National Finance Flashcards
In the case of residential real estate transactions for refinancing a loan, which are covered by truth-in-lending laws, the borrower has how many days in which to rescind the transaction?
A)
10 days
B)
3 days
C)
7 days
D)
5 days
In the case of residential real estate transactions for refinancing a loan, which are covered by truth-in-lending laws, the borrower has how many days in which to rescind the transaction?
A)
10 days
Incorrect Answer
B)
3 days
Correct Answer
C)
7 days
Incorrect Answer
D)
5 days
Incorrect Answer
Explanation
According to truth-in-lending laws, the borrower has three days to rescind the transaction by merely notifying the lender. The three-day right of rescission applies only to loans for refinancing and home equity loans. It does not apply to purchase or construction loans.
Reference: Finance > Laws Affecting Financing and Lending
The provision in a mortgage or deed of trust that permits the lender upon the default of the borrower to proceed to a foreclosure sale without a court action is
A)
the hypothecation.
B)
the power-of-sale clause.
C)
the acceleration clause.
D)
the alienation clause.
The provision in a mortgage or deed of trust that permits the lender upon the default of the borrower to proceed to a foreclosure sale without a court action is
A)
the hypothecation.
Incorrect Answer
B)
the power-of-sale clause.
Correct Answer
C)
the acceleration clause.
Incorrect Answer
D)
the alienation clause.
Incorrect Answer
Explanation
A power-of-sale clause in a mortgage permits the lender to foreclose and sell a mortgaged property that is in default without any court action. An acceleration clause permits the lender to demand payment of a loan balance immediately when a buyer defaults on mortgage payments. An alienation clause permits the lender to require payment of a loan balance when a buyer sells the property to another purchaser. Hypothecation is the pledging of specific real property as security for a debt while maintaining possession of the property.
Reference: Finance > Terminology
Homeowners may deduct all of these expenses when preparing their income tax return EXCEPT
A)
some origination fees.
B)
real estate taxes.
C)
homeowners association dues.
D)
mortgage interest.
Homeowners may deduct all of these expenses when preparing their income tax return EXCEPT
A)
some origination fees.
Incorrect Answer
B)
real estate taxes.
Incorrect Answer
C)
homeowners association dues.
Correct Answer
D)
mortgage interest.
Incorrect Answer
Explanation
Homeowners may not deduct homeowners association dues from annual tax returns. Points for loans, some origination fees, mortgage interest, and real estate property taxes can be deducted on income tax returns (remember POIT).
Reference: Finance > Special Processes
When compared with a 30-year payment period, taking out a loan with a 20-year payment period would result in
A)
higher monthly payments.
B)
greater impound requirements.
C)
lower monthly payments.
D)
slower equity buildup.
When compared with a 30-year payment period, taking out a loan with a 20-year payment period would result in
A)
higher monthly payments.
Correct Answer
B)
greater impound requirements.
Incorrect Answer
C)
lower monthly payments.
Incorrect Answer
D)
slower equity buildup.
Incorrect Answer
Explanation
A 20-year loan is paid off faster than a 30-year loan, with the payments spread out over a shorter period of time. This arrangement results in payments that are higher than those in a 30-year loan. The borrower’s equity would build up quicker in the 20-year loan because the borrower is paying more toward the principal each month than with a 30-year payment.
Reference: Finance > Types of Loans
In which type of loan are interest-only payments made with a lump-sum balloon payment at the end?
A)
Adjustable-rate mortgage (ARM)
B)
Amortized
C)
Straight
D)
Federal Housing Administration (FHA)
In which type of loan are interest-only payments made with a lump-sum balloon payment at the end?
A)
Adjustable-rate mortgage (ARM)
Incorrect Answer
B)
Amortized
Incorrect Answer
C)
Straight
Correct Answer
D)
Federal Housing Administration (FHA)
Incorrect Answer
Explanation
In a straight/term or interest-only loan, the borrower makes payments of interest only. At the end of the loan term, the entire original principal debt must be paid in one lump sum balloon payment. An amortized loan requires equal periodic payments on both the principal and the interest. An ARM has an interest rate that fluctuates up or down during the loan term based on some economic indicator. FHA loans tend to be fully amortized loans, which are fully paid at the end of the term.
Reference: Finance > Types of Loans
A seller agrees to sell a house to a buyer for $100,000. The buyer is unable to qualify for a mortgage loan for this amount, so the seller and the buyer enter into a contract for deed. The legal interest the buyer has in the property under a contract for deed is
A)
bare title.
B)
equitable title.
C)
legal title.
D)
joint title.
A seller agrees to sell a house to a buyer for $100,000. The buyer is unable to qualify for a mortgage loan for this amount, so the seller and the buyer enter into a contract for deed. The legal interest the buyer has in the property under a contract for deed is
A)
bare title.
Incorrect Answer
B)
equitable title.
Correct Answer
C)
legal title.
Incorrect Answer
D)
joint title.
Incorrect Answer
Explanation
The buyer in a contract for deed holds equitable title to the property. Equitable title gives the borrower the rights of possession and use of the property, while the seller retains the legal title during the contract term. If the buyer defaults, the seller can evict the buyer and keep any money the buyer has already paid, which is considered rent.
Reference: Finance > Terminology
A borrower defaulted on a loan and the lender foreclosed. The lender obtained the property, which sold for less than what the borrower owed. In this case, the lender may
A)
seek a deficiency judgment, which can be used to collect the balance owed.
B)
start a new foreclosure suit to collect the balance due from the borrower.
C)
file for a default judgment and attach all the borrower’s real and personal property.
D)
do nothing because the property has gone through foreclosure.
A borrower defaulted on a loan and the lender foreclosed. The lender obtained the property, which sold for less than what the borrower owed. In this case, the lender may
A)
seek a deficiency judgment, which can be used to collect the balance owed.
Correct Answer
B)
start a new foreclosure suit to collect the balance due from the borrower.
Incorrect Answer
C)
file for a default judgment and attach all the borrower’s real and personal property.
Incorrect Answer
D)
do nothing because the property has gone through foreclosure.
Incorrect Answer
Explanation
After the buyer defaulted and the loan has been foreclosed, lenders may seek deficiency judgments.
Reference: Finance > Special Processes
When a seller and a buyer agree to a land contract, the buyer typically
A)
agrees to acquire a loan from a lender who will make payments to the seller.
B)
becomes legally responsible for the seller’s current mortgage on the property.
C)
agrees to pay the purchase price in monthly installments paid directly to the seller.
D)
pays interest only on the loan in regular installments.
When a seller and a buyer agree to a land contract, the buyer typically
A)
agrees to acquire a loan from a lender who will make payments to the seller.
Incorrect Answer
B)
becomes legally responsible for the seller’s current mortgage on the property.
Incorrect Answer
C)
agrees to pay the purchase price in monthly installments paid directly to the seller.
Correct Answer
D)
pays interest only on the loan in regular installments.
Incorrect Answer
Explanation
Under a land contract, also known as a contract for deed, the buyer agrees to pay the purchase price in monthly installments made directly to the seller. The buyer may pay installments of principal and interest or of interest only with the balance of the loan due at maturity. The seller remains legally responsible for the mortgage on the property.
Reference: Finance > Types of Loans
What does private mortgage insurance (PMI) purchased by a buyer provide?
A)
Funds for the buyer to pay interest over the life of the loan
B)
Funds for the buyer to pay closing costs
C)
Funds to pay discount points required by the lender
D)
Funds for the lender in the event that the buyer defaults on the loan
What does private mortgage insurance (PMI) purchased by a buyer provide?
