CE shop test questions
You're working with a buyer who's purchasing a home that appraised at $80,000. The buyer is obtaining a 90% loan, and the lender will charge a one-point origination fee at closing. How much will the loan origination fee be?
$720 $80,000 x .9 = $72,000 (loan amount), and 1% of $72,000 = $720
A lender if charging Clem, the borrower, two points to buy down the interest rate on his loan. Clem's borrowing $250,000. What's the dollar value of the points he'll pay?
- $5,000 - Does $5,000 seem like a lot of extra cash for the borrower to come up with at closing? It is, but the buydown of the interest rate can save some serious money over the life of the loan
Rhonda and her husband filed for bankruptcy five years ago. They want to purchase a new house but don't have the best credit score. They've decided to buy the home using an FHA loan. In order to do this, a minimum down payment of
- 3.5% is required - borrowers with an FHA loan must pay an minimum down payment of 3.5% and have MIP. Private Mortgage Insurance (PMI) applies only to conventional loans
Which of these examples describes a prepayment penalty?
- A monetary penalty imposed on a borrower for paying off a loan before its intended time - prepayment penalties are rare. When used, the consumer must be made aware that there are loans available that don't include prepayment penalties
While Martha's paying off her loan, her lender is holding on to something that includes her name, property, address, the interest rate on her loan, what the late charge amount would be, and the amount and term of the loan. When her load is paid off the lender returns it to Mary marked paid in full. What is this item?
- A promissory note - a promissory note is the borrower's promise to repay the loan. When the loan is paid in full, the note is marked as paid in full and returned to the borrower
Which of these documents is an example of a promissory note?
- Borrower Keesha just signed a document that states that she pledges to pay back her mortgage loan of $310,000 - Keesha's document is a promissory note; it's essentially an IOU, where the borrower pledges to pay the lender back
CCPA
- Consumer Credit Protection Act - created in 1968, includes the Truth in Lending Act - the intent of the legislation was to safeguard the consumer in the use of credit by requiring full disclosure of the terms and conditions in any offers of credit
When does conventional PMI (Private Mortgage Insurance) terminate:
- PMI terminates automatically when loan-to-value ratio reaches 78% or when the borrower reaches the mid-point of amortization; may also be terminated by borrower petition or when the loan-to-value is 80% or less (or borrower may refinance). Borrower must be current on payments
A temporary buydown may be structure in many ways, but one common method is a 3-2-1 buydown:
- Reduced by 3% the first year, 2% the second year, and 1% the third year - Set to full interest rate in the fourth year - a 3-2-1 buydown results in a 3% interest rate reduction in year one, a 2% in year two, and 1% in year three, with the interest rate returning to the full rate in year four
Alyssa's mortgage loan is secured by the note and the mortgage. Which of the following is true if she lives in a lien theory state?
- She holds title to the property, and the mortgage becomes a lien on the property - in a lien theory state, the buyers holds the title to the property and the mortgage becomes a lien on the property. The lender must file a lawsuit to initiate foreclosure proceedings
When a deed of trust is used as a security instrument, who holds the deed and the note?
- The trustee holds the deed, and the lender holds the promissory note
What would it mean if you heard that "ABC Bank charges a 1% loan origination fee"
- This would mean that ABC charged 1% of the loan upfront, which is paid by the borrower at closing - Loan origination fees are especially common with mortgage brokers -- they may charge between 1% -3%
What's the purpose of a PMI?
- To protect the lender in case of borrower default when the borrower has put down less than 20%
TILA
- Truth in Lending Act - Reg Z requires lender to reveal total cost of loan and APR - requires lenders to make disclosures that allow consumers to compare the costs of making a purchase using credit from different lenders, and to compare the cost of using credit with the cost of using cash
Promissory Note
- a promissory note is a negotiable instrument and can be transferred to a secondary holder who has the right to enforce the note's terms - the promissory note is evidence of the debt that specifies the borrower's financial obligations. Collateral for the note is typically the property on which the loan is made
Gross Rent Multiplier
- an approach to income capitalization - Divide the sales price of a comparable property by its gross rental income. Use the result on the subject property to determine the value
Yield Capitalization
- an approach to income capitalization - apply an expected rate of return to income from the entire holding period to find the current property value
Direct Capitalization
- an approach to income capitalization - calculate the projected net operating income for a property over the next year, then apply a capitalization rate
Gross Income Multiplier
- an approach to income capitalization - divide the sales price of a comparable property by its total gross income. Use the result on the subject property to determine a value
What's a discount point?
- an upfront charge to make up or the difference between the rate and the borrower is receiving and the rate the lender normally requires - discount points are actually prepaid interest to compensate the lender for the difference between the rate the borrower is receiving and the rate the lender normal requires
APR Trigger Terms
- if certain terms are included in the ad, this would require the full disclosure of all terms - These "trigger terms" are: Down Payment Payment Amount Number of Payments Interest Rate (other than APR)
What purpose does the promissory note serve?
