finance and closing
A lender making an 80% loan for property valued at $80,000 and purchased for $70,000 would make a maximum loan of:
The 80% loan is based on the lower of the lower of the appraised value or the purchase price. $70,000 X 80% = $56,000.
How much intangibles tax must the Buyers pay in this purchase?
The new loan amount is $112,000 / 500 = 224 x $1.50 = $336.
Negative amortization is a loan feature that?
a. Allows more of each monthly payment to be applied to principal than the previous payment. b. Allows the principal to be paid off early. c. Allows the principal balance to increase because payments are insufficient to pay the interest owed. d. Allows the interest rate to increase. answer: C
An insured loan, amortized over 25 years, in which payments would increase or decrease in accordance with some economic indicator would be an example of:
a. Balloon mortgage. b. Graduated payment mortgage. c. Variable rate mortgage. d. VA mortgage. answer: C
Which of the following insures loans for lenders?
a. HUD b. FHA c. VA d. SAM answer: B
If a mortgage is subordinate, what type of mortgage is it?
a. Junior. b. Blanket. c. Amortized. d. Adjustable. answer: A
A mortgage loan which provides for payment of the total principal amount of the loan at the maturity date would be referred to as a:
a. Package loan. b. Term loan. c. Fully amortized loan. d. All of the above. answer: B
A mortgage contains all of the following EXCEPT?
a. Property description. b. Acknowledgement. c. Covenant not to compete. d. Signature of borrowers. answer: C
A mortgage is released by?
a. Revision. b. Reconveyance. c. Quitclaim deed. d. Satisfaction. answer: D
A subdivision developer obtained a construction loan to build new houses on 20 lots. What type of clause would he request so that individual lots could be unencumbered as the loan amount is paid down?
a. Subordination. b. Partial release. c. Exculpatory. d. Safety. answer: B
An agreement to waive prior rights in favor of another is?
a. Subordination. b. Subrogation. c. Subornation. d. Subjugation. answer: A
When necessary, who forecloses in a trust deed state?
a. The Beneficiary b. The Lender c. The Trustee d. The Trustor answer: C
On an FHA insured loan, the money is provided by:
a. The Federal Housing Administration. b. Qualified lending institutions. c. The FDIC. d. The Federal Treasury. answer: B
If an individual defaults on a $100,000 mortgage and only $95,000 is received by the lender as a result of a court-ordered sale (foreclosure), which of the following is true?
a. The lender must file a $5,000 judgment against the person who purchased the property. b. The lender may be entitled to a $5,000 judgment against the original borrower. c. The lender cannot recover the $5,000. d. None of the above answer: B
FHLMC (Freddie Mac) requires lenders to use standardized forms. The purpose of such standardization is:
a. To allow loans to be warehoused. b. So that loans may be easily sold in the secondary market. c. To establish uniform interest rates. d. So that consumers are well informed. answer: B
Which of the following would not be covered under RESPA?
a. A VA loan for a $55,000 first mortgage on a single-family home. b. An FHA loan for a first mortgage on a single-family home. c. A conventional loan for a first two-family residence where the lender was insured by the FDIC. d. A buyer assumed a $40,000 FHA insured first mortgage on a $50,000 single-family residence. answer: D
Which best describes the difference between a fully amortized loan and a balloon note?
