Course 2 MN Real Estate

Title insurance premiums are paid.. how often and when?

once, at the time the policy is issued.

Regulation Z was established by...

the Federal Reserve Board.

In an insured conventional loan, the front ratio threshold is _____% of the buyer's gross monthly income.

28-36%

The first step in qualifying a buyer for an FHA loan is to figure out the debt ratio. The front ratio threshold is _____% of the buyer's gross monthly income.

31%-43%

A contract for deed must be recorded within ___ months of closing

4 months

The VA allows sellers to pay up to ____% of the buyer's closing costs

4%

Buyers are required to make their mortgage application with their lender within ____ business days of final acceptance of the purchase agreement?

5 business days!

What is the IDX??

A broker-operated web system that consumers may subscribe to at NO COST to learn more about broker-posted listings. This service does NOT allow for-sale-by-owner consumer property listings.

All loans with an alienation clause are A) not assumable. B) assumable at the lender's option. C) guaranteed assumable. D) assumable at the seller's option.

B

Lisa is selling her home to Dale on a contract for deed. Dale can still ask for A) an appraisal. B) an inspection. C) a market analysis. D) any of these.

Any of these!

The form of legal description that uses range and tier lines, sections, and townships is A) metes and bounds. B) government survey. C) the parcel number method. D) lot and block.

B

When writing a cash offer, the buyers need to provide documentation that they have the assets to complete the transaction. Which of these would the buyers provide as adequate proof? A) A letter from the buyers' accountant showing they made enough money last year B) A letter from a certified financial institution without account numbers C) A letter from a certified financial institution with account numbers D) None of these would provide adequate proof

B

When the buyer is compensated from commissions paid by the seller for the sale of real estate, how will the buyer's broker receive compensation? A) The closer prorates that commission at closing and issues separate checks to the respective brokers. B) The listing broker will collect the commission from the seller and split it with the buyer's broker. C) The buyer's broker is not legally allowed to collect a commission from the seller. D) The buyer's broker will bill the seller directly for the commission.

B Commissions or fees are always paid to the broker by the client in accordance with the employing agreement. A broker representing a buyer may receive compensation from fees paid by the seller to the seller's broker. The seller's broker would pay the buyer's broker, and the individual brokers split the fees with their own salespeople.

Who may issue injunctions, award damages and attorney's costs, and impose civil penalties of up to $10,000 for the first offense of violating the fair housing laws? A) The HUD law judge B) The administrative judge C) The fair housing clerk D) The mayor

B HUD may also refer complaints to the Minnesota Human Rights commissioner.

Which is a disadvantage of using seller financing as an alternative to lender-sponsored financing? A) Seller-sponsored financing typically doesn't require an appraisal. B) Work orders are seldom required on the property for sale. C) Any underlying financing might have a due-on-sale clause. D) The borrower could save money in closing costs.

C Seller-sponsored financing typically does not require an appraisal of the property or work orders as a condition of financing. Transaction costs may also be less. Seller-sponsored financing may not be an option if there is existing underlying financing that contains a due-on-sale clause.

Generally, when does the seller agree to deliver possession of real estate to the buyer? A) Within 24 hours of the successful closing B) When the purchase agreement has been signed by all parties C) After all terms and conditions of the contract have been met, typically upon closing D) Upon proof that the buyer has been approved for financing

C; after all terms and conditions of the contract have been met, typically upon closing. Absent any other agreement, buyers can expect to receive possession of real estate at the time of closing.

The Real Estate Settlement Procedures Act (RESPA) is administered by the Department of Housing and Urban Development (HUD), which regulates A) marketing of properties listed by brokers. B) agency disclosure requirements. C) lender charges associated with loan applications. D) real estate disclosures and closing practices.

