FIN 3365 Real Estate Exam 1 (Ch 1,2,3,4,5,8)
Which of the following would compensate a homeowner if their home burned down? Ch8
Hazard insurance
So called "FHA Loans" are: Ch8
High loan to value ratios loans Low interest rate guaranteed loans Designed for first time home buyers ***All of the above
If you obtain a mortgage loan, but were allowed to select a payment plan where payments were insufficient to cover the normal interest costs on a monthly basis, this loan could be referred to as a ________________ loan. Ch4
negative amortization
The text book references loan structures (now rare) where the payments are not sufficient to cover the interest rate being charged (accrued) on the loan. These loans are said to have:
negative amortization
Multiple liens can be placed on a real estate property. Liens that occur subsequent to the original purchase mortgage obligation can be referred to by all of the following terms EXCEPT: Ch2
preferred lien
In deciding to value an investment real estate project, I might estimate its future cash flows and apply a discount rate. In effect, I am solving for the: Ch3
present value
A loan with "amortization" is one where: Ch4
regular payments consist of a mix of principal and interest
Determining appropriate interest rates is a complex process. Which of the items below is factored into the interest rate determined by the market? Ch4
the "real" rate of interest expected inflation adjustment for risk ***all of the above
Most residential purchases involve a mortgage lender. The all-encompassing process, where the home is acquired and the new loan made is most commonly referred to as: Ch8
the closing
All of the following can be considered as synonyms for an ARM loan, EXCEPT
Fixed rate loan
A real estate lender's ultimate (and usually last) resort in the case of a default is: Ch2
Foreclosure
The document normally used to transfer real estate ownership is called a Deed. Which of the following types of deeds would transfer the most complete set of rights and thus be preferred by a buyer?
General warranty deed
When describing the "rate" of an adjustable rate mortgage, all of the following terms will normally be used, EXCEPT
inflation adjustment
In a real estate context, the word "title":
is more of a concept indicating ownership rights to a parcel of real estate, but which may be incomplete, or otherwise encumbered
The interest rate that applies in any given year on an ARM loan can be referred to by all of the following terms EXCEPT:
margin rate
Calculate the monthly payment on a $200,000, 30 year, fixed-rate, self amortizing loan at 6%
$1,199 =PMT(0.06/12,360,-200000,0,0)
Assume you decide to start saving to buy a real estate property in 5 years that will require a $100,000 down payment. You hope to put aside an equal amount at the end of every month. How much would that monthly amount be if you can earn 6% on your money? Ch3
$1,433 Find =pmt
If you had a $200,000 30 year, fixed rate mortgage at 6%, what would your "payoff" be after 5 years? Ch4
$186,109
If you knew you were going to inherit a property 10 years from now and then immediately sell it for $5,000,000, what would this right be worth to you today assuming you could earn 6% (annually) on your investments? Ch3
$2,792,000 =5000000/1.06^10
If you were able to purchase a financial product that paid you $100,000 at the end of every year for the next 8 years, what is the maximum you would pay assuming you earn 6% on your investments? Ch3
$620,980 =100,000 * (1 - (1/(1+r)^n))/r
What is the "monthly constant" on a 30 year, fixed rate loan at 9%? (Note: It does not matter what the loan amount is that you use in this question. Think about "why" to fully understand the concept.) Ch4
0.008
You are in the 5th year of a $300,000 5/1, 30 year ARM with caps of 3/2/5 and an initial (composite) rate of 4.5% (Index of 2.5% + margin of 2%). Your current monthly payments of P+I equal $1,520.06. By the end of Year 5, interest rates have increased substantially and the "index" is now at 6.5%. What will your new monthly payment be for Year 6. [Hint: find the loan principal amount then recast for remaining 25 years at new rate].
2022.95 Calculate balance at end of year 5. Apply the new rate for the 25 year remaining term. The new rate for year 6 however will be "capped" to be no higher than (4.5%+3%=7.5%) Total N is 30*12 as the total term is 30 years Find PVIFA ~ 135.32 r = 0.625% (7.5%/12) n = 300 (remaining terms after 5th year) Use Ending balance after 5th year which is 273473.75 273473.75/135.32 = 2020.95
Assume you have an ARM mortgage loan and are currently paying a total interest rate of 4.1%. However, the loan is about to be reset and the following info is provided to you:
5.0% Working: New rate would be = Treasury rate + margin New rate would be = 2.9% + 2.1% New rate would be = 5.0% Here the cap is = current interest rate + 2% Cap is = 4.1% + 2% Cap is = 6.1% If the new rate is higher than cap rate, then cap rate would be effective. But since it is lower than cap rate. We use 5.0% only. Effective rate = minimum of (cap rate, new rate) Effective rate = minimum of (6.1% , 5.0%) Effective rate = 5.0%
If you can invest $100,000 today and receive $10,000 annually for the next 15 years, what is your annual "yield" on your investment? Ch3
5.6% =rate(15,10000,-100000,0)
If you obtained a $200,000 30 year fixed rate mortgage at 6% with 2 "points" at closing, what would the effective rate be (according to disclosure laws)? Ch4
6.19% =EFFECT(6%,360)
If you obtained a $200,000 30 year fixed rate mortgage at 6% with 2 "points" at closing - but sold your house and paid off the mortgage after 5 years, what would the effective interest rate be over this 5 year period? Ch4
6.48%
If you can invest $100,000 today and the bank promises to give you $300,000 15 years from now, what "rate of return" are you earning? Ch3
7.6% = (300,000/100,000)^1/15 - 1
Which of the following would be considered as "real property"?
