Financing Residential Real Estate Practice Exam

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• What is the significance of the Truth in Lending Act (TILA)?
• Which component remains unchanged during the term of an adjustable-rate mortgage?
• What federal law requires closing agents to use the uniform settlement statement form?
• What is the FHA's minimum down payment requirement for mortgages?
• What will a lender do with the tax and insurance portions of a monthly mortgage payment?
• How is the relationship between the total finance charge and total amount financed expressed?
• In what situation might a borrower consider a hard money loan?
• When a borrower converts their adjustable-rate mortgage (ARM) to a fixed-rate mortgage, what is the typical rate based on?
• What type of loan is most likely to include a subordination clause?
• If the posts are buying a house for $254,000 with an appraised value of $255,000 and a 90% LTV, how much are they borrowing?
• What does "loan modification" refer to in mortgage terms?
• Under which condition might a lender deny a mortgage application?
• What is the purpose of an interest rate cap in an adjustable-rate mortgage (ARM)?
• For VA loans, what do most lenders require regarding the loan amount?
• If the Lawrences sell their home to a non-veteran who intends to assume their VA loan, which statement is true?
• Secondary financing from someone other than a family member is permitted in conjunction with an FHA loan if what condition is met?
• What is the primary function of an amortization schedule?
• When evaluating an application for a VA guaranteed loan, what would an underwriter be particularly concerned with?
• What is the purpose of a good faith estimate in the mortgage process?
• An advertisement that promotes home purchase loans with only 1% down must comply with which regulation?
• What is generally required for conventional loans regarding private mortgage insurance?
• What is a short sale in real estate?
• What is a wrap-around mortgage?
• For a borrower to finance a single-family home with an FHA loan, what must be true?
• What is the minimum cash investment requirement for an FHA borrower?
• Which entity is considered a secondary market participant?
• Which type of income do lenders typically not count as stable income?
• Which statement about private mortgage insurance (PMI) is true?
• What does the Real Estate Settlement Procedures Act prohibit lenders from doing?
• What do lenders typically evaluate in a borrower's credit history?
• What responsibility do Kevin Novak's parents assume by co-signing his home loan?
• What is typically a higher interest scenario in financing?
• Which statement best describes the purpose of points in financing?
• Who is willing to buy loans under certain conditions?
• What is meant by "seller financing"?
• What is a fixed-rate mortgage?
• What happens to a borrower's credit report after declaring bankruptcy?
• Which provision in a mortgage allows the lender to demand immediate payment of the entire outstanding loan balance if the borrower defaults?
• What is private mortgage insurance (PMI)?
• Who might consider temporary buy downs and hybrid ARMs beneficial?
• What is the purpose of the Loan-to-Value ratio?
• What is a subprime mortgage?
• Which loan type would buyers with limited closing funds most likely consider?
• Define "foreclosure."
• What can a lender do if a conventional loan is assumable when the property is sold?
• In conventional financing, what do the traditional 28% and 36% income ratios represent?
• Which legislation passed in 2008 authorized the Treasury Department to purchase stock in and assets of failing financial institutions?
• What is a loan that does not meet Fannie Mae or Freddie Mac's underwriting guidelines called?
• For the Jacksons buying a home for $320,000, how much will they pay in fees for a discount fee of 3 points on their $300,000 loan?
• Seller financing is most commonly utilized when:
• What typically happens to the loan if a co-signer is unable to pay?
• What is the primary purpose of an origination fee?
• What is the primary function of a real estate investment trust (REIT)?
• What defines a jumbo loan?
• What characterizes an adjustable-rate mortgage (ARM)?
• What does a promissory note establish for borrowers?
• When calculating a loan applicant's stable monthly income, which income type may be grossed up by the underwriter?
• What is an "interest-only mortgage"?
• Why is it important for borrowers to understand their credit score when applying for a mortgage?
• What does charging a prepayment penalty imply in a mortgage?
• What distinguishes securities from other types of investments?
• What term describes the payment made by a borrower to reduce their interest rate for a temporary period?
• What is the most common alternative private source of lending available to home buyers?
• What does the power of sale clause in a deed of trust allow?
• What is a hard money loan primarily based upon?
• In a married couple applying for a conventional mortgage, which credit score will the lender use for qualification?
• What is a balloon mortgage?