D

A seller would like to offer a wraparound contract for deed but has an underlying mortgage. What does the seller need from the lender? A) A preapproval letter B) A term letter C) A rebuild letter D) An estoppel letter

D If there is an underlying mortgage with a due-on-sale clause that is not being paid off or is being assumed by the buyer, the seller must receive an estoppel letter from the lender to wrap the mortgage into the contract for deed. - Neglecting to receive the estoppel letter and permission from the lender will trigger the due-on-sale clause

What would be the typical seller costs at closing if the seller sold the home on a contract for deed? A) Closing fee, broker administration fees, and origination fee B) Closing fee, broker administration fees, and mortgage registration tax C) State deed tax, closing fee, and broker administration fees D) Broker administration fees, closing fee, and back property taxes

D When selling on a contract for deed, the actual deed does not transfer until the contract is paid in full, so there wouldn't be any state deed tax. There is no mortgage, so there would be no mortgage registration tax and no origination fee.

A veteran's eligibility for a VA loan is based on

Length of service

The Agency Relationships in Real Estate Transactions disclosure is required to be given at first substantive contact in which of the following transactions? A) Transactions of residential properties with up to four units B) Sales of businesses C) Commercial transactions up to 1.5 acres D) Only single-family residential transactions

The answer is transactions of residential properties with UP TO 4 UNITS!!! The Agency Relationships in Real Estate Transactions disclosure must be provided to consumers at the first substantive contact with a residential consumer. The disclosure is not required in commercial or other nonresidential transactions.

The requirement for a written seller's disclosure statement may be waived by written agreement between the buyer and the seller. This relieves the seller from all statutory disclosure requirements. TRUE OR FALSE?.

The statement is false. Disclosure requirements regarding wells, septic, radon, methamphetamine production, lead-based paint, valuation, and time-of-sale inspections may not be waived

Unlike a contract for deed, a buyer using a purchase money mortgage receives full legal title to the property, and the seller holds a mortgage as security for repayment of the debt. T or F?

True - A purchase money mortgage is indeed a mortgage, so mortgage protocol applies. The buyer gets full legal title, the lender (seller) has a lien, and in the case of default, the seller/lender must comply with Minnesota foreclosure laws.

As they relate to material facts, fraud, misrepresentation, and negligence are items that are subject to arbitration per the arbitration agreement. T or F ?

true - Only title issues are specifically excluded within the agreement.

Smaller down payments provide higher leverage. T or F?

TRUE

If the seller fails to deliver marketable title by the date of closing, the Minnesota Association of REALTORS® Purchase Agreement states that the seller may extend the closing date up to ________ to make title marketable. A) 30 days B) 10 days C) 20 days D) 45 days

30 DAYS!

In a conventional loan, the front ratio threshold is _____% of the buyer's gross monthly income.

36%

In a DVA loan, the front ratio threshold is _____% of the buyer's gross monthly income.

41%

FHA guidelines will allow the seller to pay up to _____ of the buyer's closing costs

6%

In the acronym PITI(I) what does the (I) stand for? A) Mortgage insurance B) Home interest C) Mortgage interest D) Homeowners insurance

A

Jiro is selling his house for $200,000. He has an FHA assumable loan on the home for $125,000 with 4% interest. The buyers have offered to assume Jiro's loan if he would allow them to make payments on the difference. What type of financing would work for this situation? A) Mortgage assumption plus contract for deed B) Wraparound contract for deed C) Cash D) Overall contract for deed

A Because there is an underlying mortgage that can be assumed, the sellers would use the option of mortgage assumption plus contract for deed. The contract for deed would take care of the difference.

Which statement about discount points is FALSE? A) Points are prepaid interest. B) Points help increase the yield on the loan for the lender. C) Points can be paid by either the buyer or the seller. D) Points allow the interest rate on a loan to be bought down.

A Discount points allow borrowers to receive a below-market rate of interest on their mortgage. Discount points are not considered prepaid interest but are used to increase the yield on the loan for investors. Either the seller or the buyer is typically allowed to pay discount points.

According to Regulation Z of the Truth in Lending Act, all of the following items constitute finance charges when calculating the annual percentage rate (APR) for a loan EXCEPT A) down payment. B) interest rate. C) discount points. D) loan origination fee.