A)
Funds for the buyer to pay interest over the life of the loan
Incorrect Answer
B)
Funds for the buyer to pay closing costs
Incorrect Answer
C)
Funds to pay discount points required by the lender
Incorrect Answer
D)
Funds for the lender in the event that the buyer defaults on the loan
Correct Answer
Explanation
The borrower purchases insurance from a PMI company as additional security to insure the lender against default.
Reference: Finance > Special Processes
Which of these is TRUE reading FICO® scores?
A)
Scores tend to range from ratings numbered from 1 to 100.
B)
Scores lower than 550 are the most desirable and excellent scores.
C)
The lower the score, the better the loan product a borrower will qualify for.
D)
The higher the score, the better the loan product a borrower will qualify for.
Which of these is TRUE reading FICO® scores?
A)
Scores tend to range from ratings numbered from 1 to 100.
Incorrect Answer
B)
Scores lower than 550 are the most desirable and excellent scores.
Incorrect Answer
C)
The lower the score, the better the loan product a borrower will qualify for.
Incorrect Answer
D)
The higher the score, the better the loan product a borrower will qualify for.
Correct Answer
Explanation
FICO® Scores have a 300 to 850 score range. Lenders find borrowers that have scores higher than 700 to be very good credit candidates.
Reference: Finance > Special Processes
That portion of the value of an owner’s property that exceeds the amount of the mortgage debt is called
A)
the interest.
B)
the principal.
C)
the equity.
D)
the escrow.
That portion of the value of an owner’s property that exceeds the amount of the mortgage debt is called
A)
the interest.
Incorrect Answer
B)
the principal.
Incorrect Answer
C)
the equity.
Correct Answer
D)
the escrow.
Incorrect Answer
Explanation
An owner’s equity represents the ownership interest (the paid-off share) in the property that increases as the mortgage debt (the principal) is reduced. The value of the property minus the mortgage debt equals equity. The principal is the amount of money owed by a borrower on a property loan. The interest is the amount paid by a borrower to a lender in return for the use of money. Escrow is the process by which a third party holds money provided by one party in a transaction (usually a buyer) until the transaction is closed.
Reference: Finance > Terminology
A participant in the secondary market is
A)
an institutional investor that buys and sells loans.
B)
a lender who deals exclusively in second mortgages.
C)
a lender of residential mortgages and deeds of trust.
D)
an institutional investor who supplies money for Federal Housing Administration (FHA) and U.S. Department of Veterans Affairs (VA) loans.
A participant in the secondary market is
A)
an institutional investor that buys and sells loans.
Correct Answer
B)
a lender who deals exclusively in second mortgages.
Incorrect Answer
C)
a lender of residential mortgages and deeds of trust.
Incorrect Answer
D)
an institutional investor who supplies money for Federal Housing Administration (FHA) and U.S. Department of Veterans Affairs (VA) loans.
Incorrect Answer
Explanation
Secondary market participants buy and sell previously originated loans. Participants in the secondary market are not lenders for residential mortgages and do not make first or second mortgages. The FHA insures loans, and the VA guarantees loans.
Reference: Finance > Sources of Financing (Primary and Secondary Mortgage Markets)
The type of loan that will MOST likely have the lowest loan-to-value (LTV) ratio is
A)
a private mortgage insurance (PMI) loan.
B)
a Federal Housing Administration (FHA) loan.
C)
a conventional loan.
D)
a U.S. Department of Veterans Affairs (VA) loan.
The type of loan that will MOST likely have the lowest loan-to-value (LTV) ratio is
A)
a private mortgage insurance (PMI) loan.
Incorrect Answer
B)
a Federal Housing Administration (FHA) loan.
Incorrect Answer
C)
a conventional loan.
Correct Answer
D)
a U.S. Department of Veterans Affairs (VA) loan.
Incorrect Answer
Explanation
Conventional loans are viewed as the most secure loans because their LTV ratios are often the lowest. Buyers in conventional loans make larger down payments than borrowers in FHA, PMI, or VA loans. Usually with the larger down payment in a conventional loan, no additional insurance or guarantee on the loan is necessary to protect the lender’s interest.
Reference: Finance > Types of Loans
Consumer Financial Protection Bureau (CFPB) requires a lender to give the borrower what at the time of application?
A)
A special information booklet
B)
A new loan closing disclosure three days before application
C)
A new loan estimate of settlement costs
D)
The lender’s most recent report of financial stability
Consumer Financial Protection Bureau (CFPB) requires a lender to give the borrower what at the time of application?
A)
A special information booklet
Incorrect Answer
B)
A new loan closing disclosure three days before application
Incorrect Answer
C)
A new loan estimate of settlement costs
Correct Answer
D)
The lender’s most recent report of financial stability
Incorrect Answer
Explanation
CFPB requires that a lender provide the borrower a new loan estimate of closing costs no later than three days after the borrower has applied for a loan. CFPB also requires that the new loan closing disclosure be available for the borrower three days before closing. Lenders must provide the Housing and Urban Development (HUD) special information booklet to every person from whom they receive a loan application, except for applications for refinancing. CFPB does not require a lender to provide any report of the lender’s financial stability.
Reference: Finance > Laws Affecting Financing and Lending
A borrower is MOST likely to obtain a bridge loan for which of these?
A)
To finance the purchase for a long-term loan of a residential property
B)
To finance the purchase of multiple properties at the same time
C)
To borrow the down payment for a new home if the existing home does not sell
D)
To obtain a quick home equity loan for personal use
A borrower is MOST likely to obtain a bridge loan for which of these?
A)
To finance the purchase for a long-term loan of a residential property
Incorrect Answer
B)
To finance the purchase of multiple properties at the same time
Incorrect Answer
C)
To borrow the down payment for a new home if the existing home does not sell
Correct Answer
D)
To obtain a quick home equity loan for personal use
Incorrect Answer
Explanation
Bridge loans are short-term loans used for a temporary basis. A bridge loan can assist a borrower with a down payment until permanent financing can be obtained. These types of loans are not used to finance multiple properties and are not equity loans.
Reference: Finance > Types of Loans
A purchaser negotiates a mortgage loan in which she will make equal monthly payments over a period of 30 years, with the balance of the loan being zero at the end of that term. The purchaser has negotiated
A)
a balloon mortgage.
B)
a fully amortized loan.
C)
a partially amortized loan.
D)
a straight mortgage.
A purchaser negotiates a mortgage loan in which she will make equal monthly payments over a period of 30 years, with the balance of the loan being zero at the end of that term. The purchaser has negotiated
A)
a balloon mortgage.
Incorrect Answer
B)
a fully amortized loan.
Correct Answer
C)
a partially amortized loan.
Incorrect Answer
D)
a straight mortgage.
Incorrect Answer
Explanation
A loan with equal, constant payments that result in a zero balance at the end of the term is a fully amortized loan. A balloon mortgage is one type of partially amortized loan. In a partially amortized loan, the principal and interest payments do not pay off the entire loan; a balance remains and is due at the end of the term. A straight mortgage is a loan that requires periodic interest payments to the lender, but nothing is applied to the principal balance. A construction loan is a type of straight loan in which the borrower receives money in draws and makes periodic payments of interest on those draws.
Reference: Finance > Types of Loans
A state could, in theory, use
A)
mortgages only.
B)
trust deeds only.
C)
all of these.
D)
mortgages and trust deeds.
A state could, in theory, use
A)
mortgages only.
Incorrect Answer
B)
trust deeds only.
Incorrect Answer
C)
all of these.
Correct Answer
D)
mortgages and trust deeds.