a. A balloon note shows no decrease in the loan balance, whereas a fully amortized loan shows a decrease as the payments are made. b. A balloon note includes a balloon payment on interest where a fully amortized loan does not. c. A fully amortized loan extinguishes the loan in equal payments, whereas a partially amortized loan does not. d. A balloon note extinguishes the loan in equal payments, whereas a fully amortized loan does not. answer: C
FHA's role in the real estate mortgage market is best described as:
a. A lender to the consumer. b. An insurance company. c. A secondary mortgage market warehouse. d. A mortgage banker. answer: B
A loan with constant payments, where increasing amounts are credited to the principal and decreasing amounts are charged for interest, is called:
a. A variable loan. b. A variable constant loan. c. An amortized loan. d. A straight loan. answer: C
The certificate that shows the unpaid balance of a mortgage and the amount of unpaid interest associated with that debt is referred to as:
a. A waiver. b. An estoppel. c. An acknowledgment. d. A satisfaction. answer: B
A husband and wife own property with a mortgage payment due on the first of each month. They are thirty days late in making a payment and receive notice from the lender to make payment within ten days. If they fail to make the payment the entire loan balance becomes payable immediately. Which clause in the mortgage allows the lender the right to take such action?
a. Alienation clause b. Acceleration clause c. Estoppel clause d. Forfeiture clause answer: B
A loan origination fee is:
a. Always 1% of the loan amount b. A fee charged by the lender to initiate a loan c. 1/8 of 1 percent of the loan amount d. A fee paid by the seller to assist a buyer obtaining a VA guaranteed loan answer: B
A promissory note must contain all of the following EXCEPT:
a. Amount of the principal. b. Rate of interest. c. Description of the collateral. d. Payment terms. answer: C
If your friend told you that he had just purchased a home with no money down, he probably obtained:
a. An FHA insured loan. b. A VA guaranteed loan. c. A purchase money mortgage. d. A wraparound mortgage. answer: B
FHA is comparable to which of the following?
a. An insurance company. b. A savings and loan association. c. A secondary mortgage market warehouse. d. A mortgage banker. answer: A
If Tony is planning to build a house on a vacant lot that he owns, he could apply to a bank for a construction loan. A typical construction loan is BEST described as:
a. An open end mortgage. b. An open mortgage. c. A wraparound mortgage. d. A blanket mortgage. answer: A
A lender advertises 80% LTV conventional loans. 80% is applied to:
a. Appraised value b. Selling price c. The buyers income d. The purchase price or appraised value, whichever is lower answer: D
A person who owned a house ran into financial difficulty. Foreclosure on the house appeared to be a possibility. Which of the following actions should this person take in trying to protect the person's credit rating in the future?
a. Ask Offer the lender for a deed in lieu of foreclosure b. Ask the lender for a deed of reconveyance c. Exercise the alienation clause in the mortgage d. Exercise the defeasance clause in the mortgage answer: A
A lender transfers a mortgage loan to another lender for servicing. Such action is an example of:
a. Assignment. b. Hypothecation. c. Novation. d. Defeasance. answer: A (a transfer is associated with assignment)
In making mortgage loans, the policies of the financial institutions making these loans are LEAST likely to be influenced by:
a. Availability of other investments to the institution. b. Potential future value of the property. c. Borrower's income. d. Borrower's need for the loan. answer: D
A loan where the final payment is larger than any of the previous payments is referred to as a:
a. Blanket mortgage b. Wraparound mortgage c. Purchase money mortgage d. Balloon mortgage answer: D
Mike has sold his home to Phil under the following conditions. Mike will remain responsible for his existing 6%, $15,000 loan. Phil will give Mike a note for the total purchase price of $95,000 at 10%. The mortgage created could be defined as:
a. Blanket mortgage. b. Combination mortgage. c. Open-end mortgage. d. Wraparound mortgage. answer: D
A mortgage which includes both real and personal property would be referred to as a:
a. Blanket mortgage. b. Open mortgage. c. Chattel mortgage. d. Package mortgage. answer: D
A defeasance clause in a mortgage will take effect when the:
a. Borrower defaults. b. Lender defaults. c. Lender forecloses. d. Borrower repays the entire debt. answer: D
A mortgagee's title insurance provides protection to which of the following?
a. Borrower. b. Lender. c. Trustee. d. Seller. answer: B
Clint is a qualified veteran and is getting a loan to buy a house for $110,000. The CRV (appraisal) comes back at $105,000. Which of the following statements is true?
