Pearson VUE Exam Prep: Financing and Settlement

Methods of Financing

- Equity - Principal - Interest

over how many years is a residential income-producing property depreciated?

27.5 years

The VA loan program offers a basic entitlement amount of

36,000

What's a participation certificate?

A mortgage backed security issued by Freddie Mac

Under RESPA's section 8, which of the following would be considered a kickback?

A title insurance company buys you dinner to thank you for referring a client.

Ava is borrowing money to buy some commercial property for her business. The loan agreement she signs includes a lock in clause. what does that mean?

Ava will not be allowed to prepay the loan prior to the date specific in the loan agreement

Stefan is an unlicensed assistant for the ACE team at ACME Realty in Texas. Which of these activities can he perform?

Calculate commissions for team members.

Which entity sets the requirements for qualified mortgages?

Consumer Financial Protection Bureau

Craig's loan is secured by a mortgage. Who holds legal title when the security instrument is used?

Craig

Conventional loans from large commercial banks are the primary target for which secondary market player?

Fannie Mae

Which of the following is an example of a government sponsored enterprise?

Fannie Mae

In 2008 as a response to the 2007 financial crisis, the Federal Housing Finance Agency began acting as conservator over which institutions?

Fannie Mae and Freddie Mac

Fannie Mae, Freddie Mac and the Federal Home Loan Bank are regulated by the ________.

Federal Housing Finance Agency

Which entity regulates government sponsored enterprises?

Federal Housing Finance Agency

__________ is regulated by the Federal Housing Finance Agency

Freddie Mac

Which of the following is an acceptable ad based on Regulation Z?

Get a low interest rate of 4.75% (4.925% APR) with as little as 10% down payment and a 30 year fixed rate with no points.

How do VA loan programs compute "residual income"?

Income minus shelter expenses and debts

Which of the following are potential private loan resources that may be willing to finance a home?

Individual Entrepreneurs

Though not a loan, buyers may be able to enlist the help of ________, who can give them a tax-free gift to help them with their purchases

Individuals, such as family members

Commercial banks fall into which of the following category of lenders?

Institutional lenders

What's the purpose of a typical subordination agreemnet?

It allows a junior mortgage to move into first lien position

The listing agent is responsible for obtaining information from the seller as part of the Seller's Disclosure Notice. what is done with this information?

It is made available to prospective buyers and other agents.

Which of the following is generally true of flood insurance?

It is usually purchased separately or bundled with a homeowners policy but its not standard.

Which of the following describes "buy and hold" investment strategy?

It's a more conservative investment method than a fix and flip

When a deed of trust used as the security instrument for a mortgage loan, which of the following is a true statement?

It's generally much easier for a lender to foreclose on a property

Which of the following elements does the Statute of Frauds require as part of a valid real estate contract in Texas?

Legal description

Which of the following is part of the Other Disclosures section?

Liability after foreclosure

What does the concept "first in time" refer to when discussing lien priority?

Liens are paid based on filing date

Conforming loan limits vary based on two factors: the number of units being purchased with the property and what else?

Location

FHA country loan limits are based on

Median price for the area and property type

Which type of real estate investment trust involves both residential and commercial properties?

Mortgage REIT

Life insurance companies participate in real estate in the ________ area

Mortgage blocks from secondary mortgage market

When a buyer uses an FHA loan, the down payment amount is calculated ________.

On the lesser of the sales price or the appraised value of the property

Which of these are established by the Federal Housing Finance Agency?

Percentage targets for loans made to low to moderate income borrowers.

Mortgage bankers are mostly what type of enterprise?

Private

What qualifying ratios are used in a VA home loan?

Residual income and debt to income

Which of the following is a requirement to qualify for a VA loan?

Sufficient income

Which of the following statements is true about the MIP on an FHA loan?

The FHA may adjust the percentage used to calculate MIP on FHA loans

The upfront MIP on an FHA loan is calculate on ________.

The base loan amount

Seller Jamieson is closing on his property with buyer Conrad. Jamison paid the current year's property taxes already. Is this a prepaid or accrued expense, and how will it be represented on the settlement statement?

The taxes are a prepaid expense, and will appear as a buyer debit and a seller credit.