- its a promise the buyer makes to the lender that the note will be repaid in full - the promissory note is evidence of the debt that specifies the borrower's financial obligations. Promissory notes back both mortgages and deeds of trust
How does TILA affect Real Estate Sales?
- mortgage lenders must follow TILA disclosure requirements - the stature is implemented through the rules codified in Regulation Z, which applies to all advertising that promotes credit - for the licensee, this means any real estate advertisement that include credit terms
MIP
- one of the two categories of mortgage insurance - borrowers with a FHA loan must pay MIP - must pay a minimum of 3.5% down payment - FHA insures the lender against default; MIP allows FHA to recover losses - never terminates, though refinancing is an option - up-front premium as a percentage of the loan value at closing (which can be rolled into the loan), plus ongoing annual premiums that decrease each year as the principal balance decreases
Illegal Property Flipping
- the property is purchase, falsely appraised at a higher value and then quickly sold
Prepayment Penalty
-the penalty the lender charges when borrowers repay their loans earlier than expected - prepayment penalties are meant to compensate the lender for interest not received because the borrower paid off early -- they're rarely used anymore
A security offered for sale may be exempt from SEC registration if it's not advertised, and if it's offered to ______ or fewer potential investors.
35 - securities that are advertised and that are offered to 35 or fewer people are typically exempt from registration
Curtis wants to do a 1031 exchange. He just closed on his property. How many days does he have to identify a new property?
45 days; investors who want to use the 1031 tax-deferred exchanged must identify the new property within 45 days of closing and must close on that property within 180 days from the date of sale of the first property
Before a building can obtain a permit, two items must be submitted to the building department. What are these items?
A blueprint and building specifications - The building plan (blueprint) and specifications must be submitted when applying for a permit
Loan Origination Fee
A fee charged by the lender to cove the cost of processing the loan
Discount Points
A fee charged by the lender to give the borrower a lower interest rate
What are building specifications?
A written narrative of the building plan - Building specifications are the written narrative of the building plan. They describe major systems, construction details, design features not captured in the building plan, and landscaping
The property manager's primary responsibility to an owner is to ____
Achieve the highest possible return on the owner's investment
Who must stamps a blueprint to verify its accuracy?
An architect or engineer - the building plan/blueprint is submitted to the local building department to obtain a permit and must be stamped by an architect or engineer
Which of the following best describes a real estate syndicate?
An organization with many investors who jointly participate in a real estate investment - Syndicates have many members joined together for investment purposes
Which type of analysis performed by a property manager is similar to a highest and best use analysis that an appraiser would use?
Analysis of alternatives - The analysis of alternatives is similar to a highest and best use analysis that an appraiser would use. Both focus on hypothetical values
How does the lender determine whether the property is worth the sales price?
Appraisal - The appraisal is the lender's way of determining whether the property is worth the sales price
Which of the following would property managers be expected to personally do as part of their assigned duties?
Budget preparation and oversight - As part of their assigned duties, property managers are expected to prepare and oversee a budget for managing the property
Mateo is the foreman at a new construction job site. Which of the following must he make sure is displayed at the site?/
Building permit - Building permits must be displayed at the job site and are required, not just for construction, but for many remodeling projects, such as additions
What is another name for a blueprint?
Building plan
Carmen is a builder. Which of the following is true about construction codes as they apply to her next project?
Carmen must adhere to all federal, state, and local building codes, which are enforced at the local level - Although codes can be established at the local, state and federal level, they're generally enforced by local or county authorities
Margie is a building inspector. She will issue a ___________, but only after she has completed her final inspection of a newly constructed building and approved it
Certificate of completion - A certificate of occupancy allows the building to be occupied
A property manager has just started working for a new property owner who owns a small apartment building. The property manager learns the construction of a large apartment complex has been approved one block away from his client's apartment building. What type of analysis would include this information?
Competitive analysis - a competitive analysis includes investigation into competing properties
Your tenant, Tom, has called to complain about the broken water heater. You hire someone to replace it. What type of maintenance are your performing?
Corrective - Try as you might to prevent it, periodically a water heater will bite the dust. Property managers may be called to perform corrective maintenance, like repair leaking pipes, fix a cracked window, or re-caulk a bathtub
Amelia goes to New Orleans for Mardi Gras every year, and she wants the home she's buying to make her feel like she live there all year long, right down to the detailed iron railings. Which style of home should you show her?
Creole - It's not just a seasoning anymore. In fact, it's a home style that originated in New Orleans and features a second-story balcony with -- you guessed it -- intricately designed iron railings
Shirley's lender discharged the mortgage lien on Shirley's property after processing her final payment. Which clause requires the lender to take this action?