A Interest rate, discount points, and loan origination fees are considered finance charges and must be expressed by the lender as an annual percentage rate (APR), according to Regulation Z of the Truth in Lending Act. Down payments are not part of financing charges!

An agent is working with a buyer as a facilitator and shows the buyer a property that is being listed by another agent in his company. Which of the following statements is TRUE? A) The agent automatically represents the seller. B) The agent automatically becomes a dual agent. C) Nothing changes for the agent or the buyer. D) The agent must find another agent to show the property.

A - Agency always trumps facilitation.

If there is to be more than one buyer, the purchase agreement should include A) no more than two of the buyers. B) the names of all buyers. C) the Social Security number of each. D) the buyer in charge.

ALL buyers, B The lender, the closing company, and the seller need to know the names of all buyers. An accepted offer becomes a major component of the closing instructions for all who are involved in the transaction.

"The highest showing activity occurs in the first two to three weeks of a new listing." That statement is A) a real estate myth. B) always true. C) never true. D) sometimes true.

ALWAYS true

Alternative financing methods... A) always have high closing costs. B) often do not work well for buyers with a low down payment. C) always have lower qualifying standards than traditional financing methods. D) always have lower interest rates than the current market rate

B Alternative forms of financing may have lower closing costs, and interest is negotiated between the seller and the buyer. Qualifying for alternative financing is at the discretion of the parties, who determine the standards needed to enter into the agreement. However, alternative financing may require a larger down payment from the buyer.

The notice regarding predatory offender information appears in all of the following EXCEPT A) purchase agreements. B) advertising brochures. C) buyer representation agreements. D) listing contracts.

B - brochures

The BEST financing option for a buyer who has been self-employed for less than two years would be A) contract for deed. B) VA. C) FHA. D) USDA.

Contract for deed! To get traditional financing, buyers must be self-employed for more than two years; therefore, a contract for deed would be a great option.

Manuel and Jason want to purchase a home; however, they had a foreclosure one year ago and were told by their loan originator that they had to wait. They have saved up enough to put a 10% down payment on a home. Based on their current income and debt, they can afford a $250,000 purchase price. Which option would be the BEST for their situation? A) Conventional financing B) Rent C) Contract for deed D) FHA financing

Contract for deed! For people working on rebuilding credit, a contract for deed can be a great way to bridge the gap until they can qualify for a traditional loan.

The borrower's APR will always be lower than the interest rate. T or F?

F- The annual percentage rate (APR) is always higher than the base interest rate. APR is the effective rate of the loan, adding the impact of up-front charges to the interest rate.

A buyer assuming a loan will most likely be required to purchase a mortgagee's title insurance policy, providing protection for a lender in the event of default. T or F?

FALSE - The mortgagee's title insurance would have been purchased when the seller obtained the loan. Upon assumption, the policy transfers to the buye

The standard Minnesota Association of REALTORS® arbitration agreement requires that any request for arbitration be filed within 12 months after the closing on the property. T or F?

FALSE; 24 months

Federal Housing Administration (FHA) loans come from the federal government. T or F?

FALSE> Federal Housing Administration (FHA) loans are made by private lenders who have their loans insured against default, and the loan funds do not come from the federal government. Borrowers often have lower down payments. REMEMBER: These loans are guaranteed; therefore, NO default INSURANCE IS REQUIRED

When buying a property on a contract for deed, the buyer cannot buy title insurance because the buyer does not have legal title. T or F?

False - A buyer purchasing a property using a contract for deed can purchase an owner's title insurance policy. Because there is no lender, there is no lender's title insurance policy

Just like conventional mortgages, purchase money mortgages require an appraisal. T or F?

False - PMMs and C/Ds are ways to reduce closing costs, avoid appraisals and some qualifying requirements

With a VA-guaranteed loan, the closing fee must be paid by the buyer. T or F?

False. The closing fee must be paid by the SELLER in a VA transaction. The VA may also require the seller to escrow pending special assessments.

The only way a seller may comply with Minnesota material fact disclosure law is by completing the MNAR seller's property disclosure statement. T or F?