• Who can assume Margo and John's FHA loan upon selling their home?
• How is a wrap-around mortgage beneficial to the seller?
• Why is it important for applicants to understand their debt to income ratio before applying for a mortgage?
• If an automated underwriting system does not assign a loan application a risk classification, what can the lender do?
• What does "prequalification" in mortgage lending involve?
• Which of the following is not considered a predatory lending practice?
• Which of the following could serve as a definition of negative amortization?
• Which type of income is least likely to be considered as part of a loan applicant's stable monthly income?
• Which of the following is considered one of the primary risk factors by Fannie Mae in assessing a loan application?
• Why was the secondary mortgage market created by the federal government?
• What type of loan has a fixed interest rate for the first 5 years and an annually adjustable rate for the remainder of the term?
• What term describes the costs associated with securing a mortgage that are paid at closing?
• What is the significance of a commitment letter from a lender?
• What happens to the interest rate in an adjustable-rate mortgage during the loan term?
• What is the primary goal of the Dodd-Frank Act?
• Which of the following is NOT typically included in PITI?
• What term is used for funds that a lender requires a borrower to have available after closing to cover mortgage payments?
• What is the maximum debt-to-income ratio that FHA borrowers typically should not exceed?
• What does LTV stand for in real estate financing?
• How does the loan-to-value ratio affect mortgage insurance requirements on conventional loans?
• What do reverse mortgages enable some elderly homeowners to do?
• What characterizes a jumbo mortgage?
• What document should a loan applicant bring to their initial loan interview?
• Compared to a 30-year loan, what is generally true about a 15-year loan?
• What are closing costs?
• What is the due date for the buyer's first mortgage payment if the closing takes place on January 20?
• What does the term "loan-to-value ratio" (LTV) signify?
• What risk is associated with a high loan-to-value (LTV) ratio?
• How does the Federal Reserve influence mortgage rates?
• What is true about a lease option arrangement?
• For an investor, what are the three key characteristics of a potential investment?
• What is the primary purpose of obtaining a title report for a property?
• If Buyer A is borrowing $300,000 and Buyer B is borrowing $900,000, which statement is likely true about their loan qualification?
• What is required when using gift funds in a real estate transaction?
• In most transactions financed with a land contract, what happens to legal title?
• Describe the term "equity" in real estate.
• What must lenders typically provide with mortgage loan applications?
• Which type of mortgage provides interest rate stability over its entire term?
• All of the following could hurt an individual's credit score except for which action?
• What does the term "piggyback loan" refer to?
• Which of the following is NOT typically included in a mortgage loan application?
• When calculating liquid assets for a loan, what will an underwriter include regarding the sale of an old home?
• Can gift funds be applied to the required down payment for a conventional loan?
• What are the eligibility requirements for FHA loans?
• For how long does negative credit information typically remain on an individual's credit report after a bankruptcy?
• What is typically evaluated during the underwriting process?
• The Richardson family's stable monthly income is $6000, and their recurring liabilities come to $700 per month. If they want to qualify for a 90% conventional loan, their proposed monthly housing expense (PITI) probably should not exceed what amount?
• What does the term "points" refer to in mortgage financing?
• What is one of the main advantages of FHA loans for buyers?
• What is the primary function of the secondary mortgage market?
• Which of the following benefits may come from being able to redeem a property after foreclosure?
• What is risk-based pricing in mortgage lending?
• What is interim or prepaid interest typically used for in a residential real estate transaction?
• What role does the lender have in a deed of trust?
• What is a "deed in lieu of foreclosure"?
• What is the consequence if a loan applicant has a significantly lower credit score than their partner?
• Which Federal law primarily governs truth in advertising for mortgage loans?
• What is a significant benefit of a 30-year fixed-rate mortgage?
• What type of home purchase is likely to be seen as a compensating factor for a loan application?
• What does "REO" stand for in real estate?
• What is a pre-approval in the mortgage process?
• In mortgage financing, why is the Loan-to-Value ratio important?
• What does "qualified mortgage" refer to?
• What is the role of a title company in real estate transactions?
• How do retail lenders differ from wholesale lenders?
• What is the potential benefit of using a real estate investment trust (REIT)?
• According to general underwriting rules, how long must a self-employed business run profitably for income to be considered stable?