a. Clint can get a VA loan for the full amount because the appraised price is within 10% of the selling price. b. Clint can obtain a 2nd mortgage to finance the $5,000 difference. c. Clint can pay more than the appraised price, if the difference is paid from his personal funds. d. Clint can borrow the $5,000 for the difference from a relative, as long as he does not pledge the property as collateral. answer: C
A clause in a mortgage to prevent a buyer from assuming an existing loan is called the:
a. Condemnation clause b. Defeasance clause c. Alienation clause d. Acceleration clause answer: C
A mortgage loan that includes provisions for periodic changes in the interest rate is which type of mortgage?
a. Conventional mortgage. b. Blanket mortgage. c. Adjustable rate mortgage. d. Purchase money mortgage. answer: C
A mortgage loan on which the interest rate rises and falls with changes in the prevailing rates or indexes is a/an:
a. Defeasance clause b. Graduated payment mortgage c. ARM d. FHA 245 answer: C
The maximum amount of an FHA insured loan is:
a. Determined by individual lender policy. b. Nationally uniform, set by HUD. c. Established on a regional basis. d. Set by each state. answer: C
All mortgages are?
a. Due on sale. b. Liens. c. Recorded. d. None or these choices. answer: B
The maximum interest rate that can be charged for a home mortgage is determined by which of the following?
a. FDIC. b. State usury laws. c. Federal Home Loan Bank Board. d. Federal Reserve. answer: B
A young couple has a minimal down payment. They anticipate periodic salary increases in the future. Which type of loan would be most appropriate for them to use when buying a home?
a. FHA fixed rate, fully amortized loan b. FHA graduated payment loan c. Short term straight loan d. Partially amortized loan with a large balloon answer: B
A mortgage loan that provides for changes in the interest rate at specified periods of time, is known as:
a. FHA graduated payment mortgage. b. Adjustable rate mortgage. c. Reversible loan mortgage. d. Roll-over-loan. answer: B
If you buy property with a conventional loan, your loan can be insured by:
a. FHA mortgage insurance. b. A VA guarantee. c. A private company which sells mortgage insurance. d. FNMA. answer: C
The largest purchaser of home loans in the secondary mortgage market is :
a. FNMA b. GNMA c. Freddie Mac d. FHA answer: A
The largest source of second mortgage money is provided by:
a. Fannie Mae. b. FHA. c. Private individuals. d. Mortgage bankers answer: C
Brian has a mortgage and is paying 11% interest on the note. He obtains a new loan with an interest rate of 10% and pays off the old loan. This process is known as:
a. Foreclosure. b. Refinancing. c. Redemption. d. Subrogation. answer: B
If a veteran has an existing VA loan, under which of the following circumstances could he or she obtain another VA loan?
a. If the first loan has been paid in full and the property sold. b. If the first loan is assumed by a qualified veteran buyer and the buyer's eligibility is substituted for the seller's. c. If the first loan is more than 5 years old. d. Either the earlier loan was fully repaid or assumed by another veteran with a substitution of eligibility. answer: D
As a general rule, VA loans are fixed rate, fixed term loans. What would cause the monthly payment of a VA loan to increase?
a. If there was an increase in the Consumer Price Index. b. An increase in the interest rates allowed for VA loans. c. An increase in the assessed value of the property. d. None of the above, the payment cannot change answer: C
According to the Truth-in-Lending Law, certain words used in advertisements trigger full disclosure of ALL of the terms of financing. Which of the following statements would NOT require any additional disclosure?
a. Liberal terms available b. Down payment - $1000 c. Only 9 1/2% interest d. Payments of only $1,200 per month Feedback answer: A
The difference between a first and second mortgage is that the second mortgage must have a:
a. Lower principal amount. b. Different lien position. c. Higher interest rate. d. Shorter term. answer: B
If a promissory note contains an exculpatory clause, the lender:
a. May seek a deficiency judgment b. May not seek a deficiency judgment against the maker c. May not foreclose d. May call the note due and payable in the event of covenant violations answer: B
What type of foreclosure does a lien theory state provide?