Incorrect Answer
Explanation
Some states are known as mortgage states, others are known as trust deed states. In some states, it is legal to use both mortgages and trust deeds.
Note: In a state where both mortgages and trust deeds are legal, the borrower would sign only one of these security instruments. The borrower would not sign both a mortgage and a trust deed when getting a single loan.
Reference: Finance > Lien Theory Versus Title Theory
Which of the following occurs after loan origination?
A)
Predatory mortgage servicing
B)
Predatory mortgage lending
C)
Backwards applications
D)
Air loans
Which of the following occurs after loan origination?
A)
Predatory mortgage servicing
Correct Answer
B)
Predatory mortgage lending
Incorrect Answer
C)
Backwards applications
Incorrect Answer
D)
Air loans
Incorrect Answer
Explanation
Predatory mortgage servicing would occur after loan origination. Loan origination is a synonym for loan creation. Predatory mortgage servicing occurs after loan has been created. Mortgage loan servicers handle the administrative aspects of, for example, processing repayment on a loan that has already been dispersed to a borrower. Predatory mortgage lending would occur prior to the loan being created or originated. An air loan is a form of real estate fraud where the real estate that is supposed to serve as security for the loan does not exist. A backwards application is a form of real estate fraud where prospective borrowers misrepresent their income and assets to qualify for a loan.
Reference: Finance > Mortgage Fraud and Predatory Lending
Real Estate Settlement Procedures Act (RESPA) applies to the activities of
A)
lenders only.
B)
lenders, title companies, and real estate brokers.
C)
real estate brokers only.
D)
title companies only.
Real Estate Settlement Procedures Act (RESPA) applies to the activities of
A)
lenders only.
Incorrect Answer
B)
lenders, title companies, and real estate brokers.
Correct Answer
C)
real estate brokers only.
Incorrect Answer
D)
title companies only.
Incorrect Answer
Explanation
RESPA requirements apply to lenders primarily. RESPA also requires real estate brokers and title companies that package services for consumers to inform consumers of the relationship between the companies and to inform consumers that they are free to choose other companies for services.
Reference: Finance > Laws Affecting Financing and Lending
In order to ensure that future real estate taxes will be paid by a borrower, lenders may require a borrower to
A)
sign a note.
B)
obtain title insurance.
C)
submit paid tax receipts.
D)
pay tax funds into an escrow account.
In order to ensure that future real estate taxes will be paid by a borrower, lenders may require a borrower to
A)
sign a note.
Incorrect Answer
B)
obtain title insurance.
Incorrect Answer
C)
submit paid tax receipts.
Incorrect Answer
D)
pay tax funds into an escrow account.
Correct Answer
Explanation
An escrow account, or impound account, is a reserve fund into which a borrower deposits funds to cover the amount of unpaid real estate taxes and insurance premiums. The lender will make tax and insurance payments on the borrower’s behalf. A borrower signs a promissory note obligating the borrower to repay the loan. Title insurance protects the borrower from covered defects in the chain of title.
Reference: Finance > Special Processes
Fannie Mae, Ginnie Mae, and Freddie Mac all
A)
insure residential mortgage loans.
B)
guarantee existing mortgage loans.
C)
purchase existing mortgage loans.
D)
originate residential mortgage loans.
Fannie Mae, Ginnie Mae, and Freddie Mac all
A)
insure residential mortgage loans.
Incorrect Answer
B)
guarantee existing mortgage loans.
Incorrect Answer
C)
purchase existing mortgage loans.
Correct Answer
D)
originate residential mortgage loans.
Incorrect Answer
Explanation
Fannie Mae, Ginnie Mae, and Freddie Mac are all part of the secondary mortgage market and purchase existing mortgage loans. Lenders in the primary mortgage market originate residential mortgage loans. The Federal Housing Administration (FHA) insures residential mortgage loans. The U.S. Department of Veterans Affairs (VA) guarantees mortgage loans for eligible veterans.
Reference: Finance > Sources of Financing (Primary and Secondary Mortgage Markets)
In which type of mortgage would the mortgagor pay no principal on the loan until the end of the term?
A)
Fully amortized loan
B)
Straight loan
C)
Partially amortized loan
D)
Contract for deed
In which type of mortgage would the mortgagor pay no principal on the loan until the end of the term?
A)
Fully amortized loan
Incorrect Answer
B)
Straight loan
Correct Answer
C)
Partially amortized loan
Incorrect Answer
D)
Contract for deed
Incorrect Answer
Explanation
The straight/term/interest-only loan requires payments of interest only. All other loans require some form of principal payment.
Reference: Finance > Types of Loans
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Question ID: 1407719
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Real estate firms are often affiliated with title insurance companies or mortgage brokers. Real Estate Settlement Procedures Act (RESPA) permits these business arrangements as long as
A)
consumers are required to use the services of the affiliated companies.
B)
companies pay referral fees between them.
C)
companies disclose their relationships with one another to the consumer.
D)
consumers are unaware of these arrangements.
Real estate firms are often affiliated with title insurance companies or mortgage brokers. Real Estate Settlement Procedures Act (RESPA) permits these business arrangements as long as
A)
consumers are required to use the services of the affiliated companies.
Incorrect Answer
B)
companies pay referral fees between them.
Incorrect Answer
C)
companies disclose their relationships with one another to the consumer.
Correct Answer
D)
consumers are unaware of these arrangements.
Incorrect Answer
Explanation
RESPA permits such arrangements as long as a consumer is clearly informed of the relationship among the affiliated companies and is provided information that the consumer may use other service providers for the same services. The companies may not require a consumer to use the services of any affiliated company. The companies may not pay one another referral fees.
Reference: Finance > Laws Affecting Financing and Lending
A couple purchased a residence for $195,000. They made a down payment of $25,000 and agreed to assume the seller’s existing mortgage, which had a current balance of $123,000. The buyers financed the remaining $47,000 of the purchase price by executing a mortgage and note to the seller. The type of loan, in which the seller becomes the mortgagee, is called
A)
a package mortgage.
B)
a balloon note.
C)
a reverse mortgage.
D)
a purchase money mortgage.
A couple purchased a residence for $195,000. They made a down payment of $25,000 and agreed to assume the seller’s existing mortgage, which had a current balance of $123,000. The buyers financed the remaining $47,000 of the purchase price by executing a mortgage and note to the seller. The type of loan, in which the seller becomes the mortgagee, is called
A)
a package mortgage.
Incorrect Answer
B)
a balloon note.
Incorrect Answer
C)
a reverse mortgage.
Incorrect Answer
D)
a purchase money mortgage.
Correct Answer
Explanation
A purchase money mortgage is created when a seller agrees to finance all or part of the purchase price. In this case, the seller agrees to finance $47,000 of the purchase price and takes back a mortgage and note from the buyer. The term purchase money mortgage can mean either owner financing or any mortgage used as acquisition debt in the purchase of a property. Here the owner-seller took back a mortgage for $47,000. An owner takeback is a purchase money mortgage. In a package mortgage, a borrower secures a loan with both real and personal property. A balloon note includes a final payment called a balloon payment that is larger than the periodic payments made on the note. A reverse mortgage is created when the bank makes payments to an older home owner who wants to stay in the home but take advantage of equity.
Reference: Finance > Types of Loans
The provisions of the Truth in Lending Act require all of these to be disclosed to a residential buyer EXCEPT
A)
the loan interest rate.
B)
a loan origination fee.
C)
discount points.
D)
the real estate brokerage commission.
The provisions of the Truth in Lending Act require all of these to be disclosed to a residential buyer EXCEPT
A)
the loan interest rate.