• When qualifying for a mortgage, what interest rate will the lender use for Alex Carville if the seller pays for a permanent buy down from 10% to 8%?
• What must secondary financing comply with when used in conjunction with a conventional loan?
• What must occur before the Swansons can finalize their mortgage loan with Acme Savings?
• What happens in wrap-around financing?
• Which type of liability is least likely to impact a conventional loan qualification?
• What is the term used for the situation when Ben Chan's interest rate is secured at 6.15% for closing within 60 days?
• Which statement about predatory lending is true?
• What does a conventional mortgage typically require from the borrower?
• What effect does an escrow account have on a borrower's finances?
• According to the Truth in Lending Act (Regulation Z), when must a residential lender provide a loan applicant with a disclosure statement regarding finance charges?
• How does property appraisal influence financing?
• What is the function of escrow in mortgage transactions?
• Which government-sponsored enterprise was placed into conservatorship in 2008?
• What is the function of an "interest rate lock"?
• What does PMI stand for in the context of home loans?
• What is the purpose of an escrow account?
• What is necessary for a borrower to qualify for a mortgage?
• Which of the following is true about a VA loan?
• What type of loan do the Diaz's likely have if they did not make a down payment but paid a funding fee?
• What may occur if the seller does not pay off the existing mortgage and the buyer does not assume it?
• What type of financing allows homeowners to borrow against the equity of their home?
• Under the Equal Credit Opportunity Act, lenders are prohibited from discriminating based on what criteria?
• What does the term "securitization" refer to in mortgage financing?
• In a deed of trust, who is referred to as the beneficiary?
• What type of property can a borrower purchase with an FHA insured loan through the 203B program?
• What does the debt-to-income ratio (DTI) measure?
• When can a defaulting borrower redeem their property according to the statutory right of redemption?
• What type of premium is required when using an FHA loan for a single-family home?
• What purpose does a discount point serve in a mortgage loan?
• What is underwriting in the mortgage process?
• What is the primary objective of the Home Mortgage Disclosure Act (HMDA)?
• What should the minimum cash investment for an FHA borrower reflect?
• Which type of loan is most likely to have a requirement for reserves after closing?
• Under the Community Reinvestment Act, depository institutions are required to do what?
• Which characteristic is true of a gem in relation to mortgage payments?
• What does "underwater mortgage" indicate?
• What is a bridge loan primarily used for?
• What does the term "equity build-up" signify?
• When can funds gifted from parents be considered for a down payment?
• What is the purpose of a credit report in the mortgage application process?
• What is another name for a due on sale clause in a real estate contract?
• What does title insurance protect against?
• What prompted the introduction of long term mortgage loans?
• What typically triggers the need for private mortgage insurance?
• Which government agency oversees the Federal Housing Administration (FHA) loans?
• What is the cost to the seller for a level payment temporary buy-down that reduces the buyer's interest rate by 2% for 3 years, lowering the monthly payment from $1000 to $875?
• Which type of interest rate changes over time based on market conditions?
• What are real estate closing disclosures intended to provide?
• What do affordable housing programs involving conventional loans often have?
• What defines a conventional mortgage?
• Which of the following describes an FHA loan?
• What financial factor might allow a loan applicant to exceed standard income ratio limits?
• What does "subject to" mean in a real estate financing context?
• Which of the following best describes an amortization schedule?
• Which of the following would an appraiser be most likely to use as a comparison sale for a sales comparison appraisal with any necessary adjustments?
• When analyzing a loan applicant's ability to afford a mortgage, lenders are primarily concerned with what metric?
• What is the role of the Consumer Financial Protection Bureau (CFPB) in mortgage lending?
• Define "amortization."
• What is the primary purpose of a mortgage?
• What is a common characteristic of Fannie Mae, Freddie Mac, and Ginnie Mae?
• What is the main advantage of a fixed-rate mortgage?
• What is the purpose of a construction loan?
• In which situation would a lender not comply with underwriting guidelines of secondary market entities?
• What is the difference between a loan originator and a mortgage broker?
• What is involved in "loan servicing"?
• Which type of financing is primarily derived from the equity in a property?
• In qualifying a buyer for a conventional loan, which liability is least likely to be considered by the underwriter?
• If a loan has a fixed interest rate with level monthly payments and a balloon payment at the end of the term, what type of loan is this?