Quizes

How would a lender calulate the net equity in real estate the loan applicant owns? a. Take the market value of the property and deduct the sum of the liens against the property, plus the selling expenses b. Subtract the balance of the existing mortgage from the assessed value of the property c. Take the market value of the property and subtract between 10% and 13% for the estimated selling costs d. Add the buyer's downpayment to the market valueof the property, then subtract the sum of the liens against the property

a. Take the market value of the property and deduct the sum of the liens against the property, plus the selling expenses Net equity is the amount of money the loan applicant can expect to recieve from the the sale of the property. This is often the primary source of cash that will be used to buy the new property

Which of the following is not one of the steps in the inspection process? a. Ordering the inspection b. Approval or disapproval of the inspection c. Appraisal of the property d. Reinspection of any required repairs

c. Appraisal of the property During the closing process, the initial inspection needs to be ordered, and then the inspection report must be approaved or rejected by the buyer and/or the lender. If the seller makes repais, a reinspection will be necessary. (The appraisal is a separate matter, not part of the inspection process.)

Which of the following would be most likely to have a negative effect on an individual's credit rating? a. Obtaining a copy of his own credit report b. Unemployment c. Dept consolidation d. A high FICO score

c. Dept consolidation A pattern of increasing liabilities followed by debt consolidation suggests that the individual tends to live beyond his means

A lender will usually charge a higher interest rate in which of the following situations? a. The borrower wants an ARM interest instead of a fixed mortgage b. The seller is offering a buydown c. The borrower wants a 5/1 ARM instead of an ARM with a one-year initial rate adjustment period d. The borrower wants a 15-year loan instead of a 30-year loan

c. The borrower wants a 5/1 ARM instead of an ARM with a one-year initial rate adjustment period With adjustable-rate loans, as a general rule, the longer the initial rate adjustment period, the higher the interest rate. The interest rate on a 5/1 ARm is not adjusted during the first five years, but may be adjusted annually after that.

If an inspection reveals building code violations, which of the following is true? a. The buyer's lender may require the seller to correct the violations as a condition of loan approval b. The buyer may require the seller to correct the violations before proceeding with the conract c. Public authorities may order the seller to correct the violations whether or not the transaction closes d. All of the above

d. All of the above Either the buyer or the buyer's lender may require repairs based on an inspection report. And if the inspection reveals violations of the building code or other laws, public authorities could order the seller to correct the violations, regardless of whether the sale goes foward.

To compensate for the extra risk, a lender making a conventional loan with a high loan-to-value ratio: a. might apply stricter qualifying standards b. might charge higher loan fees c. will require private mortgage insurance d. All of the above

d. All of the above For a high- LTV conventional, many lenders apply stricter qualifying standards and charge a higher interest rate and loan fees. Private mortgage insurance is generally required on any convesntional loan with an LTV over 80%

The purchase price stated in the purchase agreement should include any: a. mortgages or other liens being assumed by the buyer b. seller financing c. new loan to be obtained by the buyer d. All of the above

d. All of the above The purchase price stated in the agreement should be the full price being paid for the property, including any downpayment, any mortgages or liens the buyer is assuming, and any financing, whether the financing is provided by the seller or by a lender

If the seller wants to help a prospective buyer qualify for an institutional loan, which of the following options may reduce the interest rate used to qualify the buyer? a. Buydown b. Lease/option c. Silent wrap d. Equity exchange

a. Buydown With a permanent buydown, the seller lowers the interest rate on the buyer's loan, which may allow the buyer to get a loan he would not otherwise qualify fir. (A temporary buydown also lowers ghe buyer's interest rate for a certain period, but the buyer is likely to be qualified using the note rate instead of the bought-down rate.)

After an inspection, the buyer request that the seller make certain repairs. Which of the following is not one of the ways in which the seller can respond? a. Removing the inspection contingency b. Refusing to make the requested repairs c. Offering to modify the contract d. Offering to make only some of the requested repairs

a. Removinig the inspection contingency The inspection contingency is for the benefit of the buyer, so only the buyer has the ability to remove it.