Defeasance; the defeasance clause means the lender may not pursue borrower for additional funds when the loan balance is paid in full
The property management proposal includes information such as...
Details about the property manager's qualifications - The proposal should provide information about the property manager's qualifications, the duties the property manager will perform, and the reports the property manager will provide to the owner
In investments, each type of depreciation is defined by a particular event. Which of the following best described a depreciation type and an event it's tied to?
Economic depreciation and physical deterioration
Tenants are protected from discrimination by____
Fair housing laws - Landlords and property managers must adhere to fair housing laws, which protect members of protected classes from being discriminated against
What's the name of the federal codes that provide standards for residential construction across the country?
I-Codes - The International Codes, or I-Codes, provide standards for residential construction across the country. The ICC revises these standards every three years to account for new construction materials, techniques, and safety concerns
As a property manager for several residential landlords, Tomas must provide critical reports to each of the property owners for whom he works. Which of the following information points needs to be update and issues monthly?
Income and expenses for each property - Property managers are expected to provide income and expense reports to owners on a monthly basis
What must the building pass throughout the construction process in order to move on to the next phase of construction?
Inspections - At each phase of the construction, different inspections will be performed
In the eyes of a lender, when financing a residence, what advantage does an investor have over owner-occupied borrowers?
Investors can use rental income to qualify -- rental income offsets debt-to-income imbalances
What purpose does the promissory note serve?
It's a promise the buyer makes to the lender that the note will be repaid in full The promissory note is evidence of the debt that specifies the borrower's financial obligations. Promissory notes back both mortgages and deeds of trust
Which of the following is a mortgagor's responsibility
Keep the property in good repair; the mortgagor (borrower) is required to keep the property in good repair
Usury
Lending money at an excessively high rate (think loan sharks, but with business cards). Usury often involve unscrupulous lenders who take advantage of a consumer's naivety or circumstances to get them to sign loans with not just unfavorable, but nearly impossible, terms - Nationwide, usury rates range from a low of 2% per month, to a high of 60%. Overall the average is 22%
The section of a property management plan that is likely to include demographic information about potential tenants is the _____ analysis
Market - The section of a property management plan that is likely to include demographic information about potential tenants is the market analysis
MARIA
Method of Annexation Adaptability of Item to Land's Use Relationship of the Parties Intention in placing Item on Land Agreement of the Parties
What are two types of Real Estate Investment Trusts?
Mortgage and equity - The two major investment choices for REITs are mortgage and equity
Investing in capital improvements to a property is one way to stall ____
Obsolescence - Investing in capital improvements to a property is one way to stall obsolescence, which is the end of a property's useful life
Randa is trying to lower the vacancy rates for the commercial property she manages because her revenue targets have increased by 8% over the next year. What type of budget contains this revenue detail?
Operating budget - The operating budget is an annual budget that includes income and expenses for a property's operation
Property manager and owner agree on duties within the authority the owner grants that will be carried out by both with honesty and trust
Owner/property manager relationship
A property owner wants to know whether or not he should expect to invest capital funds into major repairs for the property. What part of the property management plan should he refer to for this information?
Property analysis - the property analysis includes discussion of the property's current condition and recommendations to stall or reverse obsolescence
The owner's covenants and an insurance provision are included in which of the following documents
Property management agreement - The property management agreement should cover the terms of the agreement between the property manager and owner, and include the owner's covenants and an insurance provision
What documents should detail the typical reports a property manager needs to provide for a property owner?
Property management agreement - The property management agreement formalizes your relationship with and obligations to a property owner
Legal and binding contract that spells out the duties of both the owner and the property manager
Property manager agreement
Document that's the precursor of the owner and the property manager entering into a formal agreement
Property manager proposal
What is an important economic responsibility for property managers?
Property managers must establish a separate escrow account for each residential property, even if they share the same owner
Which style of house is characterized by flat roofs, earth-toned stucco walls, and Native American and Spanish colonial influences?
Pueblo - The Pueblo style is popular in Southwestern states and draws influence from Native American and Spanish styles
Mary has wonderful memories of spending time at her grandmother's house as a child, and wants her home to have the same feel, with gingerbread trim, rounded towers and several porches. Which style home should you show her?
Queen Anne - The Queen Anne style will probably suit Mary's preferences, since it frequently features gingerbread trim and fish scale patterns on its gables and multiple porches
Bridget has an investment portfolio which includes an equity REIT. Which of these is most likely to be part of the REITs investment?
Retail shopping centers - Equity REITs invest in income-producing property such as a retail shopping center. Undeveloped land isn't likely to produce income, and equity REITs don't invest in mortgage debt. That's the role of mortgage REITs
Which FINRA license is required for real estate syndication salespeople?