Incorrect Answer
B)
a loan origination fee.
Incorrect Answer
C)
discount points.
Incorrect Answer
D)
the real estate brokerage commission.
Correct Answer
Explanation
The Truth in Lending Act has to do with disclosing details of the proposed loan to a potential purchaser. The Act does not deal with brokerage commissions. Discount points, loan origination fees, and the loan interest rate are required by Truth in Lending Act.
Reference: Finance > Laws Affecting Financing and Lending
A buyer wants a loan that has no adjustments or balloons and that will pay all the monthly taxes and insurance, along with principal and interest. The buyer also wants to have the loan fully paid off when the last payment is made. The lender will MOST likely recommend which loan?
A)
Term budget loan
B)
Adjustable-rate mortgage (ARM) budget loan
C)
Partially amortized budget loan
D)
Fully amortized budget loan
A buyer wants a loan that has no adjustments or balloons and that will pay all the monthly taxes and insurance, along with principal and interest. The buyer also wants to have the loan fully paid off when the last payment is made. The lender will MOST likely recommend which loan?
A)
Term budget loan
Incorrect Answer
B)
Adjustable-rate mortgage (ARM) budget loan
Incorrect Answer
C)
Partially amortized budget loan
Incorrect Answer
D)
Fully amortized budget loan
Correct Answer
Explanation
Budget loans include payments for taxes and insurance and can be used with any loan payment type. The buyer also wanted the loan fully paid off with the last payment and only a fully amortized loan can do that without a balloon.
Reference: Finance > Types of Loans
A land contract, contract for deed, or installment contract has been reached between the seller and the buyer. It MOST likely means that
A)
the mortgagee finances the property and retains title until the final payment is made by the mortgagor.
B)
the mortgagor finances the property and retains title until the final payment is made by the mortgagee.
C)
the buyer finances the property and retains title until the final payment is made by the seller.
D)
the seller finances the property and retains title until the final payment is made by the buyer.
A land contract, contract for deed, or installment contract has been reached between the seller and the buyer. It MOST likely means that
A)
the mortgagee finances the property and retains title until the final payment is made by the mortgagor.
Incorrect Answer
B)
the mortgagor finances the property and retains title until the final payment is made by the mortgagee.
Incorrect Answer
C)
the buyer finances the property and retains title until the final payment is made by the seller.
Incorrect Answer
D)
the seller finances the property and retains title until the final payment is made by the buyer.
Correct Answer
Explanation
The answer is the seller finances the property and retains title until the final payment is made by the buyer. In a land contract, the seller will finance the property and retain title until final payment from the buyer is made. Mortgagor/borrower and mortgagee/lender are used when a mortgage is being used not a land contract.
Reference: Financing > Types of Loans
Federal income tax regulations allow homeowners to reduce their taxable income by amounts paid for
A)
repairs and maintenance.
B)
both principal and interest.
C)
real estate property taxes.
D)
hazard insurance premiums.
Federal income tax regulations allow homeowners to reduce their taxable income by amounts paid for
A)
repairs and maintenance.
Incorrect Answer
B)
both principal and interest.
Incorrect Answer
C)
real estate property taxes.
Correct Answer
D)
hazard insurance premiums.
Incorrect Answer
Explanation
Points for loans, some origination fees, mortgage interest, and real estate property taxes can be deducted on income tax returns (remember POIT). The law does not permit tax deductions for ordinary repairs, home maintenance, and hazard insurance premiums.
Reference: Finance > Special Processes
A couple applying for a residential mortgage loan has a combined monthly gross income of $8,000. Their total housing expense with a new loan would be $1,770, including principal, interest, taxes, and insurance (PITI). Their total debt expense, including housing expenses, would be $2,800. Under these conditions, would the couple qualify for a conforming loan under Fannie Mae guidelines?
A)
Yes, because their debt-to-income ratios are within criteria set by Fannie Mae.
B)
No, because their total housing expense is more than 50% of their total debt expense.
C)
Yes, because their total housing expense is less than 60% of their total debt expense.
D)
No, because their debt-to-income ratio exceeds the limits set by Fannie Mae.
A couple applying for a residential mortgage loan has a combined monthly gross income of $8,000. Their total housing expense with a new loan would be $1,770, including principal, interest, taxes, and insurance (PITI). Their total debt expense, including housing expenses, would be $2,800. Under these conditions, would the couple qualify for a conforming loan under Fannie Mae guidelines?
A)
Yes, because their debt-to-income ratios are within criteria set by Fannie Mae.
Correct Answer
B)
No, because their total housing expense is more than 50% of their total debt expense.
Incorrect Answer
C)
Yes, because their total housing expense is less than 60% of their total debt expense.
Incorrect Answer
D)
No, because their debt-to-income ratio exceeds the limits set by Fannie Mae.
Incorrect Answer
Explanation
A conforming loan is one that qualifies under debt-to-income ratios set by Fannie Mae. The borrower’s total housing expense must be no more than 28% of gross monthly income, and the borrower’s total debt expense, including housing, must be no more than 36% of gross monthly income. To find the total housing expense ratio, divide the total housing expense ($1,770) by the monthly gross income ($8,000): 1,700 ÷ 8,000 = 22%. To find the total debt expense, divide that expense ($2,800) by the monthly gross income ($8,000): 2,800 ÷ 8,000 = 35%. In this situation, if their credit score and history are considered good by the lender, the couple would qualify for a conforming conventional loan.
Reference: Finance > Special Processes
For the borrower, one discount point equals
A)
1% of the loan amount.
B)
2% of the purchase price.
C)
1% of the purchase price.
D)
2% of the loan amount.
For the borrower, one discount point equals
A)
1% of the loan amount.
Correct Answer
B)
2% of the purchase price.
Incorrect Answer
C)
1% of the purchase price.
Incorrect Answer
D)
2% of the loan amount.
Incorrect Answer
Explanation
A discount point is 1% of the loan amount, not the purchase price. If a house sells for $100,000 and the borrower seeks an $80,000 loan, each discount point would be $800 (not $1,000): 1% (0.01) × 80,000 = 800.
Reference: Finance > Terminology
Fannie Mae is an agency that
A)
guarantees payment of Freddie Mac mortgages.
B)
operates mostly in the primary mortgage market.
C)
buys mostly Federal Housing Administration (FHA) loans.
D)
operates mostly in the secondary mortgage market.
Fannie Mae is an agency that
A)
guarantees payment of Freddie Mac mortgages.
Incorrect Answer
B)
operates mostly in the primary mortgage market.
Incorrect Answer
C)
buys mostly Federal Housing Administration (FHA) loans.
Incorrect Answer
D)
operates mostly in the secondary mortgage market.
Correct Answer
Explanation
Fannie Mae provides a secondary market for mortgage loans. Fannie Mae does buy FHA loans but deals primarily in conventional loans. Fannie Mae does not provide loans in the primary mortgage market or guarantee payment of loans.
Reference: Finance > Sources of Financing (Primary and Secondary Mortgage Markets)
The borrower discovers that the loan is not assumable. What clause did the borrower find?
A)
Defeasance
B)
Acceleration
C)
Subordination
D)
Due on sale
The borrower discovers that the loan is not assumable. What clause did the borrower find?
A)
Defeasance
Incorrect Answer
B)
Acceleration
Incorrect Answer
C)
Subordination
Incorrect Answer
D)
Due on sale
Correct Answer
Explanation
The alienation/due on sale clause requires when the property is sold the loan must be paid off and is not assumable. Acceleration is used when the borrower is in default and allows the lender to call the note due and payable.