Which of the following would a lender consider an acceptable secondary income source? a. Rental income, with a percentage deducted to allow for vacancies or uncollected rent b. Interest on investments that the loan applicat will cash in to pay for closing costs c. Child support payments for the loan applicant's 17-year-old daughter d. Regular monthly income from public assistance program, if the loan applicant's eligibility will expire at the end of the year

a. Rental income, with a percentage deducted to allow for vacancies or uncollected rent Income from sources besides employment must still be reliable and durable. Rental income is acceptable if the loan applicat can prove that rental payment are made regularly, but the lender will usually consider only a certain percentage because vacancies and rent collection problems are unpredictable.

Jack, a veteran who wants to buy a house with a VA loan, has full guaranty entitlement. Which of the following is true? a. The VA guaranty will cover only a protion of the loan amount b. The VA guaranty will cover the entire loan amount c. Jack cannot be required to make a downpaymnet, regardless of the loan waived d. Jack is guaranteed a VA loan, so the VA's usual qualifying standards will be waived

a. The VA guaranty will cover only a protion of the loan amount The VA guaranty covers only a portion of the loan amount. Even veterans who have full guaranty entitlement must meet the VA's qualifying standards in order to obtain a VA-garanteed loan

Which of the following is true of most contingencies? a. The seller wants the contingency resolved quickly so that he knows whether the transaction with go through b. The benefiting party is not required to make any effort to filfill the contingency c. Before the buyer removes the contingency, ahe must give the selle ra notice d. The seller is usually the party that benefits from the contingency

a. The seller wants the contingency resolved quickly so that he knows whether the transaction with go through Most contingencies benefit the buyer, and the seller wants the contingency to be resolved as soon as possible. The seller does not want to take the property off the marker for long if the transaction is not certain to go through

Although the terms are often used interchangeably, the technical difference between an escrow agent and a closing agent is that: a. an escrow agent is a licensed escrow company, while a closing agent is anyone providing escrow services b. a closing agent represents the interests of only one party to atransaction, while an escrow agent acts on behald of both parties c. the term "closing agent" refers specifically to a real estate broker who is providing escrow services d. None of the above; there is no difference

a. an escrow agent is a licensed escrow company, while a closing agent is anyone providing escrow services The two terms are often used interchangeably, but technically the term "escrow agent: refers to a licensed escrow company. "Closing agent" refers to anyone providing escrow services -- a lawyer, an escrow comany, a broker, a lender, etc.

A contingency clause: a. can only be removed by the benefited party b. canot be removed by either party c. can be removed by either party d. can only be removed with th econsent of both parties

a. can only be removed by the benefited party The party whom the clause was intended to benefit is the only one who can waive it.

The seller customarily pays a fee for recording the: a. deed of reconveyance b. deed from the seller to the buyer c. new mortgage or deed of trust d. none of the above

a. deed of reconveyance The seller would pay the fee for recording a deed of reconveyance to release the property from the lien of deed of trust. The recording fee for the document is generally paid by the party who benefits most from having the document recorded

The buyer usually gives the good faith deposit to either the escrow agent or the: a. selling agent b. seller c. listing broker d. listing agent

a. selling agent In most cases, the buyer will give the good faith deposit either directly to the escrow agent or the selling agent (and the deposit will be held in a trust or delievered to an escrow agent by the selling broker)

Prepaid interest refers to: a. the charge that the buyer must pay at closing to cover interest that will accrue on his loan during the last part of the month in which closing occurs b. the refund to the seller of reserves on deposit in the impound account with her lender c. the interest owed by the seller at closing after paying off the principal d. the fact that mortgage interest is usually paid in advance

a. the charge that the buyer must pay at closing to cover interest that will accrue on his loan during the last part of the month in which closing occurs The buyer's first payment on a new loan is not due the first day of the month immediately after closing, but the first day of the month after that. To cover the interest that accrues during the remainder of the month in which closing occurs, the buyer must pay prepaid or interim interest at leasing.

A portfolio loan is a loan is a loan that: a. the lender plans to keep as an investment b. conforms to the rules of Fannie Mae and Freddie Mae c. is insured or guaranteed by a government agency d. is sold on the secondary market

a. the lender plans to keep as an investment If a lender plans to keep a loan as an investment instead of selling it on the secondary market, the lender is keeping the loan "in portfolio."

