org/
HUD(Housingand UrbanDevelopment)http://portal.hud.gov/hudportal/HUD
FannieMaehttp://www.fanniemae.com/portal/index.html
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Wayne Bell,ChiefCounsel
California DepartmentofReal Estate
Whatquestionsshouldsomeoneuseininterviewingarealestateprofessional?
How
long
have
you
been
in
the
residential
real
estate
business?
Areyouexperiencedintheneighborhood/neighborhoodsthatIaminterestedinpurchasingthehome?
Doyouhaveanyexpertise? Doyouhaveanyprofessionalaffiliations? AreyouamemberofaBoardofRealtors,a
memberofalocalboard?
HowmanyhomeshaveyousoldorassistedinpurchasingintheareathatIaminterestedinbuying?
Whatareyougoingtodotohelpmelocateahome?Openhouse?Internet? Howmuchtimeareyougoingtospendwithmeeachweek? Howareyougoingtohelpmetodeterminethevalueofthehome? Whentheofferisreadytobemade,areyougoingtohelpmeputtogetheranoffer?
Howareyougoingtoaligntheofferwiththetruevalueofthehome?
Doyouhavealistofsatisfiedcustomers,alistofpersonalreferences? Getphonenumbersandcallthem.Makesurewhatyouaretoldistrue.
Chris Neri,AssistantCommissioner
California DepartmentofReal Estate
Whatarethemostcommonmistakespeoplemakewhentheygotobuyahome?
Nothiringrealestateprofessionals Notgettingprequalified,preapproved Overbuying Rushingintobuying
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Dan Sandri,ChiefAuditor,
California DepartmentofReal Estate
Whatsortsofthingsshouldconsumersconsiderwhendecidingonahomeloan?
What
payment
amount
does
your
budget
allowed?
Whichfitsbetter?A30yearor15yearloan? Adjustablerateorfixedrate? Whatarethepoint&feecharged? Whatistheinterestrate? Aretherespecialprogramsavailabletoyou?
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