Reference: Finance > Terminology
The component of an adjustable-rate mortgage (ARM) that limits the percentage that the interest rate may increase over a specific time period, usually a year, is
A)
the margin.
B)
the life-of-the loan rate cap.
C)
the rate cap.
D)
the payment cap.
The component of an adjustable-rate mortgage (ARM) that limits the percentage that the interest rate may increase over a specific time period, usually a year, is
A)
the margin.
Incorrect Answer
B)
the life-of-the loan rate cap.
Incorrect Answer
C)
the rate cap.
Correct Answer
D)
the payment cap.
Incorrect Answer
Explanation
The rate cap limits the amount an ARM’s interest rate may change over a specific period of time, usually a year. The life-of-the loan rate cap limits the amount the rate may increase over the entire life of the loan. The payment cap sets a maximum amount the borrower will have to pay for a mortgage payment. The margin is the premium added to the index rate to adjust an ARM’s interest rate.
Reference: Finance > Types of Loans
A mortgage broker generally
A)
provides credit qualification and evaluation reports.
B)
brings the borrower and the lender together.
C)
grants real estate loans using investor funds.
D)
handles the escrow procedures.
A mortgage broker generally
A)
provides credit qualification and evaluation reports.
Incorrect Answer
B)
brings the borrower and the lender together.
Correct Answer
C)
grants real estate loans using investor funds.
Incorrect Answer
D)
handles the escrow procedures.
Incorrect Answer
Explanation
A mortgage broker is an intermediary who brings borrowers and lenders together. A mortgage broker locates potential borrowers, processes preliminary loan applications, and submits the applications to lenders for final approval. Mortgage brokers do not provide loans, handle escrow funds, or check borrowers’ creditworthiness for loans.
Reference: Finance > Terminology
A fixed-rate home loan that is fully amortized according to the original payment schedule
A)
permits the borrower to pay the same amount each payment period.
B)
has an interest rate that fluctuates based on an economic index.
C)
requires a monthly payment amount that fluctuates each month.
D)
cannot be sold in the secondary market.
A fixed-rate home loan that is fully amortized according to the original payment schedule
A)
permits the borrower to pay the same amount each payment period.
Correct Answer
B)
has an interest rate that fluctuates based on an economic index.
Incorrect Answer
C)
requires a monthly payment amount that fluctuates each month.
Incorrect Answer
D)
cannot be sold in the secondary market.
Incorrect Answer
Explanation
A fully amortized loan is a level-payment loan, with the same amount being paid by the borrower each payment period (usually monthly). The loan can be sold in the secondary market. An adjustable-rate mortgage has an interest rate that fluctuates based on an economic index.
Reference: Finance > Types of Loans
Under current regulations, a U.S. Department of Veterans Affairs (VA) loan is assumable if
A)
the VA approves both the buyer and the assumption agreement.
B)
the VA approves the buyer only.
C)
the VA approves the assumption agreement only.
D)
the veteran agrees not to request a release of liability for repayment.
Under current regulations, a U.S. Department of Veterans Affairs (VA) loan is assumable if
A)
the VA approves both the buyer and the assumption agreement.
Correct Answer
B)
the VA approves the buyer only.
Incorrect Answer
C)
the VA approves the assumption agreement only.
Incorrect Answer
D)
the veteran agrees not to request a release of liability for repayment.
Incorrect Answer
Explanation
For VA loans made after March 1, 1988, the VA must approve both the buyer and the assumption agreement before the loan may be assumed. The original veteran borrower remains personally liable for the loan unless the VA approves a release of liability after certain conditions are met.
Reference: Finance > Types of Loans
When a mortgage loan has been paid in full, it is important for the borrower to be sure that
A)
the paid mortgage is returned to the lender.
B)
the paid note is placed in a safe deposit box.
C)
a deed of partial reconveyance is obtained.
D)
a satisfaction of the mortgage is recorded in the public record.
When a mortgage loan has been paid in full, it is important for the borrower to be sure that
A)
the paid mortgage is returned to the lender.
Incorrect Answer
B)
the paid note is placed in a safe deposit box.
Incorrect Answer
C)
a deed of partial reconveyance is obtained.
Incorrect Answer
D)
a satisfaction of the mortgage is recorded in the public record.
Correct Answer
Explanation
When a note has been fully paid, the lender is required to execute a satisfaction (also known as a release or discharge). This document returns all ownership interest in the real estate originally conveyed to the lender. Entering the release into the public record shows that the debt has been removed from the property.
Reference: Finance > Special Processes
In a Federal Housing Administration (FHA) insured loan transaction,
A)
the interest rate is set by the FHA.
B)
the discount points may be paid by the seller or the buyer.
C)
the mortgage insurance premium must be paid by the seller.
D)
the mortgage insurance premium may be paid by the seller or the buyer.
In a Federal Housing Administration (FHA) insured loan transaction,
A)
the interest rate is set by the FHA.
Incorrect Answer
B)
the discount points may be paid by the seller or the buyer.
Correct Answer
C)
the mortgage insurance premium must be paid by the seller.
Incorrect Answer
D)
the mortgage insurance premium may be paid by the seller or the buyer.
Incorrect Answer
Explanation
Either the seller or the buyer may pay discount points in an FHA loan transaction. Interest rates are not set by the FHA but are negotiated between the lender and the buyer. An FHA loan includes a one-time upfront mortgage insurance premium (MIP), which can be financed, paid by the buyer, with an additional ½% MIP added to the monthly payments.
Reference: Finance > Types of Loans
A silent second is a form of mortgage fraud perpetrated by which of the following two parties?
A)
The seller and the buyer
B)
The buyer and the first mortgage lender
C)
The seller and the first mortgage lender
D)
The first mortgage lender and the second mortgage lender
A silent second is a form of mortgage fraud perpetrated by which of the following two parties?
A)
The seller and the buyer
Correct Answer
B)
The buyer and the first mortgage lender
Incorrect Answer
C)
The seller and the first mortgage lender
Incorrect Answer
D)
The first mortgage lender and the second mortgage lender
Incorrect Answer
Explanation
A silent second is a type of mortgage fraud perpetrated by the seller and the buyer. A silent second is a loan (i.e., an extension of credit) that the seller gives the buyer to help with a portion of the down payment, and neither party informs the first mortgage lender. Why is this considered mortgage fraud? Major institutional lenders carefully calculate how much debt a borrower can handle based on the borrower’s assets, monthly income, and recurring debt.
This silent second might very well increase a borrower’s debt load beyond the borrower’s ability to pay, thereby increasing the chances that the borrower will default on the primary mortgage loan.
Reference: Finance > Mortgage Fraud and Predatory Lending
The ratio of debt to the value of the property is
A)
the amortization ratio.
B)
the capital-use ratio.
C)
the debt-to-equity ratio.
D)
the loan-to-value (LTV) ratio.
The ratio of debt to the value of the property is
A)
the amortization ratio.
Incorrect Answer
B)
the capital-use ratio.
Incorrect Answer
C)
the debt-to-equity ratio.
Incorrect Answer
D)
the loan-to-value (LTV) ratio.
Correct Answer
Explanation
The LTV ratio is the ratio of debt to the value of the property, value being the sales price or appraisal value, whichever is less. The amortization rate is the interest rate in an amortized loan.
Reference: Finance > Terminology
A borrower borrowed $100,000 from a family member, and used a parcel of real estate as collateral for the loan. During the loan origination phase, the borrower signed two documents: a promissory note and a trust deed. After paying the loan in full, the borrower received a document called Satisfaction of Lien. This document was inadequate because
A)
it didn’t show the lien was removed from the parcel of real estate.