In setting a closing date, you should take into account all of the following except: a. when the next installment of the property taxes will be due b. how long the seller needs to make the necessary repairs c. whether the buyer need to sell her current home d. the time needed for all the inpspections that will be required

a. when the next installment of the property taxes will be due In setting a closing date, it's important to consider how long it will take the parties to fulfill their obligations and satisfy any contingencies in the purchaase agreement. The due date for the property taxes is irrelevant, since the taxes will be prorated

With a graduated payment buydown plan for a fixed-rate loan, what rate will a lender use to qualify the buyer for the loan? a. A rate somewhere between the initial rate the borrower will pay and the full note rate b. The note rate c. A rate 1% or 2% above the note rate d. The buydown rate

b. The note rate Because the buyer with a graduated payment buydown will eventually have to ay interest at the full note rate, the lender wants to make sure they buyer will be able to handle the increased monthly payments. As a result, the lender will qualify using the note rate.

An inspection contingency provision will often contain a: a. hidden contingency b. clause providing for a reinspection of the property after any repairs are made c. schedule of adjustments in the purchase price for different problems that may be found during the inspection d. release clause allowing the seller to keep the property on the market and accept other offers

b. clause providing for a reinspection of the property after any repairs are made If the seller makes reapurs to address probkems revealed by an inspection, the seller typically must allow the property to be reinspected once the repairs have been completed

The APR for a real estate loan: a. must be disclosed before a loan application is submitted b. expresses the relationship of the finance change to the total amount financed c. includes interest, points, lock-in fees, closing costs, and the downpayment d. is usually lower than the quoted interest rate

b. expresses the relationship of the finance change to the total amount financed The annual percentage rate (APR) helps the loan applicants compare the overall costs of different loans. A loan's APR expresses the relationship between the finance changed and the amount financed.

An HO-3 hazard insurance policy would cover damages resulting from: a. floods b. fires c. earthquakes d. encroachments

b. fires Floods and earthquakes are not covered by a typical hazard insurance policy, although supplemental coverage may be available. (Protection against encroachments would be provided by the extended coverage title insurance, not by hazard insurance)

A buyer will find it useful to have a preapproval letter because it: a. commits the lender to makign a loan for whatever property that the buyer decides to purchase b. gives the seller confidence that the financing contingency won't be a problem c. tells the seller the maximum amount the buyer can afford d. allows the buyer to extend

b. gives the seller confidence that the financing contingency won't be a problem Preapproval makes the buyer's offer more attactive because it gives the seller confidence that the buyer will qualify for financing. (The lender isn't obligated to make the loan unless the chosen property meets the lender's standards. however.)

To be enforceable, an arbitration clause in a purchase agreement must be: a. in a separate addendum b. initialed by the buyer and the seller c. initialed by the selling agent and the listing agent d. All of the above

b. initialed by the buyer and the seller An arbitration clause in a purchase agreement is enforceable only if it has ben initiale by both the buyer and the seller

In contrast to debt income ratio, a housing expense to income ratio: a. takes into account principal and interest on the mortgage, but not the taxes and inurance b. is based on the monthly payments alone. not on all of the loan applicant's debt payments c. uses the applicant's current housing expense instead of the propsed mortgage payment d. takes into account the loan applicant's net worth as well as monthly income

b. is based on the monthly payments alone, not on all of the loan applicant's debt payments A housing expense to income ratio measures the adequacy of the loan applicant's income using only the monthly mortgage payment (principal, interest, taxes, and insurance). A debt to income ratio also takes payment on other debts into account

A loan secured by a deed of trust on the home the buyer is purchasing will be considered a "federally related" loan if the: a. person responsible for closing must report the sale to the IRS b. lender sells loans to Fannie Mae c. closing agent is required to withhold part of the proceeds under FIRPTA d. loan is used to purchase more than 25 acres

b. lender sells loans to Fannie Mae For RESPA purposes, a loan is federally related if the lender is federally regulated, has federally insured account, is assisted by the federal government, makes loans in connection with a federal program, sells loans to Fannie Mae or Freddie Mac, or makes real estate loans that total more than $1,000,000 per year.

A sale of buyer's home contingency will usually state: a. a price at which the buyer will be required to make accept an offer on his current home b. the seller may continue to market the property until the contingency is removed or fulfilled c. that all contingencies must be waived on any offer on the buyer's current home d. a deadline for applying for a swing loan

b. the seller may continue to market the property until the contingency is removed or fulfilled A typical sale of buyer's home contingency will include a release clause, which allows the seller to keep her property on the marker and consider other offers.

