Real Estate Principles II - Unit 3 practice

Which of the following is not allowable in FHA loans?

Prepayment penalty clauses

Which of the following is true regarding rural property and financing?

Rural property is property located in the outlying region of an urban center.

All of the following are true regarding the VHAP's Land Program, except:

a veteran who uses the program cannot receive a VHAP loan simultaneously. Hint: Similar to VHAP, the Land Program provides a maximum of $100,000 for parcels no less than one acre. Once an applicant is approved, the Land Board will pay cash to the seller and then simultaneously sell it to the veteran on a contract for deed. A veteran who utilizes this program is not precluded from receiving a VHAP loan.

All of the following are types of repayment plants, except:

all cash, no financing payment. Hint: There are several types of repayment plans, each with a different kind of obligation made clear by the terms of the note. Some repayment plans are: (1) a single payment of principal and interest at the end of the loan term, (2) interest-only payments, and (3) installment payments.

The liquidation of a financial obligation is known as:

amortization.

The relative cost of credit expressed as a yearly rate is the:

annual percentage rate (APR).

A demand deposit in a commercial bank can be withdrawn:

at any time.

If a borrower wishes to finance several properties with one loan, he or she should consider a:

blanket loan.

The basic protection for a lender making conventional non-conforming loans is the:

borrower's equity in the property.

When financing real property, the property itself serves as __________ and the claim a creditor has in the property is a ___________.

collateral/security interest

Under RESPA, when a potential borrower applies for a HELOC, reverse mortgage, or a manufactured home loan, the HUD-1 Settlement Statement or the Closing Disclosure itemizes all of the following, except:

comparable interest rates from competing lenders.

The borrower's inability to meet obligations on time is:

default risk.

After obtaining the Certificate of Reasonable Value, the Certificate of Eligibility is annotated to show how much of the __________ has been used.

entitlement

The difference between the appraised value of property and the loan is known as:

equity

Loans obtained with the Department of Veterans Affairs require the borrower to pay a:

funding fee.

When a borrower makes a low down payment, a lender:

has higher risk.

Any loan recorded after the first deed of trust is a(n):

junior deed.

A questionable fee charged as part of the closing costs that does not relate to the loan transaction is considered a:

junk fee.

When calculating the back ratio, all of the following qualify as consumer debt, except:

life insurance. Hint: Consumer debt can be car payments, credit card debt, installment loans, and similar expenses. Auto or life insurance is not considered a debt.

The type of mortgage product, such as an adjustable-rate mortgage, that allows borrowers to qualify for larger loans is called a:

nontraditional mortgage.

All of the following are included in the calculation of the front ratio, except:

origination fees. Hint: The front ratio is the percentage of the borrower's monthly gross income (before taxes) that is used to pay housing costs, including principal, interest, taxes, and insurance (PITI).

The simplest mortgage-backed securities are called:

pass-through securities.

Which of the following is not an example of secondary financing?

-Hard money loans from private lenders **-First liens -Home equity loans -Swing loans

What determines the interest rate on an adjustable-rate mortgage?

A movable economic index

What metric do lenders use to determine a consumer's maximum loan amount?

A debt-to-income ratio (DTI)

Which of the following does not define a creditor?

A lender who extends credit that is payable in one installment. Hint: A creditor includes a lender (person or company) who regularly makes real estate loans; who extends credit for loans secured by a dwelling; and the credit extended is subject to a finance charge or is payable in more than four installments, excluding the down payment.

What type of loan is a temporary, short-term, hard money loan made on a borrower's equity in his or her present home?

A swing loan

How is a fully amortized loan is fully repaid at maturity?

By periodic reduction of the principal

Which of the following is not a party to a deed of trust?

Appraiser

What is title that lacks the usual rights and privileges of ownership?

Bare legal title

What is a country's official unit of monetary exchange?

Currency

Which of the following is not a federal or state agency that participates in real estate financing?

Department of Consumer Affairs Hint: There are three federal agencies and one state agency that participate in real estate financing—the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), the United States Department of Agriculture (USDA) FMHA Loan Program, and the Texas Veteran's Housing Assistance Program (VHAP).

New construction under VHAP program requirements must include Environmental Protection Agency's (EPA) guidelines for __________ qualified homes.

ENERGY STAR®

A graduated payment mortgage (GPM) does not result in negative amortization. T/F?