B)
it didn’t reconvey bare legal title back to the former borrower.
C)
none of these.
D)
it didn’t show the loan was satisfied.
A borrower borrowed $100,000 from a family member, and used a parcel of real estate as collateral for the loan. During the loan origination phase, the borrower signed two documents: a promissory note and a trust deed. After paying the loan in full, the borrower received a document called Satisfaction of Lien. This document was inadequate because
A)
it didn’t show the lien was removed from the parcel of real estate.
Incorrect Answer
B)
it didn’t reconvey bare legal title back to the former borrower.
Correct Answer
C)
none of these.
Incorrect Answer
D)
it didn’t show the loan was satisfied.
Incorrect Answer
Explanation
Both mortgages and trust deeds are security instruments that turn a parcel of real estate into collateral for a loan. A lender wants collateral so that, in the event the borrower defaults, the lender can take back or sell the collateral at a foreclosure sale. A mortgage is between two parties (i.e., the lender and the borrower), and is merely a lien without any impact on title to the property. A Satisfaction of Mortgage shows the loan has been paid in full and the lien has been lifted from the title. A trust deed (a.k.a. a deed of trust) is also a loan document, but there is a third party called the trustee. The borrower conveys bare legal title to the trustee to hold until the loan is paid in full. After the loan is paid in full, the trustee must return or reconvey bare legal title back to the former borrower. An interest in real estate is conveyed with a written deed: The trustee executes (signs) a reconveyance deed to return bare legal title to the borrower. The reconveyance deed (a.k.a. a deed of reconveyance) does two things: 1) it reconveys bare legal title back to the former borrower, and 2) it shows the lien has been lifted from the property. A Satisfaction of Lien does show a lien has been satisfied and removed from a parcel of real estate.
Reference: Finance > Lien Theory Versus Title Theory
To qualify for a conventional loan under Fannie Mae guidelines, a borrower’s total monthly obligations, including housing costs plus other regular monthly payments, must NOT exceed
A)
28% of the borrower’s total monthly gross income.
B)
36% of the borrower’s total monthly gross income.
C)
36% of the borrower’s total monthly net income.
D)
28% of the borrower’s total monthly net income.
To qualify for a conventional loan under Fannie Mae guidelines, a borrower’s total monthly obligations, including housing costs plus other regular monthly payments, must NOT exceed
A)
28% of the borrower’s total monthly gross income.
Incorrect Answer
B)
36% of the borrower’s total monthly gross income.
Correct Answer
C)
36% of the borrower’s total monthly net income.
Incorrect Answer
D)
28% of the borrower’s total monthly net income.
Incorrect Answer
Explanation
Generally speaking, a conventional loan under Fannie Mae guidelines requires that a borrower’s total monthly obligations, including housing costs plus other regular monthly payments, not exceed 36% of the borrower’s total monthly gross income. A borrower’s monthly housing expenses, including principal, interest, taxes, and insurance (PITI), must not exceed 28% of the borrower’s total monthly gross income.
Reference: Finance > Laws Affecting Financing and Lending
A developer had a mortgage loan on his entire housing subdivision. When he sold a lot to a buyer, he was able to deliver title to that lot free of the mortgage lien by obtaining a partial release. The developer’s loan is
A)
an open-end mortgage.
B)
a package mortgage.
C)
a blanket mortgage.
D)
a purchase money mortgage.
A developer had a mortgage loan on his entire housing subdivision. When he sold a lot to a buyer, he was able to deliver title to that lot free of the mortgage lien by obtaining a partial release. The developer’s loan is
A)
an open-end mortgage.
Incorrect Answer
B)
a package mortgage.
Incorrect Answer
C)
a blanket mortgage.
Correct Answer
D)
a purchase money mortgage.
Incorrect Answer
Explanation
A blanket loan covers more than one parcel or lot. Usually, the loan contains a provision called a partial release clause, which allows the borrower to obtain the release of a lot from the blanket lien by repaying a certain amount of the loan. A purchase money mortgage is a second mortgage given back to the seller by a buyer to bridge the gap between the borrower’s down payment and the first mortgage. In a package mortgage, the borrower pledges both personal and real property as security for a loan. An open-end mortgage secures a note executed by the borrower to the lender, as well as any advances of funds made by the lender to the borrower.
Reference: Finance > Types of Loans
An individual who obtains a real estate loan and signs a note and a mortgage is known as
A)
the optionor.
B)
the optionee.
C)
the mortgagor.
D)
the mortgagee.
An individual who obtains a real estate loan and signs a note and a mortgage is known as
A)
the optionor.
Incorrect Answer
B)
the optionee.
Incorrect Answer
C)
the mortgagor.
Correct Answer
D)
the mortgagee.
Incorrect Answer
Explanation
The borrower who receives a loan and in return gives a note and mortgage to the lender is the mortgagor. The lender is called the mortgagee. An optionor is an owner who gives an optionee, a prospective purchaser or lessee, the right to buy or lease the owner’s property at a fixed price within a certain period of time.
Reference: Finance > Terminology
A mortgage in which a payment partially pays off both the principal and interest on the loan is
A)
a reverse mortgage.
B)
an interest-only loan.
C)
an amortized loan.
D)
a construction loan.
A mortgage in which a payment partially pays off both the principal and interest on the loan is
A)
a reverse mortgage.
Incorrect Answer
B)
an interest-only loan.
Incorrect Answer
C)
an amortized loan.
Correct Answer
D)
a construction loan.
Incorrect Answer
Explanation
The payment in an amortized loan partially pays off both principal and interest. An interest-only mortgage requires the payment of interest only for a stated period of time, with the principal balance due at the end of the loan or with the remaining principal balance and interest recalculated after the stated period. A reverse mortgage allows people 62 years or older to borrow money against the equity built in their home, and no payments are due until the property is sold or the borrower defaults, moves, or dies. A construction loan is generally short-term or interim financing in which the borrower pays interest only on the monies that have been disbursed in draws used to pay for construction.
Reference: Finance > Types of Loans
Buyers seeking a mortgage on a single-family residence would be LEAST likely to obtain the mortgage from
A)
a life insurance company.
B)
a mutual savings bank.
C)
a commercial bank.
D)
a credit union.
Buyers seeking a mortgage on a single-family residence would be LEAST likely to obtain the mortgage from
A)
a life insurance company.
Correct Answer
B)
a mutual savings bank.
Incorrect Answer
C)
a commercial bank.
Incorrect Answer
D)
a credit union.
Incorrect Answer
Explanation
Life insurance companies make mortgage loans on large projects but rarely, if ever, on individual home purchases. Mutual savings banks, credit unions, and commercial banks are all sources of mortgages for individual residences.
Reference: Finance > Sources of Financing (Primary and Secondary Mortgage Markets)
The federal Equal Credit Opportunity Act (ECOA) allows lenders to discriminate against potential borrowers on the basis of
A)
age.
B)
amount of income.
C)
race.
D)
dependence on public assistance.
The federal Equal Credit Opportunity Act (ECOA) allows lenders to discriminate against potential borrowers on the basis of
A)
age.
Incorrect Answer
B)
amount of income.
Correct Answer
C)
race.
Incorrect Answer
D)
dependence on public assistance.
Incorrect Answer
Explanation
Lenders may reject applicants who have insufficient income for the loans they are requesting or for their lack of ability to repay the loans. Lenders may not discriminate against potential borrowers on the basis of race, color, religion, national origin, sex, marital status, age, or dependence on public assistance.