False; Sellers have three choices: disclose material facts in writing, provide a third-party inspection report to the buyer, or request a waiver from the buyer.

The Internal Revenue Code (Section 1445) requires that, in certain circumstances, buyers of real property must be notified in writing that they must withhold tax if the seller is a foreign person. T or F?

If the sale is taxable in the United States, but the buyer is not a U.S. citizen and may not file U.S. taxes, the buyer may have to withhold income in the form of sales proceeds from the seller for the payment of applicable taxes.

As a condition of a mortgage, the lender will likely require the borrower to purchase, at a minimum, which form of title insurance?

Mortgagee's insurance! A mortgagee's policy protects the lender against title issues associated with real estate. An owner's policy protects the property owner against title issues, and combination policies protect both lenders and property owners.

Which clause in the listing agreement protects the broker's commission once a listing has expired should the seller sell the property to a person that the broker had substantive contact with before the expiration of the listing contract?

Override Clause

When analyzing MLS search results for a CMA, which of the following would be MOST important? A) Year built B) Style C) Condition D) Curb appeal

STYLE

The fair housing logo must be included in all real estate advertising. T or F?

TRUE

Members of the multiple listing service are allowed to place other brokers' listings on their own websites. T or F?

TRUE By joining the MLS, brokers agree to cooperate with other brokers and share commissions. A member broker may advertise another broker's listing in hopes of representing a buyer.

Total finance charges must be disclosed as an annual percentage rate (APR), according to Regulation Z of the Truth in Lending Act. T or F?

TRUE This includes items such as interest, the origination fee, and seller-paid points.

If the property covered by the listing contract has been destroyed, the listing contract may be terminated. T or F?

TRUE - If the property is destroyed, there is no longer something to list on the market, so the listing contract may be terminated.

A listing agreement that has been signed by the seller and the salesperson is an employment agreement between the seller and A) the salesperson and broker (equally). B) the broker. C) the local multiple listing service. D) the salesperson

The BROKER! The salesperson is employed on behalf of the broker as the broker's agent. The salesperson is authorized as a general agent to enter into listing and buyer representation agreements on behalf of the broker. Therefore, these agreements are the property of the broker.

Lauren wants to buy a home with insured conventional financing. Her loan originator explained to her that conventional financing considers two numbers for qualifying: the front ratio, which is 28% of her gross monthly income, and the back ratio, which is 36% of her gross monthly income and includes her debt. Lauren's front ratio is $2,000 and her back ratio is $1,600. How much of a monthly house payment can Lauren qualify for?

The answer is $1,600. A lender will always take the lower of the two numbers, so Lauren will only qualify for a $1,600 monthly payment.

Marta is buying a home for $200,000. She is paying cash, and the closing company is handling both the buyer and the seller sides. The closer is charging a $250 closing fee, $660 for the state deed tax, and the seller's commission of $14,000. How much does Marta need to bring to the closing? A) $214,910 B) $200,000 C) $215,160 D) $200,250

The answer is $200,250. The only fees the buyer is responsible for in this case are the purchase price and the closing fee. State deed tax wont be paid for YEARS (depending on the length of her C/D), and she doesn't pay the seller.

Jill is selling her home and realizes that she has to pay state deed tax to sell it. Jill is selling her home for $200,000. The buyer is putting down 5%. The state deed tax is 0.0033. How much does Jill have to pay for the state deed tax? A) $660 B) $680 C) $627 D) $612

The answer is $660. The state deed tax is based on the PURCHASE PRICE, not the loan amount, so the correct calculation is as follows: $200,000 × 0.0033 = $660.

A person who is retained to do a certain task and is subject to the control and direction of another only as to the end result, not as to the way the task is carried out, is called A) an independent contractor. B) a guided contractor. C) an employee. D) a freelance contract coordinator.

The answer is A, an independent contractor. As a salesperson, being an independent contractor typically means compensation is based on closed transactions and is usually a percentage of the commission income produced.