When does the need for mortgage insurance end for a borrower who has a VA loan?

There is no mortgage insurance requirement for a VA loan

Which of the following statements is true about active real estate investments?

They require an effort to make a profit

How many parties does a deed of trust involve?

Three: borrower, lender and trustee

How does the VA qualify a property for a VA-guaranteed loan?

Through a VA approved appraiser

Does the VA make direct loans?

Yes, for Native Americans on trust lands

Who or what entity directs the activities of credit unions?

a board of directors

Which of the following is true about home equity line of credit?

a borrower can use the funds as needed, repay them, and borrower again

In a deed of trust, who is the trustee?

a neutral third party

FHA may adjust loan limits for each country

annually

Which of the following describes mutual savings loan bank?

banks focus lending offerings on local businesses and residents

To qualify as a Texas veteran, a person must

be at least 18 years old

Who's the mortgagor in a mortgage?

borrower

which of the following situations would make a borrower ineligible for a loan modification?

borrower has filed for bankruptcy

Marcie bought a duplex, lived in one half and rented out the other half. This is an example of what type of investing?

buy and hold

Discount Points / loan points

buyers can pay this at closing to achieve a lower interest rate that lasts for the life of the loan.

Which of these items is a demand deposit

checking account

Joint tenancy

co-ownership where there is equal interest that requires unity of time, title interest and possession

When Fannie Mae purchases a loan, they pay the loan originator a ________ fee.

collection

Which of the following is form of commercial bank revenue related to mortgage financing?

demand deposits

A second mortgage on property secured by a VA loan is acceptable under certain conditions, one of which is that the first and second mortgage liens ____

don't exceed the CRV

The elements considered in the sales comparison approach are applied in a specific order:

financing terms and cash equivalency, conditions of sale, market conditions at the time of contract and closing, location and physical characteristics

Institutional mortgage loans

from banks, mortgage bankers, credit unions, etc. are categorized as either conventional or government (non conventional) loans.

net income formula

gross income minus operating expenses

For which of the following programs are veterans not required to submit a COE, get a new appraisal or verify income

interest rate reduction refinance

Construction loans are a type of ___________ financing

interim

Buydown

is an interest prepayment the borrower makes to reduce the loan's interest rate for the first two to three years of the loan and thus reduce the monthly payments

Amortization

is paying off a loan over time. Amortized loans are paid in monthly installments of principal and interest. A fixed-rate fully amortized loan will amortize by the end of the loan term.

Principal

is the actual amount borrowed

Interest

is the cost of borrowing money, stated as an annual percentage

Equity

is the difference between a home's value and the debt owed on it. Equation is Equity = value - amount owed

Someone with great carpentry skills pairs up with someone with working capital to purchase an investment property. This is known as __________

joint venture

What type of provision is standard with either the mortgage or the deed of trust, but is included in the promissory note rather than the security instrument?

late charge

which of the following clauses is included in Fannie Mae's multi state note?

late charge

Conventional Mortgage Loans

offer a wide range of loan products with more diverse loan terms. The federal government does not insure or guarantee these loans. Conventional loans may require a down payment of up to 20% of the purchase price.

Estate in Severalty

one person owns the property and all other interests are severed.

what's the name of the clause included in a finance instrument that requires the lender to release a portion of the property from the lien when a part of the debt has been paid?

partial release

Which of the following statements is true regarding closing costs on a VA loan?

payment of closing costs may be negotiated

Leslie has applied for a loan modification. As part of the process, her lender will likely

perform a title search

what clause in the deed of trust is the equivalent of the defeasance clause in the mortgage?

reconveyance

Annual MIP can be removed from an FHA loan by

refinancing to a conventional loan

Because of the funding fee required for a VA loan, a borrower with no down payment funds saved should ______.

roll the funding fee into the loan

which mortgage related document is equivalent of the deed of reconveyance used with a deed of trust?

satisfaction of mortgage

Which of the following types of residential dwellings do life insurance companies purchase from the secondary mortgage market?

single family on one lot

When a veteran assumes a VA loan, the ______ agreement can restore the original buyer's level of entitlement as if the loan were paid in full

substitution of entitlement

The two primary government financing programs involve

the Federal Housing Administration, FHA, and the U.S. Department of Veterans Affairs, VA. Neither FHA nor VA actually funds loans to consumers.

