Real Estate Practice Chapter 10
The Jensen family has a monthly income of $5,000. They would like to qualify for a 90% conventional loan. What would be their maximum allowable monthly housing expense? $1,400 $1,800 $1,300 $1,900
$1,400
The Jensen family has a monthly income of $10,000. They would like to qualify for a 90% conventional loan. What would be their maximum allowable monthly housing expense? $2,800 $2,300 $2,400 $3,800
$2,800
Hope is applying for an FHA loan to purchase a $360,000 condominium. Her proposed monthly mortgage payment is $1,850 and she has a $500 car payment and a $350 student loan payment. Using the fixed payment to income ratio, what would be her minimum monthly income in order to afford this loan? $5,968 $6,607 $6,279 $7,500
$6,279
Tammy purchased a property for $320,000, and the amount of her loan was $288,000. Her private mortgage insurance will cover up to 25% of the loan amount. If Tammy defaulted and the lender ended up with an $82,600 deficiency after a foreclosure sale, how much of that loss would the lender have to incur? $10,600 $0 $61,950 $2,600
10,600
An adjustable-rate mortgage has a note rate of 6%. The lender charges a margin of 2%. The rate can be adjusted only once a year, and the interest rate is capped so that it cannot increase more than 2% per year. What is the current index rate? 8% 4% 2% 10%
4%
A buyer obtains a conventional loan for $175,000. The sales price of the property is $200,000. What is the LTV? 80% loan 95% loan nonconforming loan 87.5% loan
87.5% loan
A buyer obtains a conventional loan for $180,000. The sales price of the property is $200,000. This is a/an: 95% LTV loan 80% LTV loan non-conforming loan 90% LTV loan
90% LTV loan
Which of these loans would present the greatest risk to a lender? 90% LTV 97% LTV 80% LTV 95% LTV
97% LTV
Which term below match this description: "Provision requiring lender's approval for loan assumption" Refinancing Index Origination fee Hybrid ARM Balloon payment Alienation clause Rate caps
Alienation clause
Which of the following would not be considered part of a borrower's monthly debt, for purposes of determining the applicant's debt to income ratio? Property taxes Anticipated costs of re-roofing the house Hazard insurance Student loan payments
Anticipated costs of re-roofing the house
Which term below match this description: "Final amount that may be due at end of loan term" Group of answer choices Balloon payment Alienation clause Refinancing Rate caps Hybrid ARM Index Origination fee
Balloon payment
If a 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? Buydown Silent wrap Lease/option Equity exchange
Buydown
Which of the following must a veteran possess to qualify for his first VA loan? Certificate of Eligibility Guaranty entitlement Release of liability Certificate of Reasonable Value
Certificate of Eligibility
Which term below match this description: "Allows a borrower to change from ARM to fixed-rate loan" Conversion option Margin Note rate Loan term Secondary financing Portfolio loan Negative amortization
Conversion option
Which of the following allows a lender to increase the upfront yield on a loan and enables the lender to charge a below-market interest rate? Prepayment penalty Origination fees Discount points Administrative fees
Discount points
A seller offering primary financing to a buyer on an unencumbered property is guaranteed first lien position in the event of default. True False
False
Because it's intended to help low- and middle-income buyers, the FHA-insured loan program has a maximum income limit based on median family incomes. False True
False
If a seller taking back a second mortgage sets an interest rate that's too high, he might be penalized under the IRS imputed interest rule. False True
False
Which of the following is characteristic of a VA loan? Income limits Downpayment Mortgage insurance Funding fee
Funding fee
Which term below match this description: "Combination of adjustable- and fixed-rate loan" Alienation clause Origination fee Index Balloon payment Refinancing Rate caps Hybrid ARM
Hybrid ARM
Which term below match this description: "Statistical report lender uses to measure changes in the cost of money" Index Alienation clause Origination fee Rate caps Hybrid ARM Refinancing Balloon payment
Index
Which term below match this description: "Amount of time borrower has to repay loan" Conversion option Negative amortization Margin Note rate Loan term Portfolio loan Secondary financing
Loan term
Which term below match this description: "Difference between index rate and interest rate charged" Loan term Margin Note rate Negative amortization Portfolio loan Secondary financing Conversion option
Margin
Which term below match this description: "When unpaid interest is added to a loan's principal balance" Note rate Portfolio loan Loan term Conversion option Margin Secondary financing Negative amortization
Negative amortization
What feature would an ARM include in order to avoid a situation where the borrower's principal balance increases because the monthly interest exceeds the monthly payments? Conversion option Interest rate cap Mortgage payment cap Negative amortization cap
Negative amortization cap
Which of the following can the borrower count as part of the minimum cash investment required for an FHA loan? Prepaid expenses Closing costs Discount points None of these answers count as part of the minimum cash investment required for an FHA loan
None of these answers count as part of the minimum cash investment required for an FHA loan
Which term below match this description: "Initial interest rate charged for an adjustable-rate loan" Portfolio loan Secondary financing Loan term Negative amortization Note rate Margin Conversion option
Note rate
Which term below match this description: "Charge to cover loan processing costs" Origination fee Alienation clause Hybrid ARM Rate caps Balloon payment Refinancing Index
Origination fee
Which of the following loans may involve a balloon payment? (Choose all that apply) Interest-only Fully amortized Partially amortized
Partially amortized Interest-only
Which term below match this description: "Loan that lender doesn't sell to secondary market" Secondary financing Portfolio loan Loan term Note rate Conversion option Negative amortization Margin