a. Mortgage Note b. Judicial c. Non-judicial d. Deficiency Judgment answer: B
Parties to a deed of trust are?
a. Mortgagor/mortgagee/broker. b. Borrower/lender/broker. c. Trustor/beneficiary/trustee. d. Mortgagor/trustee/mortgagee. answer: C
A couple buys a furnished home by assuming the existing loan. Which of the following papers would the settlement attorney NOT have to prepare?
a. Note and mortgage. b. Bill of sale. c. Assumption papers. d. Warranty deed. answer: A
A conventional loan can be described as:
a. One insured by the Federal Housing Administration. b. One guaranteed by the Veterans Administration. c. One obtained from the Department of Housing and Urban Development (HUD). d. None of the above. answer: D
A borrower who had repaid a portion of the original loan could borrow those funds again without rewriting the original terms of the note under which of the following types of mortgages?
a. Package b. Blanket c. Wraparound d. Open end answer: D
A developer divides his property into 5 separate building lots. He pledges all 5 as security for a loan to obtain money for construction of a house on each parcel. When he sells one lot, with improvements, the bank will release that particular lot from the security so that the developer may convey title to the new purchaser. The loan obtained by the developer could be described as which of the following:
a. Package mortgage. b. Blanket mortgage. c. Wraparound mortgage. d. Open mortgage. answer: B
John is buying a house from Ellen for $100,000. National Bank is going to loan John $70,000 and Ellen is going to hold a purchase money mortgage in the amount of $10,000 and John will pay the difference in cash. The $10,000 owed to Ellen can be described as:
a. Participation mortgage. b. Junior mortgage. c. Senior mortgage. d. First mortgage. answer: B
The covenants in a mortgage require that the mortgagor do all of the following, EXCEPT:
a. Pay real property taxes. b. Maintain the property in good condition. c. Make payments of principal and interest. d. Protect the lender with a life insurance policy. answer: D
A veteran with full entitlement may be able to do which of the following?
a. Purchase any home with no money down. b. Purchase an investment property through a VA loan. c. Obtain a guaranteed VA loan regardless of income. d. None of these choices. answer: D None of these statements is correct. The veteran cannot purchase just ANY house, as there are maximum loan amounts. VA loans cannot be used to purchase investment property. The veteran must also have sufficient income to support the payment.
A mortgage in which payments are made from the mortgagee to the mortgagor is a:
a. Reverse mortgage. b. Amortized loan. c. Budget mortgage. d. Shared appreciation mortgage. Feedback answer: A
If a homeowner is in default on mortgage payments, the lender may foreclose. The right of the mortgagor to regain title by payment of all debts is known as the equity of:
a. Revestment b. Reversion c. Redemption d. Release answer: C
A seller sells her home to a buyer who purchases the property "subject to" the existing loan. If the buyer defaults, who is liable for the balance of the debt?
a. Seller b. Buyer only c. Seller and buyer jointly d. Seller and buyer jointly and severally answer: A
A seller sells her home to a buyer who assumes her existing loan. If the buyer defaults, who is responsible for the balance of the debt?
a. Seller only b. Buyer only c. Seller and buyer jointly d. Seller and buyer jointly and severally answer: D
A homeowner sells his property and realized a profit on the sale. The lender, per contract, is to receive a portion of the profits. What type of mortgage did the homeowner have?
a. Shared appreciation b. Wraparound c. Percentage d. Open end answer: A
Interest that is calculated every month based on the remaining loan balance is best referred to as?
a. Statutory Redemption b. Equitable Redemption c. Simple interest d. Debt Service answer: C
A loan in which the final payment on principal is exactly equal to the amount of the original loan is known as any of the following EXCEPT:
a. Straight loan b. Partially amortized loan c. Interest only loan d. Term loan answer: B
In which of the following can a lender refuse to give a loan?
