Section 11 Unit 5

What is the best way to reduce debt while maintaining cash reserves? a. Increase spending, using cash b. Increase tax deductions c. Placing more on low-interest credit cards d. Purchase assets

b. Increase tax deductions

Roth IRA rules state that a first-time homebuyer can withdraw funds with no penalties from a Roth IRA under which of the following conditions? a. Account has been open for five years or longer b. Borrower must not have other money saved c. Distribution does not exceed $15,000 d. Funds are used for renovations only

a. Account has been open for five years or longer

When your clients improve their credit score, they _____________. a. Are likely to get better rates b. Are likely to get better service c. Must wait three years before applying for a loan d. Must wait three years before it will show up in their FICO® score

a. Are likely to get better rates

The three companies that track credit for lenders are TransUnion, Equifax, and Experian. Which of the following is a true statement? a. Each company a uses a slightly different scoring system b. Each company posts the borrower's FICO® Score c. Scoring is consistent across the three companies d. The higher the score, the higher the credit risk

a. Each company a uses a slightly different scoring system

A borrower is using a gift to fund part of his home purchase. What criteria for the gift holds the most weight in the lender's eyes? a. How long ago the gift was given b. How the gift giver is related c. The amount of the gift d. The terms for repayment

a. How long ago the gift was given

Lenders look at a HELOC balance of less than $50,000 as if ________________. a. It were a credit card b. It were an asset c. It were a paid mortgage d. It were cash

a. It were a credit card

Buyers who intend to finance should understand that the higher their credit score, _______________. a. The better interest rates they will qualify for b. The higher their cash reserves c. The higher their taxes d. The more house they can afford

a. The better interest rates they will qualify for

First-time home buyers who've had a Roth IRA account for at least five years may withdraw an amount that equal to the contributions they've made to use as a down payment. After that, how much more can they withdraw to help with a home purchase without penalty? a. Up to $10,000 b. Up to $20,000 c. Up to $25,000 d. Up to 50% of their fund balance, or $5,000, whichever is less

a. Up to $10,000

Your clients are first-time home buyers. They can access up to _________ of their Roth IRA accounts, penalty free, for their down payment. a. $0 b. $10,000 c. $20,000 d. $5,000

b. $10,000

What is the best-case scenario with a debt-to-income ratio? a. 100% debt-to-income b. 20% debt-to-income c. 60% debt-to-income d. 80% debt-to-income

b. 20% debt-to-income

Which of the following is the credit score range? a. 200 and 500 b. 300 and 850 c. 80 and 100 d. One and 10

b. 300 and 850

Improving credit scores can also _____________________. a. Increase credit risk for the lender b. Increase how much house the borrower can afford c. Increase risk for the borrower d. Lower the borrower's FICO® score

b. Increase how much house the borrower can afford

Which organization establishes relationships with financial institutions to offer home ownership programs that include down payment assistance through grants and favorable terms? a. HUD b. NHF c. OSHA d. RESPA

b. NHF

You're working with buyers who are close to being financially ready to buy. To prepare themselves for loan approval, they should __________. a. Delay paying bills with high-dollar amounts to show better available cash b. Pay down credit card balances c. Pay off and close all but one or two credit cards d. Take out a home equity line of credit to pay off credit card debt

b. Pay down credit card balances

Which of these provides a number that signifies your credit risk to lenders? a. Credit analysis b. Credit appraisal c. Credit score d. Credit tabulation

c. Credit score

Who may borrow money from a Roth IRA to obtain down payment funds? a. Any Roth IRA holder b. First-time home buyers who've held a Roth IRA account for at least 10 years c. First-time home buyers who've held a Roth IRA account for at least five years d. Only 10-year Roth IRA holders

c. First-time home buyers who've held a Roth IRA account for at least five years

From a lender's perspective, what does a credit score on the low end indicate? a. Better rates b. Credit usage c. Higher risk d. Lower risk

c. Higher risk

Why do lenders care so much about their borrowers' debt reduction? a. It eliminates the need for credit. b. It lowers affordability. c. It makes it easier for borrowers to pay their mortgages. d. It raises the debt-to-income ratio.

c. It makes it easier for borrowers to pay their mortgages.

The Fair and Accurate Credit Transactions Act of 2003 requires the credit bureaus to _____________________. a. Caution consumers that information in the credit report only influences FICO® scores b. Not charge for credit reports c. Provide consumers with a free copy of their credit report annually d. Use FICO® scores

c. Provide consumers with a free copy of their credit report annually

What is one way to improve your debt-to-income ratio without reducing your debt? a. Increase credit card balance b. Increase debt c. Increase expenses d. Increase income

d. Increase income

Consumers may use Roth IRA funds to obtain the down payment for their home purchase. Which of the following scenarios is allowed? a. Clayton, who has had his IRA for 10 years, withdraws $15,000 as part of his down payment on a vacation home. b. Desiree, who has held her Roth IRA for three years, withdraws $7,000 to help fund a down payment on her third home. c. Mary borrows $5,000 from her brother Jack's Roth IRA for her home purchase. d. Nevil, who has held his Roth IRA for five years, withdraws $8,000 to go toward a down payment on his first home.

d. Nevil, who has held his Roth IRA for five years, withdraws $8,000 to go toward a down payment on his first home.

Increasing income improves your debt-to-income ratio. Which of the following factors is also considered by lenders? a. Bonus income b. Demographics c. Place of work d. Proof of permanent employment

d. Proof of permanent employment

Improving a credit score can help a buyer ______________. a. Avoid financing b. Decrease debt c. Increase savings d. Qualify for better interest rates

d. Qualify for better interest rates

Buyers who want to look good to lenders prior to financing should employ which of the following strategies? a. Close all credit card accounts b. Keep high credit card balances to improve available cash c. Pay off as much debt as possible, even if it means they will have no cash reserves d. Reduce credit, but retain cash reserves

d. Reduce credit, but retain cash reserves

Paying down your credit cards is a great idea to reduce debt, but it can backfire. In the eyes of the lender, which action is the least damaging to loan qualification? a. Keeping a high balance card and having several cards with nothing charged on them b. Keeping one card with a high balance c. Paying off several cards and cancelling them d. Several open cards with available credit on them

d. Several open cards with available credit on them

Some first-time homebuyers tap into the bank of mom and dad. In what circumstance would the parents' contribution be acceptable for loan qualification? a. A balloon payment must not apply for the first three years. b. Interest rates for the loan must not exceed 3%. c. The borrower receives cash at closing. d. The money is given as a gift with no expectation of repayment.

d. The money is given as a gift with no expectation of repayment.

Most lenders like to see at least _______ months of cash reserves in addition to the buyers' down payment. a. 12 b. Eight c. Four d. Two

d. Two

As a real estate licensee, you should ______. a. Be willing to loan money to your clients for their down payment b. Calculate a buyer's loan pre-qualification c. Know the benefits of reverse mortgages d. Understand what helps your buyer qualify for a mortgage

d. Understand what helps your buyer qualify for a mortgage