Portfolio loan
Which term below match this description: "Annual or life-of-loan limits on interest increases" Balloon payment Refinancing Rate caps Index Alienation clause Origination fee Hybrid ARM
Rate caps
Which term below match this description: "Using new loan to pay off existing obligation" Index Rate caps Refinancing Balloon payment Hybrid ARM Origination fee Alienation clause
Refinancing
Which term below match this description: "Additional funds to use for downpayment or closing costs" Conversion option Margin Note rate Negative amortization Portfolio loan Secondary financing Loan term
Secondary financing
Jack, a veteran who wants to buy a house with a VA loan, has full guaranty entitlement. Which of the following is true? Jack is guaranteed a VA loan, so the VA's usual qualifying standards will be waived The VA guaranty will cover the entire loan amount Jack cannot be required to make a downpayment, regardless of the loan amount The VA guaranty will cover only a portion of the loan amount
The VA guaranty will cover only a portion of the loan amount
A lender will usually charge a higher interest rate in which of the following situations? The borrower wants a 5/1 ARM instead of an ARM with a one-year initial rate adjustment period The borrower wants a 15-year loan instead of a 30-year loan The borrower wants an ARM instead of a fixed- rate mortgage The seller is offering a buydown
The borrower wants a 5/1 ARM instead of an ARM with a one-year initial rate adjustment period
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 rate somewhere between the initial rate the borrower will pay and the full note rate The note rate The buydown rate A rate 1% or 2% above the note rate
The note rate
An FHA borrower may have to pay annual mortgage insurance premiums throughout the loan term. False True
True
Cal-Vet loans use a land contract as the financing instrument. True False
True
The underlying loan in a wraparound mortgage must not have a due-on-sale clause. False True
True
With a temporary buydown, the loan's interest rate may increase in steps, or it may remain level until the end of the buydown period. True False
True
At what point must a lender automatically cancel private mortgage insurance on a loan? When the loan's balance is 80% of the home's current appraised value When the loan's balance is 78% of the home's current appraised value When the loan's balance is 78% of the home's original value When the loan's balance is 80% of the home's original value
When the loan's balance is 78% of the home's original value
All of the following factors might justify making a conventional loan when the borrower's income ratios exceed the standard benchmarks, except: a high loan-to-value ratio substantial net worth significant energy-efficient features in the home being purchased education that indicates strong potential for increased earnings
a high loan-to-value ratio
The mortgage insurance premium for an FHA loan will be paid: (Choose all that apply) at closing annually for 11 years, for loans with less than a 90% LTV
at closing annually for 11 years, for loans with less than a 90% LTV
The mortgage insurance premium for a new 95% FHA loan will be paid: (Choose all that apply) at closing annually for the entire loan term
at closing annually for the entire loan term
A seller offers to pay six discount points on behalf of the buyers. This will reduce the buyers' interest rate from 9% to 8%. This is known as a/an: seller second buydown adjustable-rate mortgage lease/option
buydown
The Homeowners Protection Act requires: lenders to automatically cancel the PMI when a loan's principal balance reaches 78% of the home's current appraised value all loans to be covered by private mortgage insurance borrowers to send a written request to their lender in order to cancel private mortgage insurance lenders to send all borrowers with private mortgage insurance an annual notice concerning their PMI cancellation rights
lenders to send all borrowers with private mortgage insurance an annual notice concerning their PMI cancellation rights
All of the following are characteristics of FHA-insured loans, except: mortgage insurance premiums no downpayment more lenient underwriting standards owner-occupancy requirement
no downpayment
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: negatively amortized non-amortized fully amortized partially amortized
partially amortized
A loan in which a seller extends credit to a buyer, rather than providing cash that will be used to purchase the property, is a: wraparound loan purchase money mortgage swing loan hard money loan
purchase money mortgage
A buyer obtains a 90% institutional loan for $180,000, toward the purchase of a $200,000 house. The buyer doesn't have the necessary $20,000 for the downpayment, so the seller takes back a $10,000 ten-year mortgage, and the buyer contributes the other $10,000 in cash. This transaction is known as a/an: equity exchange wraparound mortgage seller second buydown
seller second
In a wraparound mortgage: the buyer makes payments to the seller, who pays the underlying loan the buyer assumes the mortgage and pays the lender directly the buyer gets a loan for several properties with one security instrument the seller makes payments to the buyer, who pays the underlying loan
the buyer makes payments to the seller, who pays the underlying loan
A portfolio loan is a loan that: the lender plans to keep as an investment conforms to the rules of Fannie Mae and Freddie Mac is sold on the secondary market is insured or guaranteed by a government agency
the lender plans to keep as an investment
The Quimbys obtain a loan that starts out at 5.5% interest. After five years, the interest rate will adjust to whatever the current market rate is. This is known as a/an: wraparound mortgage interest-first mortgage two-step mortgage graduated payment mortgage
two-step mortgage
To compensate for the extra risk, a lender making a conventional loan with a high loan-to-value ratio: (Choose all that apply) will require private mortgage insurance might charge higher loan fees might apply stricter qualifying standards
will require private mortgage insurance might charge higher loan fees might apply stricter qualifying standards