Series 22 - Real estate syndication salespeople must have a Series 22 license
Forecasting the income and expenses that we can reasonably expect to bring and in and pay out over a short term results in a budget that's every property manager's dream. That budget is_____
Stabilized - You can create a stabilized budget by carefully forecasting the income and expenses that you can reasonably expect to bring in and pay out over a short term, like five years
Which of the following must adhere to the rules of the Securities and Exchange Commission?
Syndicates - Because they sometimes meet the definition of "dealing in syndicates," syndicates must adhere to the rules and regulations of the SEC
In investments, there are two types of depreciation and each is defined by a particular event. Which of the following most accurately pairs the deprecation type with the event it is tied to?
Tax depreciation and cost recovery
Which government agency is one of the primary enforcers of green regulations on a national scale?
The Environmental Protection Agency - The EPA is one of the primary agencies enforcing green regulations and standards
Example of being upside-down on your mortgage:
The Morrisons paid $280,000 for their home, using a loan of $250,000. They've paid $15,000 on their loan. The home currently appraises for $230,000 - being upside down on a mortgage is often due to factors beyond the borrower's control. Let's go back in time and have the Morrisons hang on to their home and continue paying on their loan in spite of their upside down situation. Over time, their home's value rises again, and they build equity after all.
Acceleration clause
The acceleration clause gives the lender the right to make all money owed immediately due and payable if the borrower defaults
Who or what entity has legal title to a financed property in a lien theory state?
The borrower The borrower is the legal owner and has the right to possess and control the property. The lender has the right after a loan default, to attain the property through foreclosure
The owner's covenants section of the property management agreement between manager Fred Baines and owner Lilian James contains key pieces of information. First, Fred is named as a person responsible for managing the building. Secondly, Lillian is identified as the property's legal owner. What's the third key piece of information?
The fact that the owner is not facing foreclosure - A covenant is a warranty, assurance, or promise. The owner's covenants section states that the owner actually owns the property, it's not facing foreclosure, and the property manager is solely responsible for its management
Ken and Julia took out a five-year subprime loan that included a prepayment penalty clause. They're on track to pay it off after only three years. Which of the following is a true statement?
The lender can only charge a prepayment penalty if it was disclosed to the borrower
A mortgage is a legally binding document that creates a lien on a piece of property and gives the lender the right to foreclosure on the property if the borrower defaults. Who or what is the mortgagee?
The lender has the mortgage on the property, so the lender is the mortgagee
When a mortgage is used as a security instrument, who holds the mortgage and promissory note?
The lender holds the mortgage and the note; the note and mortgage are the lender's leverage to foreclose in the event of default
When calculating loan-to-value ratios, what will be used by the lender?
The lesser of the sales price or appraisal value
Which of the following information in a report would NOT help your owner assess whether your rental rates are competitive?
The number of occupants in each of your units - The number of occupants in each unit isn't related to competitive rental rates
Sophia and Antonio are expecting twins. They want to sell their old house and buy a larger home using a conventional loan. In order to be sure they'll get the PMI waived, what will they need to have?
They should have a loan-to-value ratio of 80% or less
Why might a property owner ask you to prepare a report showing the trend in rental delinquency rates?
To assess the adequacy of tenant income screening processes - If rental delinquency rental rates are increasing, it may be necessary to implement stricter income requirements and screening processing
How many parties does a mortgage involve?
Two: borrower and lender - the trustee is only used with a deed of trust
Which of these can be defined as a lender charging a borrower more than the highest allowable interest rate?
Usury; usury rates vary by state and set the maximum interest rate that may be charged
Jason purchased his dream home six months ago. After Jason received an inheritance from his uncle, he decided he would pay off his mortgage. What might he consider before doing this?
Whether he will incur a prepayment penalty; some loan agreements call for a prepayment penalty to compensate the lender for interest not received when the buyer pay off the loan earlier than expected
Inflated Appraisals
an appraiser secretly works with a borrower and provides a misleading appraisal report to the lender
Ed is a homebuyer reviewing the Loan Estimate he received from a lender. He notices the loan terms include a prepayment penalty. Because he's a savvy consumer, he
asks the lender if there are other options available that would not involve a prepayment penalty
Person Property
belongs to the seller and an be removed
In an amortized loan the interest portion of the mortgage payment generally ______ over time
decreases - the interest portion of the payment generally decreases over the life o the mortgage loan as the principal portion increases
Private Mortgage Insurance protects the lender in the case the borrower
defaults on the loan - Should default occur, the insurance kicks in and covers the amount of the loan over 80% LTVR
Property manager primary duty
maximize the net return for the owner
Fixture
part of the real property being conveyed in a real estate transaction and should remain
Interest
the amount a lender charges for use of its money. Principal is the loan amount balance
Straw buyers
the borrower's identity is concealed behind someone else's name and credit history
What is a buydown?
the prepayment of interest at closing to reduce the interest rate either temporarily or permanently