Reference: Finance > Laws Affecting Financing and Lending
What is the major difference between conventional and government loans?
A)
A conventional loan is sold on the secondary market, while a loan is not.
B)
A government loan is sold on the secondary market, while a conventional loan is not.
C)
A government loan is insured or guaranteed by the government, while a conventional loan is not.
D)
A conventional loan is guaranteed or insured by the government, while a government loan is not.
What is the major difference between conventional and government loans?
A)
A conventional loan is sold on the secondary market, while a loan is not.
Incorrect Answer
B)
A government loan is sold on the secondary market, while a conventional loan is not.
Incorrect Answer
C)
A government loan is insured or guaranteed by the government, while a conventional loan is not.
Correct Answer
D)
A conventional loan is guaranteed or insured by the government, while a government loan is not.
Incorrect Answer
Explanation
Government loans, such as Federal Housing Administration (FHA) or U.S. Department of Veterans Affairs (VA) loans, are insured or guaranteed by the government. Conventional loans are not insured or guaranteed by the government. Both government and conventional loans may be sold on the secondary market.
Reference: Finance > Types of Loans
In a fixed-rate, fully amortized loan
A)
the principal amount in each payment is greater than the interest amount.
B)
each mortgage payment reduces the principal by the same amount.
C)
a balloon payment will be made at the end of the loan.
D)
each mortgage payment amount is the same.
In a fixed-rate, fully amortized loan
A)
the principal amount in each payment is greater than the interest amount.
Incorrect Answer
B)
each mortgage payment reduces the principal by the same amount.
Incorrect Answer
C)
a balloon payment will be made at the end of the loan.
Incorrect Answer
D)
each mortgage payment amount is the same.
Correct Answer
Explanation
A fully amortized loan is paid off slowly, over time, in equal payments. Regular periodic payments are made over a term of years. In a partially amortized loan, such as a balloon mortgage, the principal and interest payments do not pay off the entire loan. A loan balance remains when the final payment is made. In the fully amortized loan, the lender credits each payment first to the interest due, then to the principal amount of the loan. As a result, while each payment remains the same, the portion applied to repayment of the principal grows and the interest due declines as the unpaid balance of the loan is reduced.
Reference: Finance > Types of Loans
A home is purchased using a fixed-rate, fully amortized mortgage loan. With this loan,
A)
a balloon payment will be made at the end of the loan.
B)
the principal amount in each payment is greater than the interest amount.
C)
each mortgage payment amount is the same.
D)
each mortgage payment reduces the principal by the same amount.
A home is purchased using a fixed-rate, fully amortized mortgage loan. With this loan,
A)
a balloon payment will be made at the end of the loan.
Incorrect Answer
B)
the principal amount in each payment is greater than the interest amount.
Incorrect Answer
C)
each mortgage payment amount is the same.
Correct Answer
D)
each mortgage payment reduces the principal by the same amount.
Incorrect Answer
Explanation
In a fully amortized loan, there will be no balloon payment because the periodic payments fully repay the loan by the end of the term period. Each mortgage payment reduces the principal by a slightly different (increasing) amount, but each mortgage payment (principal and interest) is the same.
Reference: Finance > Types of Loans
A borrower obtained a $7,000 second mortgage loan for five years at a 6% interest annual interest rate. Monthly payments of principal and interest were $50. The final payment included the remaining outstanding principal balance. What type of loan is this?
A)
Fully amortized loan
B)
Partially amortized loan
C)
Straight loan
D)
Accelerated loan
A borrower obtained a $7,000 second mortgage loan for five years at a 6% interest annual interest rate. Monthly payments of principal and interest were $50. The final payment included the remaining outstanding principal balance. What type of loan is this?
A)
Fully amortized loan
Incorrect Answer
B)
Partially amortized loan
Correct Answer
C)
Straight loan
Incorrect Answer
D)
Accelerated loan
Incorrect Answer
Explanation
A partially amortized loan is a loan with a partial balloon payment. Principal is still owed at the end of the term, because periodic payments are not enough to fully amortize the loan and the final payment is larger than the others. A straight or interest only is a loan in which the borrower makes periodic payments of interest only, followed by a lump sum balloon payment of the full principal at the end of the term. In a fully amortized loan, the borrower pays both principal and interest in equal periodic payments over the life of the loan. An accelerated loan is a loan paid off early, in which the borrower pays the full balance owed at a time of default, sale of the property, or to redeem the property before foreclosure.
Reference: Finance > Types of Loans
A borrower negotiates a 15-year term for a mortgage rather than choosing a longer, 30-year term. The shorter term for the mortgage will result in
A)
a higher interest rate.
B)
a higher monthly payment.
C)
a lower monthly payment.
D)
the same monthly payment as for a longer term loan.
A borrower negotiates a 15-year term for a mortgage rather than choosing a longer, 30-year term. The shorter term for the mortgage will result in
A)
a higher interest rate.
Incorrect Answer
B)
a higher monthly payment.
Correct Answer
C)
a lower monthly payment.
Incorrect Answer
D)
the same monthly payment as for a longer term loan.
Incorrect Answer
Explanation
Because the borrower will be paying off the loan in a shorter time, the borrower will be required to pay a higher monthly payment. The lender may offer a lower interest rate for a shorter loan term, but the lender may offer the same interest rate for a loan regardless of its term.
Reference: Finance > Types of Loans
Which of these are NOT costs or expenses of owning a home?
A)
Taxes on personal property
B)
Homeowners insurance
C)
Interest paid on borrowed capital
D)
Maintenance and repairs
Which of these are NOT costs or expenses of owning a home?
A)
Taxes on personal property
Correct Answer
B)
Homeowners insurance
Incorrect Answer
C)
Interest paid on borrowed capital
Incorrect Answer
D)
Maintenance and repairs
Incorrect Answer
Explanation
Personal property is not real estate. Non-homeowners and homeowners may pay taxes on personal property. Such taxes are not directly related to home ownership. Mortgage interest, home maintenance and repairs, and homeowners insurance all are costs directly related to owning a home.
Reference: Finance > Special Processes
The charge for the use of the lender’s money in a loan is
A)
the interest.
B)
the equity.
C)
the rate of return.
D)
the principal.
The charge for the use of the lender’s money in a loan is
A)
the interest.
Correct Answer
B)
the equity.
Incorrect Answer
C)
the rate of return.
Incorrect Answer
D)
the principal.
Incorrect Answer
Explanation
Interest is the sum paid or accrued in return for the use of a lender’s money. Interest on a promissory note is usually due in arrears at the end of each payment period. The rate of return is the return on the investment in a property. An owner’s equity is the amount of money remaining once current liens, including the mortgage, are subtracted from the current value of the property. The principal is the balance owed on the original loan amount.
Reference: Finance > Terminology
In a title theory state, the trustee on a trust deed holds bare legal title on behalf of
A)
the mortgagee.
B)
the beneficiary.
C)
the mortgagor.
D)
the trustor.
In a title theory state, the trustee on a trust deed holds bare legal title on behalf of
A)
the mortgagee.
Incorrect Answer
B)
the beneficiary.
Correct Answer
C)
the mortgagor.
Incorrect Answer
D)
the trustor.
Incorrect Answer
Explanation
The best answer choice is the beneficiary. A lender on a trust deed is called a beneficiary. The trustee holds bare legal title on behalf of the lender while the loan is outstanding and will manage the foreclosure in the event of borrower default. Mortgagor and trustor are terms that refer to borrowers; the trustee on a trust deed does not hold bare legal title on behalf of the borrower. A mortgagee is a lender, but beneficiary is the better choice because it is the specific term used on a trust deed.