Which of the following is TRUE about Federal Housing Administration (FHA)-insured loans? A) Escrowing of property taxes and homeowners insurance is prohibited. B) Funds for FHA loans come from private lenders. C) Lender risk is higher on FHA loans than on conventional loans. D) Work orders are seldom issued on homes being financed with an FHA loan.

The answer is B, funds for FHA loans come from private lenders. Funds for Federal Housing Administration (FHA) loans come from private lenders who have their loans insured against loss due to default. Whether the loan is a conventional or FHA, loan risk may be managed by requiring default insurance.

Where can those who feel they have been unlawfully discriminated against file a complaint? A) The Department of Urban Justice B) The Department of Housing and Urban Development C) The Department of Commerce D) The Department of Fair Housing Oversight

The answer is B, the Department of Housing and Urban Development. The person may also file a lawsuit in federal or state court.

Insured conventional loans require a down payment of A) 20%-25%. B) 3%-20%. C) 5%-19%. D) 5%-15%.

The answer is C, 5%-19%. Insured conventional loans require private mortgage insurance and offer buyers a smaller down payment, between 5% and 19%.

What VA charge at the time of closing typically is added to the loan amount? A) Premium fee B) Mortgage fee C) Funding fee D) Insurance fee

The answer is C, funding fee. The VA charges an up-front funding fee at closing, and it is typically added to the loan. A veteran's eligibility is based on length and time of service. Eligible veterans include full-time military, National Guard, reserve, active duty, and retired personnel.

According to Regulation Z of the Truth in Lending Act, all of the following items constitute finance charges when calculating the annual percentage rate (APR) for a loan EXCEPT A) discount points. B) interest rate. C) loan origination fee. D)down payment

The answer is D, the down payment. Interest rate, discount points, and loan origination fees are considered finance charges and must be expressed by the lender as an annual percentage rate (APR), according to Regulation Z of the Truth in Lending Act. Down payments are not part of financing charges.

Which of the following federal acts regulates and ensures that lenders are meeting the housing needs of the communities they do business in? A) Fair Credit Reporting Act B) Equal Credit Opportunity Act C) Truth in Lending Act D) Home Mortgage Disclosure Act

The answer is Home Mortgage Disclosure Act. The Home Mortgage Disclosure Act requires lenders to publicly disclose the LOCATIONS where they have made home mortgages. This is done to ensure that lenders are not engaging in illegal lending practices (REDLINING). The Fair Credit Reporting Act provides regulation on reporting and accessing consumer credit information. The Real Estate Settlement Procedures Act (RESPA) establishes standard CLOSING processes and procedures and non-discrimination Truth in Lending Act requires disclosure of the true costs of acquiring credit.

According to Regulation Z of the Truth in Lending Act, which of these statements in an advertisement would trigger the act's full disclosure requirement? A) Affordable payments B) Interest rate is 4% C) Below market interest rate D) Minimal down payment

The answer is interest rate is 4%. Regulation Z of the Truth in Lending Act allows for the advertising of GENERAL terms, which will not trigger full disclosure. These would include terms such as minimal down payment, below market interest rate, and affordable payments. The statement "interest rate is 4%" would need to be expressed as an annual percentage rate (APR).

Asking a small question that indicates the salesperson is moving forward, such as "Do you have any photos of the backyard that I could use for the MLS?" is an example of what type of close? A) Alternative close B) Action close C) Major-point close D) Minor-point close

The answer is minor-point close. Asking a minor question that indicates the salesperson is moving forward is a minor-point close.

Jiro is selling his house for $200,000. He has an FHA assumable loan on the home for $125,000 with 4% interest. The buyers have offered to assume Jiro's loan if he would allow them to make payments on the difference. What type of financing would work for this situation? A) Wraparound contract for deed B) Mortgage assumption plus contract for deed C) Cash D) Overall contract for deed

The answer is mortgage assumption plus contract for deed. Because there is an underlying mortgage that can be assumed, the sellers would use the option of mortgage assumption plus contract for deed. The contract for deed would take care of the difference.

The deed covenant affirming that the grantor holds title and has the right to convey it to another is the covenant A) of quiet enjoyment. B) of further assurance. C) of seisin. D) against encumbrances.