a. The borrower is 80 years old and applying for a 40 year loan. b. The borrowers do not have the required down payment. c. A male borrower applying for a loan in an all-female condo complex. d. A Baptist applying for a loan in a Jewish community. answer: B
The discount points to be paid on a loan are established by:
a. The buyer b. VA or FHA c. The lender d. HUD answer: C
The loan contingency contained in an offer to purchase will contain all of the following EXCEPT:
a. The loan amount. b. The rate of interest. c. The name of the financial institution. d. The date of the commitment. answer: C
If the mortgagor is in default on their mortgage payments, what is the legal process available to the mortgagee to collect?
a. The mortgagee would obtain a power of attorney. b. The mortgagee would obtain an estoppel certificate. c. The mortgagee would obtain a satisfaction piece. d. The mortgagee would obtain a judgment causing foreclosure. answer: D
Who pays the intangibles tax?
a. The seller must pay the tax. b. The buyer must pay the tax. c. The seller and buyer may negotiate who is to pay the tax. d. Real estate is tangible (corporeal). Therefore, there is no intangibles tax. answer: C The Intangibles Tax is always negotiable. It is not always the seller or always the buyer who would pay
A buyer purchased a property from a seller and assumed the seller's loan. The seller wanted to be released from liability on the loan. Which of the following would accomplish this for the seller?
a. The seller would have to sign a release of liability b. The lender would have to sign a release of liability c. The seller would need to note the release of liability in the sales contract d. The buyer would have to sign a release of liability Feedback answer: B
Lenders charge "points". A "point" is considered to be 1% of:
a. The selling price. b. The appraised value. c. The loan amount. d. The listed price or assessed value, whichever is lower. answer: C
A borrower applied for a VA first mortgage for $100,000. However, the property appraised for $80,000. If the buyer still wished to buy the property, which could happen?
a. The veteran could not get the VA loan because the price was higher than the appraisal. b. VA would require the veteran to get a second mortgage for the difference. c. VA could allow the veteran to make up the difference in cash. d. The broker could write up a different contract for a different sales price to take to the lender. answer: C
What is the amount of transfer tax to be paid by the Sellers?
(B) $140.00. There was no loan assumption, so the taxable amount is the same as the sale price: SP $140,000 / 100 = 1400 x .10 = $140.00
A borrower has to pay PMI all at closing on a 95% conventional loan. How much would he pay?
a. 2.5 % of the loan amount. b. 2.0 % of the loan amount. c. 2.5% of the price. d. 2% of the price. answer: A Since the loan-to-value ratio is 95% or above, the full annual private mortgage insurance would be 2.5%. Had it been less than 95% it would have been 2.0%.
Thelma, a widow, owns her home free and clear. She has a fixed income which does not meet her current financial needs. Thelma wants to borrow money on her house in order to supplement her income. What type of loan would Thelma most likely apply for?
a. A 15 year fixed rate fully amortized loan. b. An ARM (adjustable rate mortgage). c. A RAM (reverse annuity mortgage). d. A GPM (graduated payment mortgage). answer: C
A buyer purchases a piece of property and pays equal amounts over 5 years, with a lump sum payment at the end of that time. This loan would be considered:
a. A balloon loan. b. An amortized loan. c. A direct loan. d. An open loan. answer: A
If a buyer gives a note and a mortgage to a seller as part of the purchase price, the resulting mortgage is commonly referred to as:
a. A package mortgage. b. A wraparound mortgage. c. A purchase money mortgage. d. An open-end mortgage. answer: C
A budget mortgage payment (PITI), would normally NOT include:
a. A payment toward the principal of the loan. b. A payment toward the interest on the loan. c. 1/12 of the annual real property taxes. d. 1/12 of the annual life insurance premium. answer: D
The promissory note accompanying a mortgage creates:
a. A personal obligation of the borrower b. A double obligation between the buyer and the seller c. A mechanic's lien d. An obligation to pay rent Feedback answer: A
A promissory note is best described as?