A condo on the 13th floor of a high rise building
When a borrower is in default on a loan and the lender, having provided notice, demands that the full amount of the loan be repaid, this is known as: Ch2
Acceleration
If you received a mortgage quote of 3.5% 5/1 ARM , 30 year am with caps of 3/2/6, which of the following best describes this?
Adjustable rate mortgage for 30 years with initial rate of 3.5% for 5 years, changing every year thereafter with the first change to be no more than 3%, and 2% in any subsequent year with a lifetime maximum rate change of 6%
If you were borrowing money at 6%, which of the following compounding frequencies would be of the most benefit to you? Ch3
Annually
Before buying a property, a purchaser would want to know about:
Any liens on the property Any easements on the property Any government or private use restrictions on the property ***All of these
If you are buying a house on Sept 30 (approximately 3/4 through the year) and property taxes for the current year are $5,000, you would expect to see a closing adjustment called a "tax proration" as follows: (note that this is independent of any escrow requirements) Ch8
Buyer would see a credit of $3,750 at closing
If a real estate property is offered to you and the rate of return is less than your required return, then you should: Ch3
Consider offering a lower amount for the property.
Which of the following types of mortgage is likely to carry the highest interest rate? Ch8
Conventional loan (non-conforming)
In underwriting a residential loan, an originator would consider all of the following, EXCEPT Ch8
Creditworthiness of FHA as guarantor
Which of the following procedures would NOT be a method of resolving a real estate loan that has been in default for some time? Ch2
Deed in lieu Short sale Foreclosure Recasting of loan structure ***Any of the above could occur
In Texas, the legal structure/document by which a lender perfects their security interest in real estate is referred to as: Ch2
Deed of Trust
State laws vary on how a lender perfects their security interest in a property. In this regard, states are often categorized as "mortgage" states or "deed of trust" states. Which would seem more attractive to lenders? Ch2
Deed of trust: as the lender can resolve rights much more quickly
The value of a real estate ownership position can be affected by:
Encubrances Easements a lender's secured interest ***all of these
In an adjustable rate mortgage, which of the following changes over the life of the loan?
Index rate
A tenant in a commercial shopping center has a real estate interest, referred to as:
Leasehold estate
If you rent the home you are living in and pay monthly rent, legally you would be referred to as the:
Lessee
A mortgage lender may require the borrower to set aside certain funds in "escrow" to insure that upcoming expenses are paid. All of the following are examples of types of expenditures that may have to be escrowed, EXCEPT: Ch8
Loan interest
A real estate loan can be "recourse" or non-recourse. Which would a borrower prefer? Ch2
Non-recourse - as the economics suggest a much lower investment exposure
Property can be encumbered by private deed restrictions. A typical example of this would be found:
On a planned residential subdivision
All of the following provisions are likely to be found in a mortgage (or deed of trust) document, EXCEPT: Ch2
Penalty for late payment
Which of the following legal statutes is intended to protect consumers who are financing and closing a residential home purchase? Ch8
RESPA (Real Estate Settlement and Procedures Act) TILA (Truth in Lending ACT) Homeowners Protection Act ***All of these
A typical promissory note will include provisions for all of the following items EXCEPT: Ch 2
Requirement for hazard insurance
When a buyer of a land parcel contracts to make a series of payments over time but the seller does not convey title until all payments are complete, this contract can be referred to by all of the following terms EXCEPT: Ch2
Subordination agreement
When looking at residential mortgage loans, they come in various "types" or classifications. These are primarily determined by: Ch8
The status of the loan for placement in the secondary market
A buyer wants assurance of "good title" in any purchase of real estate. When a lender is involved in the purchase, that assurance is most likely going to be in the form of:
Title Insurance
So called "Conventional conforming" residential loans are: Ch8
Usually sold and securitized in the secondary market
The most important difference between a fixed rate mortgage and an adjustable rate mortgage is:
Whether the lender or the borrower is taking the "interest rate risk"
If you were contemplating a new home mortgage and considering a fixed rate mortgage versus an adjustable rate mortgage:
You would expect the adjustable rate mortgage to have the lower interest rate
If an investment has predetermined cash flows - and you solve for yield, this is referred to as: Ch3
internal rate of return
Fred and Joe built homes next to each other on adjoining lots. The houses were quite far from the street. Joe built a driveway on his lot along the edge of the property line. He then agreed to allow Fred to use this driveway for access to his property. This is an example of:
an easement
A typical loan that has no amortization feature can be referred to as: Ch4
an interest only loan
Most long term amortizing real estate loans with fixed monthly payments could also be referred to as : Ch3
annuities
What types of risk are typically considered by the marketplace in determining interest rates? Ch4
default risk legislative risk interest rate risk ***all of the above