False

Underwriting guidelines are rigid and not flexible. T/F?

False

Which of the following is not an example of secondary financing?

First liens

Which statement defines the mission of Freddie Mac?

Freddie Mac pools loans, packages them into securities, and sells them to investors such as insurance companies and pension funds.

Which of the following is not true regarding the negotiability of a promissory note?

It is a nonnegotiable instrument.

Which of the following is not a characteristic of a credit union?

It is operated by non-members to ensure fairness. Hint: A credit union is a cooperative, non-profit organization established for banking purposes. Credit unions are owned and operated by their members.

Which Under the TRID rule, the integrated mortgage disclosure forms are the:

Loan Estimate and Closing Disclosure.

What is the most liquid categorization of the money supply?

M1

Which of the following does not define money?

Money is not a medium of exchange.

Which of the following is not an example of a financial fiduciary?

Mortgage brokers

In the event of foreclosure, FHA-approved lenders are protected by charging the borrower a fee a fee for an insurance policy called:

Mutual Mortgage Insurance.

Which of the following is not a benefit from the existence of the secondary mortgage market?

Overseeing Federal Reserve Hint: Secondary mortgage market participants provide stability, liquidity, and affordability to the nation's housing finance system under all economic conditions.

All of the following are participants in the secondary mortgage market, except:

Sallie Mae. Hint: There are three major participants in the secondary mortgage market: (1) Fannie Mae, (2) Freddie Mac, and (3) Ginnie Mae.

Which of the following is a construction program that provides low-income families an opportunity to help themselves through sweat equity?

Texas Bootstrap Loan Program

Who oversees the Federal Reserve System?

The Board of Governors

Which of the following is not administered by the Texas Veteran's Land Board to help veterans purchase a home or land or to improve an existing home?

The Veteran's Mortgage Funding Program Hint: The Veteran's Land Board administers the Veteran's Housing Assistance Program (VHAP) to assist Texan veterans in buying a home or farm. They also administer the Veteran's Land Program and Veteran's Home Improvement Loan Program.

Under the Truth-in-Lending Act, no further disclosures are necessary if a lender discloses what information?

The annual percentage rate

Which of the following is not a reason for a borrower obtaining a non-conforming loan?

The borrower's credit and income meet Fannie Mae/Freddie Mac requirements. Hint: A non-conforming loan (also called portfolio loan) is a loan that does not conform to Fannie Mae/Freddie Mac credit standards. This can be due to the type of property being financed, because the borrower's income is difficult to verify, or the amount of the loan exceeds the maximum loan amount.

What provides security for a lender when deciding to make a loan?

The property

What is used to determine the type of repayment plan for a loan?

The terms in the promissory note

Which of the following is not true regarding government-sponsored enterprises (GSEs)?

They only benefit the financial sector.

Which of the following is not a reason a borrower would want to refinance?

To replace an existing loan with a previous loan Hint: Refinancing replaces the old loan with a new one. A person may refinance to reduce the interest rate, lower monthly payments, or change from an adjustable-rate to a fixed-rate loan.

What is the primary purpose of a promissory note?

To serve as evidence of the debt

Financing for properties located in rural areas can be obtained from the:

United States Department of Agriculture.

All of the following are depository institutions, except:

private lenders. Hint: A depository institution is a financial institution that is legally allowed to accept deposits from consumers. The main types of depository institutions in the United States are commercial banks, thrifts, and credit unions.

The legal contract that obligates a borrower to repay a loan is a(n):

promissory note.

When underwriting a loan, a lender will obtain an opinion of a property's value from a:

real estate appraiser.

All of the following are examples of lenders, except:

retail borrowers.

If a borrower makes on-time payments over the course of a year, the loan is:

seasoned

A home equity line of credit is a hard money loan made against:

the equity in a borrower's home.

All of the following must be disclosed by lenders in accordance with the Truth-in-Lending Act, except:

the lender's annual net profit. Hint: The Truth-in-Lending Act requires lenders to disclose the important terms and costs of their loans, including the annual percentage rate (APR), finance charge, the payment terms, and information about any variable-rate feature.

A debt-to-income ratio indicates:

the likelihood a borrower will default.

A revolving line of credit extended to a mortgage company for the purpose of making loans to borrowers is a:

warehouse line.

The percentage that represents the return on investment is the:

yield