Reference: Finance > Lien Theory Versus Title Theory
A homeowner has owned her house for over 50 years. It has fallen into disrepair, but because she lives on a fixed income, she does not have the money to make the needed repairs. She has a considerable amount of equity in the house. What type of loan would BEST provide her the funds to make the necessary repairs?
A)
Open-end loan
B)
Blanket loan
C)
Home equity loan
D)
Reverse mortgage
A homeowner has owned her house for over 50 years. It has fallen into disrepair, but because she lives on a fixed income, she does not have the money to make the needed repairs. She has a considerable amount of equity in the house. What type of loan would BEST provide her the funds to make the necessary repairs?
A)
Open-end loan
Incorrect Answer
B)
Blanket loan
Incorrect Answer
C)
Home equity loan
Incorrect Answer
D)
Reverse mortgage
Correct Answer
Explanation
A reverse mortgage allows people 62 years of age or older who have considerable equity in their homes to borrow money against that equity. No payments are due until the property is sold or the borrower defaults, moves, or dies. A home equity loan uses the equity in the home as a source of loans but requires monthly payments of principal and interest that may be burdensome to older persons on a fixed income. A blanket loan covers more than one parcel or lot and permits the borrower to obtain a release of a parcel or lot from the mortgage lien when the lot is sold. An open-end mortgage is an expandable loan in which borrowers are given a limit up to which they may borrow, with each advance secured by the same mortgage.
Reference: Finance > Types of Loans
The type of mortgage loan that uses both real and personal property as security is
A)
a term loan.
B)
a purchase money mortgage.
C)
a package loan.
D)
a blanket loan.
The type of mortgage loan that uses both real and personal property as security is
A)
a term loan.
Incorrect Answer
B)
a purchase money mortgage.
Incorrect Answer
C)
a package loan.
Correct Answer
D)
a blanket loan.
Incorrect Answer
Explanation
A package loan includes not only the real estate but also all personal property and appliances installed on the premises. A blanket loan covers more than one parcel or lot and permits the borrower to obtain a release of a parcel or lot from the mortgage lien when the lot is sold. A purchase money mortgage refers to the instrument given by a borrower to a seller who takes back a note for part or the entire mortgage. A term/straight or interest-only loan secures only real property.
Reference: Finance > Types of Loans
A disadvantage of a term or partial amortization loan over a fully amortized is
A)
the higher loan-to-value (LTV) ratio required.
B)
the longer term of repayment required.
C)
the higher interest costs.
D)
the balloon payment due at the end of the term.
A disadvantage of a term or partial amortization loan over a fully amortized is
A)
the higher loan-to-value (LTV) ratio required.
Incorrect Answer
B)
the longer term of repayment required.
Incorrect Answer
C)
the higher interest costs.
Incorrect Answer
D)
the balloon payment due at the end of the term.
Correct Answer
Explanation
Term and partially amortized loans have lower interest costs, due to a shorter term of repayment. The higher the LTV, the lower the down payment, so a high LTV would be an advantage.
Reference: Finance > Types of Loans
The Consumer Financial Protection Bureau (CFPB) requires that
A)
lenders provide a closing statement to all purchasers of residential or commercial properties.
B)
brokers be responsible for verifying that the new loan disclosure matches the new loan estimate.
C)
real estate brokers and lenders must include the annual percentage rate (APR) and all charges in all real estate advertisements.
D)
lenders provide the borrower with a new loan estimate at the time of application or no more than three days after application.
The Consumer Financial Protection Bureau (CFPB) requires that
A)
lenders provide a closing statement to all purchasers of residential or commercial properties.
Incorrect Answer
B)
brokers be responsible for verifying that the new loan disclosure matches the new loan estimate.
Incorrect Answer
C)
real estate brokers and lenders must include the annual percentage rate (APR) and all charges in all real estate advertisements.
Incorrect Answer
D)
lenders provide the borrower with a new loan estimate at the time of application or no more than three days after application.
Correct Answer
Explanation
CFPB provides that the lender provide the borrower with a new loan estimate of the settlement costs no more than three business days after receiving the loan application. The law requires full disclosure of APR and terms if certain items are included in the advertisement; it does not apply to all ads. The law does not apply to the purchase of commercial properties. CFPB does not require brokers to verify that the new loan closing disclosure matches a new loan estimate as there may have been changes.
Reference: Finance > Laws Affecting Financing and Lending
The primary activity of Fannie Mae is to
A)
guarantee mortgages with the full faith and credit of the federal government.
B)
act in tandem with Ginnie Mae to provide special assistance in times of tight money.
C)
buy and pool blocks of conventional mortgages and sell bonds that use them as security.
D)
buy and sell only Federal Housing Administration (FHA) and U.S. Department of Veterans Affairs (VA) mortgages.
The primary activity of Fannie Mae is to
A)
guarantee mortgages with the full faith and credit of the federal government.
Incorrect Answer
B)
act in tandem with Ginnie Mae to provide special assistance in times of tight money.
Incorrect Answer
C)
buy and pool blocks of conventional mortgages and sell bonds that use them as security.
Correct Answer
D)
buy and sell only Federal Housing Administration (FHA) and U.S. Department of Veterans Affairs (VA) mortgages.
Incorrect Answer
Explanation
Fannie Mae buys and gathers existing conventional mortgages into bundles (pools) and raises money to do this by selling bonds backed by these pools of mortgages. Ginnie Mae is a division of the Department of Housing and Urban Development (HUD) that administers programs using VA and FHA loans as collateral.
Reference: Finance > Sources of Financing (Primary and Secondary Mortgage Markets)
A purchaser cannot qualify for conventional financing and negotiates a contract for deed with a seller. The buyer in this arrangement
A)
must lease the property from the seller for the duration of the contract term.
B)
has possession and pays the property expenses and taxes.
C)
has a full legal interest in the property.
D)
receives a deed to the property at closing.
A purchaser cannot qualify for conventional financing and negotiates a contract for deed with a seller. The buyer in this arrangement
A)
must lease the property from the seller for the duration of the contract term.
Incorrect Answer
B)
has possession and pays the property expenses and taxes.
Correct Answer
C)
has a full legal interest in the property.
Incorrect Answer
D)
receives a deed to the property at closing.
Incorrect Answer
Explanation
In a contract for deed arrangement, the buyer takes full possession of the property and gets equitable title to the property. The buyer agrees to pay real property taxes, insurance premiums, and for the upkeep of the property. The seller is not obligated to execute and deliver the deed for the property to the buyer until all the terms of the contract have been satisfied.
Reference: Finance > Types of Loans
All of these clauses in a loan agreement enable the lender to demand that the entire remaining debt be paid immediately EXCEPT
A)
an acceleration clause.
B)
a defeasance clause.
C)
an alienation clause.
D)
a due-on-sale clause.
All of these clauses in a loan agreement enable the lender to demand that the entire remaining debt be paid immediately EXCEPT
A)
an acceleration clause.
Incorrect Answer
B)
a defeasance clause.
Correct Answer
C)
an alienation clause.
Incorrect Answer
D)
a due-on-sale clause.
Incorrect Answer
Explanation
A defeasance clause requires the lender to execute a satisfaction of the loan when the loan has been fully paid. A due-on-sale clause provides that when the property is sold, the lender may declare the entire debt due or permit the buyer to assume the loan. An alienation clause states that the lender may collect full payment on a loan if the property is conveyed to another party without the lender’s consent. An acceleration clause permits the lender to declare the entire debt payable immediately if the borrower defaults on payments on the loan.
Reference: Finance > Terminology