The answer is of seisin. The covenant of seisin assures that the seller has title to the real estate and is able convey it. The covenants of further assurance, of quiet enjoyment, and against encumbrances all provide the buyer with assurance of cooperation to defend title.

Who decides how much of the gross listing commission will be offered to a cooperating broker? A) The MLS B) The listing agent C) The buyer's agent D) The seller

The answer is the listing agent. Following their agency policies, the listing agent will enter cooperating broker compensation into the MLS listing.

Which of the following is TRUE of aboveground fuel tanks, water softeners, and cable boxes? A) They are considered fixtures. B) They are always leased property. C) They are always the seller's personal property. D) They might be leased and not owned by the seller.

The answer is they might be leased and not owned by the seller; D Aboveground fuel tanks, water softeners, and cable boxes may not be personal property of the seller but may instead be leased. Therefore, the parties to a real estate transaction will want to confirm the ownership status of such property to avoid confusion.

Jan sold her house to Laura with a purchase money mortgage. JAN is considered A) the vendor. B) the mortgagor. C) the vendee. D) the mortgagee.

The mortgagee Because a purchase money mortgage is just like traditional financing, Jan is the mortgagee (takes the place of a traditional lending officer)

If a property under a value exclusion is sold, the exclusion is automatically transferred to the buyer. T or F?

The statement is false. The value exclusion means that improvements were done, but the value of the improvements was excluded from the assessed value. Upon sale, the property will be reassessed, and the property taxes may increase dramatically.

Mandatory disclosures such as those for methamphetamine production, wells, septic, and lead-based paint are NOT required if the buyer and the seller agree to waive the seller's disclosure requirement. T or F?

The statement is false. When the buyer and the seller agree to waive the seller's disclosure duty, the waiver pertains only to the material fact disclosure, not other mandatory disclosures.

A salesperson listing her parents' home for sale must disclose to potential purchasers that the home belongs to her parents. T of F?

The statement is true. A salesperson representing a family member in the sale of that family member's home must disclose the relationship to potential buyers.

In general, a seller may want a buyer to lock down the interest rate within five days of financial acceptance, and the buyer may want to lock in the interest rate anytime before closing or as required by the lender. T or F?

The statement is true. The first scenario favors the seller, and the second favors the buyer. The ultimate agreement will be determined through negotiation

If the parties to the purchase agreement agree to binding arbitration, they forfeit their rights to go to court should a claim of failure to disclose material facts arise. T or F?

True

Sellers who do not have an immediate need for cash from the sale of a property can earn interest on their equity by selling the property on a contract for deed. T or F?

True - Interest on a contract for deed often exceeds market mortgage rates, which are typically higher than most investment annuity income.

Buyer's agents will often ask the lender to customize a preapproval letter to reflect the offer price or the address of a written offer. T or F?

True -Buyers do not need to let sellers know whether they've been approved for a loan exceeding the offer being written on the property.

A week before listing, the seller hires a general contractor and adds a deck to the property. Within a week after listing, the seller accepts an offer. All of the following are true EXCEPT A) the contractor loses all mechanic's lien rights at the closing. B) the purchase agreement requires the seller to warrant payment in full. C) the contractor may file a lien within 120 days of completing the work. D) lien waivers suffice as evidence of payment.

a

An estoppel letter is a...

a legal document provided by the seller's Homeowner's or Condominium Owner's Association, outlining the current owner's financial standing, past due balances, current fees due and lists all future special assessments due. Each letter has a "good through" date

MOST contracts for deed include

a lump-sum balloon payment.

The amount of earnest money is determined by A) the selling agent. B) the listing agent. C) the lender. D) negotiation between the buyer and the seller.

d

A person who works at the direction of another only as to the end results, and is allowed to do the job or activity in an undirected manner, is considered an ________.

independent contractor

A seller meeting the statutory definition of a multiple seller is required to provide a contract for deed disclosure, unless

the buyer is represented by an attorney or a real estate licensee who is not a dual agent in the transaction.