The signature lines on the multi-state Fannie Mae promissory note are set up for ____________ to sign

the borrower

how is a loan assumption documented?

the buyer and seller both sign an assumption agreement

The MIP is recalculated each year using

the end of year loan balance, plus the balance after the next 11 payments

Who's the mortgagee in a mortgage?

the lender

when a borrower has paid off the loan, how is the release handled if the security instrument is the mortgage?

the lender executes and records a satisfaction of mortgage and returns the note to the borrower

What do sellers who agree to carry part of a loan for a buyer need to understand?

the risks involved

What must a qualified mortgages loan term limit be?

30 years or less

Which percentage reflects the top debt-to-income ratio limit for qualified mortgages?

43%

one acre equals

43560 sq ft

Tenancy in Common

Co-ownership where each person is entitled to possession of the whole. An owner's ownership is inheritable and doesn't necessarily pass to the other owners

The Federal Housing Finance Agency established percentage targets and ________ for loans made to low to moderate income borrowers.

Limits for conforming loans

Which organization manages and charters credit unions?

NCUA

What does NCUA stand for?

National Credit Union Administration

Which of the following is NOT a benefit government-sponsored enterprises receive?

Non-profit status

Conforming loan limits vary based on two factors: location and what else?

Number of units being purchased with the property

Violet purchased a house from Nick, and assumed the existing loan. Nick wants to make sure he isn't liable if Violet ever defaults. What can he do to remove his name from the loan agreement?

Request a novation

You are the Texas agent for the buyers, the Jansens. The Yothers are the sellers, and their mortgage holder is Richard Steele. To which of these parties must you disclose your agency status?

The Yothers only

What does it mean when a life insurance company uses participation financing?

The life insurance company participates by taking partial ownership of the project in exchange for funding the loan.

When a borrower has paid off the loan, how is the release handled if the security instrument is the deed of trust?

The trustee executes and records a deed of reconveyance and the lender returns the note to the borrower

What is a carryback loan?

a second loan financed by the seller

Albert wants to sell his house to his cousin, who's willing to assume his FHA loan. What clause in Albert's mortgage requires him to obtain the lenders permission to do this?

alienation clause

the _____________ clause is also known as a due on sale clause

alientation

What clause is standard in a deed of trust and affects the foreclosure process that can be used if the borrower defaults?

power of sale

what clause is standard in a deed of trust and affects the foreclosure process that can be used if the borrower defaults?

power of sale

Loan Origination Fee

lenders charge this as compensation for making the loan. These fees are expressed as points. In general, loan origination fees can't exceed 3% of the loan value.

which individual is responsible for ordering, preparing and reviewing closing-related documents, such as the title policy and settlement statement?

the closing agent

Mutual savings banks were created to serve ________ during the mid 19th century

workers

Robin has great credit and was able to secure a loan for her ocean side dream home. Her 30 year fixed-rate loan is for an amount that's above conventional loan limits. What type of loan does Robin have?

a non-conforming loan

When a buyer takes over the seller's original loan with the lender's permission, this is called

an assumption

Who needs to obtain a mortgage loan originator endorsement and register with the Nationwide Mortgage Licensing system and registry?

anyone who acts as a mortgage loan originator

Which type of real estate investment trust derives its income from the rent or sale of property and interest dividents

hybrid reit

A calculation that describes the amount being borrowed compared to the value of a property is called __________ ratio.

loan to value

Life insurance companies sometimes like to insure their investment in commercial projects by insisting on an equity position. This is known as __________ financing.

participation

Page Four of the Closing Disclosure includes consumer education about

the use of an escrow account

Correlation

through correlation process, the most weight may be given to one or two comparable, or equal weight may be given to all. The term reconciliation is often synonymous with correlation.

What is the trustee's role when a deed of trust is used to secure property for a loan?

to hold legal title to the property on behalf of the beneficiary until the loan is repaid

when is a loan modification considered?

when a borrower has missed payments but still has some financial security