a. A pledge of property. b. An earnest money deposit. c. Written evidence of debt. d. A form of unilateral contract. answer: C
Which mortgage clause allows a lender to regain their investment ifa borrower does not pay his payment?
a. Acceleration clause b. Alienation clause c. Due on sale d. Defeasance clause answer: A
A son and daughter-in-law wanted to buy their parents house and assume the mortgage. The son and daughter-in-law had just gone through bankruptcy. Which of the following clauses in a mortgage would prevent this sale and assumption from taking place?
a. Acceleration clause b. Alienation clause c. Subordination clause d. Defeasance clause answer: B
Discount points paid increases the yield of:
a. Brokers. b. Lenders. c. Sellers. d. Buyers. answer: B
One of the functions of the FHA is:
a. Build homes. b. Plan homes. c. Provide insurance protection to lenders. d. Loan money to qualified borrowers. answer: C
The difference between the value of property and any debt directly related with that property is described as:
a. Collateral. b. Equity. c. Ownership interest. d. Novation. answer: B
In order to be valid, a mortgage or deed of trust must be?
a. In writing. b. Executed by the parties. c. Between competent parties. d. All of these choices. answer: D
Lenders charge points to grant loans. Which of the following statements is NOT true regarding points charged?
a. It increases the yield to the lender. b. Points are charged on the basis of the selling price. c. A point is the same as 1% of the loan amount. d. The number of points a lender charges is negotiable. answer: B
Hardwick defaults on his mortgage loan which has a remaining balance of $94,500. The foreclosure sale brings $97,250 after expenses. What will happen to the extra $2,750?
a. It will go to Hardwick. b. It will go to the lender as punitive damages. c. The $2,750 will be applied to the new purchasers closing costs. d. The money is used to pay the cost of the court appointed trustee that handled the sale. answer: A
A lender offers new home financing at an interest rate of 7.95%. When asked to sign the Truth-in-Lending disclosure statement the borrower notices that the APR is shown as 8-1/4%. The APR can be higher than the quoted rate because of:
a. Points paid by the seller. b. Attorney fees. c. Points and the loan origination fee paid by the buyer. d. Assessments charged by the Homeowners Association. answer: C
The primary purpose of the secondary mortgage market is.
a. To aid in the resale of property. b. To provide investment vehicles for lenders. c. To ensure a flow of mortgage money to primary lenders. d. To assist small mortgage companies. answer: C
By including an exculpatory clause in a mortgage contract, the lender?
a. Waives her right to escalate the interest rate. b. Releases the borrower from personal liability. c. Agrees to permit an assumption to a qualified buyer. d. Grants the borrower immunity from foreclosure. answer: B
Which of the following is not true about a deed to secure debt?
a. When the document is delivered and accepted, it passes legal title. b. In order to be recorded, it is witnessed the same way a mortgage is. c. With a security deed, the lender holds equitable title. d. Once recorded, the deed to secure debt creates a lien on the property. answer: C
A clause in a mortgage releasing the indebtedness once the loan is paid off is:
a. defeasance b. subrogation c. exculpatory d. non-disturbance answer: A
A loan company was referring loan applicants to a particular insurance company which in turn paid the loan company a referral fee. This is:
a. legal as long as it is a set fee and not based on the amount of business referred b. legal as long as the loan company does not require a loan applicant to purchase insurance from a particular company c. illegal since the Real Estate Settlement Procedures Act prohibits kickbacks d. illegal due to the Truth in Lending Law (Regulation Z) answer: C
In times of a tight money market where the money supply is short, the secondary mortgage market helps first time home buyers by:
a. lowering interest rates b. providing liquidity to primary lenders c. raising required ratios on qualifying d. insisting on larger mortgage insurance premiums answer: B