The parties are required to initial the liquid damages clause in a purchase agreement: a. if the buyer's deposit exceeds 3% of the sales price b. to show that they were aware of the provision and consented to it c. to provide that the selling broker can hold a good faith deposit check unchased until the seller accepts the offer d. to allow the seller to choose what remedy to pursue in the event that the buyer defaults

b. to show that they were aware of the provision and consented to it The liquidated damages clause must be initialed by the buyer and the seller to show that they were aware of the provision and specifically consented to it. (If the clause is initialed, liquidated damages are the seller's only remedy for breach of contract.)

Which of the following is least likely to be included in a financing contingency provision? a. the parties' options in case of a low appraisal b. The amount of the buyer's downpayment c. The terms of the seller financing agreemnt d. A deadline for applying for the loan

c. The terms of the seller financing agreemnt If the seller is going to provide financing for the buyer the terms shouldbe set forth in another addendum, and the financing forms that will be used must be attached. (Seller financing is not ordinarily treated as a contingency)

All of the following factors might justify making a conventional loan when the borrower's income ratio exceed the standard benchmarks, except: a. substantial net worth b. significant energy-efficient features in the home being purchased c. a high loan-to-value ratio d. education that indicates strong potential for increased earnings

c. a high loan-to-value ratio

When choosing a home inspector, a buyer should look for a firm that: a. has recently changed it name b. will offer to make the repairs recommended by the inspection c. belongs to the American Society of Home Inspectors d. does other business in addition to inspections

c. belongs to the American Society of Home Inspectors Membership in the American Society of Home Inspectors requires actual experience, passing a written examination, inspection reviews, and continuing education

On a settlement statement, the debits represent: a. the amount of financing in the transaction b. amounts that are owed to a party at closing c. costs that a party must pay at closing d. get a homeowner's coverage title insurance policy

c. costs that a party must pay at closing Debits are costs that a party must pay at closing, either to the other party or to a third party. The buyers debits increase the amount of money the buyer will need to pay at closing. The seller's debits decrease the seller's net proceeds

Because a purchase agreement has a "time is of the essence" clause: a. a check for the good faith deposit can be held for no more than three day s b. a seller must accept the buyer's offer within five days, or the offer will terminate c. failure to meet a deadline set in the agreement is a breach of contract d. the closing must take place within 45 days after the agreeement is signed

c. failure to meet a deadline set in the agreement is a breach of contract The purpose of a "time is of the essence" clause is to make the dates and eadines specified in the agreement material terms of the contrat. As a result, one party's failure to meet a deadline may be treated as a breach of contract by the other party

The Homeowners Protection Act requires: a. borrowers to send a written request to their lender in order to cancel private mortgage insurance b. all loans to be covered by a private mortgage insurance c. lenders to send all borrowers with private mortgage insurance an annual notice concerning their PMI cancellation rights d. lenders to automatically cancel the PMI when a loan's principal balance reaches 78% of the home's current appraised value

c. lenders to send all borrowers with private mortgage insurance an annual notice concerning their PMI cancellation rights The Homeowners Protection Act requires lenders to send an annual notice to borrowers with PMI, regardless of whether their loans are subject to the other provsions of the act. (PMI mustbe canceled automatically when the princiapl balance 78% of the home's original value, not 78% of the current appraised value)

When a potential buyer approaches a lender prior to looking for a house, in order to obtain a promise of a loan up to a certain amount, this is known as: a. prequalification b. predetermination c. preapproval d. prepayment

c. preapproval A buyer who would like to be preapproved will go directly to a lender and submit a loan application. Prequalification, by contrast, can be performed by a real estate agent and is merely a determination of an appropriate price range.

All of the following are typically found in contingency provisions except: a. a procedure for notifying the other party that the condition has been removed or satisfied b. a deadline for removing or satisfying the condition c. statutorily required language advising the parties to seak legal advice d. the rights of the parties if a condition isn't removed or satisfied

c. statutorily required language advising the parties to seak legal advice Generally, contingency provisions don't require language advising the parties to seek counsel, although obtaining legal adivce is often a good idea

If the seller is a minor, the purchase agreement should be signed by: a. the seller's husband or wife b. the seller's nearest living relative c. the seller's legal guardian d. both the seller and the seller's attorney in fact

c. the seller's legal guardian If one of the parties to a contract is a minor (under 18), the contract should be signed by that party's legal guardian.

