Finance Practice Questions

A buyer with a 15-year, $250,000 loan at a fixed 5.5% interest rate has a monthly principal and interest payment totaling $2,042.71. What is the total amount of interest the borrower will pay over the course of the loan? A. $117,687.80 B. $250,000.00 C. $367,687.80 D. $735,375.60

A. $117,687.80 {(2,042.71*(12mo*15yr))-250,000}

A buyer is purchasing a property for $400,000. His lender's loan-to-value ratio is 80%. How much is the buyer financing? A. $320,000 B. $360,000 C. $400,000 D. $80,000

A. $320,000

What is a loan origination fee? A. A fee a lender charges for processing a loan B. A fee a lender charges for servicing a loan C. A fee a lender charges for the use of its money D. A fee a lender charges when a borrower pays off a loan

A. A fee a lender charges for processing a loan

Jim decided to refinance his three-year-old mortgage that has a balance of $300,000. He has to pay a fee of 5% of the loan amount to the original lender for paying off the mortgage early. What is this fee called? A. A prepayment penalty B. Closing costs C. Origination fee D. Points

A. A prepayment penalty

Joe's applying for a mortgage that meets all of the Fannie Mae/Freddie Mac criteria. Based on this, how would we classify this loan? A. Conforming B. Conventional C. Government D. Non-conforming

A. Conforming

Which type of lender is a member-based cooperative that provides credit for auto loans and home loans, takes deposits, and offers savings vehicles and money markets? A. Credit union B. Mortgage banker C. Mortgage broker D. Savings and loan association

A. Credit union

A trustee is holding title to Cassandra's house until the loan is paid in full. Which type of security instrument was used? A. Deed of trust B. Mortgage C. Mortgage and deed of trust D. Promissory note

A. Deed of trust

Which of the following is an example of a government-sponsored enterprise (GSE)? A. Fannie Mae B. Federal Housing Finance Agency C. Federal Reserve D. Ginnie Mae

A. Fannie Mae

The FHA loan program is designed for borrowers who ______. A. Have a minimal down payment and less-than stellar credit B. Have nothing saved for a down payment C. Have stellar credit D. Need their loan guaranteed

A. Have a minimal down payment and less-than stellar credit

What's another term for front-end ratio? A. Housing B. Loan-to-value C. Payment D. Total debt

A. Housing

Iris is planning to purchase her first home. Based on what you know about the nature of real estate finance in our country, which approach is she most likely to use? A. Obtaining a loan to purchase the home B. Paying cash for the purchase C. Receiving the property as a gift from the state D. Squatting in the home until legal possession of the home can be claimed

A. Obtaining a loan to purchase the home

A "homes for sale" magazine contains the following ad: "Cozy two-bedroom starter home, neat and clean, ready for move-in. $140,000. Low down payment and easy financing!" Which of these statements is true? A. The ad complies with TILA because it doesn't contain any of the trigger terms that require full disclosure of all financing terms. B. The ad complies with TILA because the sales price is below the minimum that triggers full disclosure. C. The ad does not comply with TILA because financing terms must be provided on any residential real estate ad. D. The ad does not comply with TILA because it mentions financing without including all of the terms of the financing.

A. The ad complies with TILA because it doesn't contain any of the trigger terms that require full disclosure of all financing terms.

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? A. $712 B. $720 C. $728 D. $800

B. $720 {0.9*80,000 = 720,000*0.01 = 720}

With a VA loan, the borrower must receive a certificate of eligibility. What must the property receive? A. A certificate of occupancy B. A certificate of reasonable value C. A certificate of resale value D. A low appraisal

B. A certificate of reasonable value

Erica is a California real estate licensee with an MLO endorsement. Which of the following properties falls under the definition of 'dwelling' and would therefore allow her to act as an MLO in a transaction? A. A commercial office space B. A mobile home C. A piece of property that will be used for hunting D. A trailer used for vacations and camping

B. A mobile home

Which entity insures government loans? A. FDIC B. FHA C. USDA D. VA

B. FHA

Which type of mortgage has an interest rate that remains constant over the life of the loan? A. Adjustable-rate B. Fixed-rate C. Growing equity D. Pledged account

B. Fixed-rate

Joann purchased her house with a mortgage loan from her friendly neighborhood bank. Which of these most likely happened to Joann's loan soon after she received it from her bank? A. Her bank foreclosed on the loan. B. Her bank sold it on the secondary market as an investment product. C. She received another loan on the secondary market when her bank demanded full payment. D. She sold the loan on the primary market for a lower interest rate.

B. Her bank sold it on the secondary market as an investment product.

With this common loan type, the home is used as collateral and the loan creates a second mortgage if the first mortgage hasn't been paid off. A. Bridge B. Home equity C. Reverse mortgage D. Straight

B. Home equity

What's the purpose of the Equal Credit Opportunity Act? A. It requires financial institutions to maintain, report, and publicly disclose information about their mortgages. B. It requires lenders to make credit equally available to all creditworthy applicants, regardless of the applicant's protected class status. C. It requires that lenders disclose all credit terms in any advertisement that offers credit, allowing consumers to make informed comparisons. D. It requires that lenders invest in development and rehabilitation efforts that enable low- and moderate-income individuals and families to afford a home.

B. It requires lenders to make credit equally available to all creditworthy applicants, regardless of the applicant's protected class status.

How long is an MLO endorsement valid? A. Four years B. One year C. Three years D. Two years

B. One year

Tom, the seller, is helping the buyer with financing. Tom will give this mortgage to the buyer, and the money will go toward the down payment. What kind of mortgage is this? A. Package mortgage B. Purchase money mortgage C. Reverse mortgage D. Wraparound mortgage

B. Purchase money mortgage

What is a requirement of the CalVet program? A. The borrower must be a California resident. B. The property being purchased must be located in California. C. The property must be at least five acres in size. D. The veteran must have been stationed in California during their military career.

B. The property being purchased must be located in California.

A buyer with a $242,000 loan has a monthly principal and interest payment of $1,317.66. If $1,033.54 is interest, what's the new principal balance after the first payment is applied? A. $240,682.34 B. $241,672.12 C. $241,715.88 D. $241,976.21

C. $241,715.88

A buyer with a 30-year, $400,000 loan at a 7% interest rate has a monthly principal and interest payment totaling $2,661.21. If $2,333.33 is interest, how much is applied to principal? A. $2,333.33 B. $2,661.21 C. $327.88 D. $933.33

C. $327.88

A borrower has a 30-year, $500,000 loan with an interest rate of 6.25%. His monthly principal and interest payment is $3,078.59. What's the total amount of interest he'll pay over the course of the loan? A. $1,108,292.40 B. $500,000 C. $608,292.40 D. $750,000

C. $608,292.40

Which of the following is true about the Federal Housing Administration's qualifying standards for a mortgage loan? A. Allow lenders to approve 90% of borrowers B. Are different for first-time homeowners than for anyone who has owned a home before C. Are somewhat less stringent than standards for conventional loans D. Make borrowing with no cash down easy

C. Are somewhat less stringent than standards for conventional loans

What type of foreclosure is commonly used when a deed of trust is the security instrument? A. Eviction B. Judicial C. Non-judicial D. Strict

C. Non-judicial

When calculating loan-to-value ratios, which of the following will be used by the lender? A. The appraisal value B. The greater of the sales price or appraisal value C. The lesser of the sales price or appraisal value D. The sales price

C. The lesser of the sales price or appraisal value

What is the trustee's role when a deed of trust is used to secure property for a loan? A. To collect payments and service the loan B. To hold funds in escrow C. To hold legal title to the property on behalf of the beneficiary until the loan is repaid D. To hold the note to the property on behalf of the trustor until the loan is repaid

C. To hold legal title to the property on behalf of the beneficiary until the loan is repaid

Seller Jerome found financing that would include his current mortgage inside the buyer's mortgage. What type of mortgage is this? A. A blanket mortgage B. A construction mortgage C. A package mortgage D. A wrap-around mortgage

D. A wrap-around mortgage

In a mortgage, the property is used as collateral for the loan. What's the term for the process of pledging something as collateral? A. Hypercollateral B. Hyperinflation C.Hyperventilation D. Hypothecation

D. Hypothecation

Maggie has a neighbor, Jim, who is facing foreclosure. She likes Jim and wants to help him out, so they agree to do a "subject to" purchase. What does this mean? A. Maggie will co-sign a second mortgage with Jim so that he'll have the funds to pay off the first mortgage. B. Maggie will purchase the home at the foreclosure auction and rent it to Jim at a reduced rate. C. Maggie will sign an agreement with the lender to assume liability for Jim's loan. D. Maggie will take over Jim's loan payments without telling his lender she's doing so.

D. Maggie will take over Jim's loan payments without telling his lender she's doing so.

Which of the following is a significant drawback to an FHA loan as compared to conventional financing? A. Down payment requirements are higher. B. Interest rates are higher. C. Loan amounts are lower. D. Required mortgage insurance must remain in place for the life of the loan.

D. Required mortgage insurance must remain in place for the life of the loan.

Monty retired 10 years ago and would like to see the world, but his retirement account won't support his desire to travel. Monty heard of a loan that would allow him to take advantage of the equity in his home by getting monthly payments from the bank by using his house as collateral. What is this type of loan called? A. Adjustable rate mortgage (ARM) B. Home equity line of credit (HELOC) C. Home equity loan D. Reverse annuity mortgage (RAM)

D. Reverse annuity mortgage (RAM)

Rachel loves convenience. As you can imagine, she was thrilled when she was able to finance her mortgage through the same institution where she deposits her payroll checks. Which of these most likely financed Rachel's mortgage? A. Insurance company B. Investment group C. Mortgage broker D. Savings and loan

D. Savings and loan

The FHA has helped to significantly improve the mortgage market through ______. A. Educating the public about the benefits and responsibilities of having a mortgage B. Setting standards for interest rates on mortgage loans C. The establishment of the home inspection industry D. The introduction of the long-term amortized loan

D. The introduction of the long-term amortized loan

The Farm Credit System funds are acquired from ______. A. Local lenders B. Mortgage-backed securities C. Private investors D. The sale of debt securities and international money markets

D. The sale of debt securities and international money markets

What's another term for back-end ratio? A. Housing ratio B. Loan-to-value ratio C. Payment ratio D. Total debt ratio

D. Total debt ratio

Which of the following is a borrower eligibility requirement for CalHFA? A. California veteran B. Doesn't intend to reside in the home for the length of the loan C. Owned a home before D. U.S. citizen, permanent resident, or qualified alien

D. U.S. citizen, permanent resident, or qualified alien