Which of the following is true about how a lender evaluates net worth? a. When verifying bank accounts the lender wants the presnet balance ot be significantly higher than the average balance in the bast b. The lender prefers non-liquid assets c. The lender is primarly concerned with the appriased value of the real estate that the loan applicant owns d. If the loan applicant's income is marginal, the lender may approve the laon anyway if the applicant has significant net worth

d. If the loan applicant's income is marginal, the lender may approve the loan anyway if the applicant has significant net worth Above average net worth can mean the difference between approval and rejection if the loan applicant's income is marginal.

Which of the following can the borrower count as part of the minimum cash investment required for an FHA loan? a. Discount points b. Closing costs c. Prepaid expenses d. None of the above

d. None of the above Discount points paid by the borrower do not count towards the required minimum cash investment, nor do the closing costs or prepaid expenses

Which document should be prepared if the buyer plans to take possession before the closing date? a. Backup offer b. Sale of buyer's home contingency c. Bump notice d. Rental agreement

d. Rental agreement If the parties plan to transfer possession of the property either before or after the closing date, they should sign a rental agreement

Which of the following ways of including a contengency in a purchase agreement would not be advisable? a. Using a pre-printed continency addendum form b. Checking a contingency clause in the purchase agreement form itself c. Having an attorney draft a special contingency clause d. Writing a special contingency clause yourself on an addendum form

d. Writing a special contingency clause yourself on an addendum form You should never try to draft a contingency clause youself, since that might be considered the unauthorized practice of law.

With a sale of a buyer's home contingency, the common approaches to resolving the conflicting needs of the buyer and seller do not include: a. having the buyer get the funds to close the purchase of the seller's home b. allowing the seller to keep his property on the market and accept other offers c. a release clause d. a cancellation agreement

d. a cancellation agreement A cancellation agreement termintes a purchase agreement, so it would only be used if the contingency was not fulfilled

The good faith depsit is: a. retained by the broker at closing as her commission b. applied toward the purchase price at closing c. a credit for the buyer on the settlement statement d. both b and c

d. both b and c The good faith deposit is applied toward the purchase price at closing; it's part of the buyer's downpayment. Because the buyer has already paid the good faith deposit, it is treated as a credit for the buyer on his settlement statement.

If a buyer defaults on a purchase agreement, the good faith deposit is typically: a. returned to the buyer b. split between the buyer and seller c. forfeited to the listing broker d. forfeited to the seller

d. forfeited to the seller When a buyer defaults on a purchase agreement, his good faith deposit is forfeoted to the seller. In many cases, the seller will split the deposit with the lisitng broker, who will then split her share with the selling broker.

If a home buyer is concered about title problems that do not show up in the public record, he should a. make sure there are no problems listed in the preliminary title report c. rely on the lender's title insurance policy d. get a homeowner's coverage title insurance policy

d. get a homeowner's coverage title insurance policy A homeowner's coverage title insurance policy will protect the buyer against problems that do not appear in the public record, such as an encroachment or adverse possession.

If a loan applicant's primary source of income is self-employment, the lender will consider this stable monthly income if the loan applicant: a. does not have any other source of income b. also has seconary sources of income c. has been self-employed for at least one year d. has a history of employment in the same field and can document a reasonable chance for success

d. has a history of employment in the same field and can document a reasonable chance for success A lender will ocunt the income of a self-employeed loan applicant who has been in business for a short time, but only if the loan applicant has a history in the same field and can document a reasonable chance for success with pro forma financial statements and market feasibility studies.

A loan requires monthly payments of both principal and interest, but leaves some of the principal to be paid off in a balloon payment at the end of the loan term. This loan is: a. fully amortized b. negatively amortized c. non-amortized d. partially amortized

d. partially amortized With a partially amortized loan, not all of the principal is paid off through the monthly payments, and the borrower must make a balloon payment at the end of the loan term.

Fee packing, loan flipping, and balloon payment abuses are all examples of: a. preapproval techniques b. derogatory credit information c. rate lock-ins d. predatory lending practices

d. predatory lending practices

The included and exclused itmes paragraph is used to: a. disclose the encumbrances on the property b. list the documents that are being attached to the agreement c. determine how closing costs will be allocated d. specify fixtures and personal property that will be part of the sale

d. specify fixtures and personal property that will be part of the sale The included and exclused items paragraph lists items that are included in or exclused from the sale unless otherwise notes. (Many of the items listed as included would be considered fixtures or attachments to the real property and included in the sale even without this provision)