Real Estate - Exam Study Questions
Which best describes a "subdivision"? A. A housing development created by dividing a tract of land into individual lots B. A development which is "substandard" C. Houses in the same neighborhood similar in style & size D. None of the above
(#10) Answer: A - A subdivision consists of individual lots created from a larger tract (subdivided) & are offered for sale or lease
Common area assessments are ...... A. used to maintain the property & common areas B. sometimes called Homeowners Association Fees C. paid by individual owners of condominiums or planned unit developments D. all of the above
(#106) Answer: D - Common area assessments are also sometimes called Homeowners Association Fees & are paid by the individual owners of condos or planned unit developments & are used to maintain the property & common areas
Which of the following is not true of annual percentage rate (APR)? A. It is a value created according to a government formula intended to reflect the true cost of borrowing & expressed as a percentage B. It is the note rate on your loan C. It is always higher than the actual note on your loan D. It is not the note rate on your loan
(#101) Answer: B - Annual percentage rate is not the note rate on your loan - It is a value created according to a government formula intended to reflect the true annual cost of borrowing, expressed as a percentage - The APR is always higher than the actual note rate on your loan
When a borrower refinances his mortgage at a higher amount than the current loan balance with the intention of pulling out money for personal use, it is referred to as a ....... A. cash-out refinance B. adjustable lump sum refinance C. refinance extra D. home equity refinance
(#104) Answer: A - A cash-out refinance is when a borrow refinances his mortgage at a higher amount than the current loan balance because he wants to pull our money for personal use
A certificate of deposit is ....... A. a deposit held in a bank which pays double the amount of normal interest over time B. the same as a down payment C. a liquid asset D. a deposit held in a bank paying a certain amount of interest to the depositor over a certain time
(#105) Answer: D - A certificate of deposit is a time deposit held in a bank which pays a certain amount of interest to the depositor
Loans against 401K plans are ..... A. too great a risk for most people to take B. only allowed if you're accumulated $50,000 in the plan C. not allowed for down payments on property D. an acceptable source of down payment for most types of loans
(#98) Answer: D - Some administrators of 401K / 401B plans allow for loans against the monies you have accumulated in these plans. - Loans against 401K plans are an acceptable source of down payment for most types of loans
A late charge is ...... A. usually put into play when the payment is fifteen days late on a first mortgage B. the penalty a borrower pays when a payment is late a stated number of days C. usually not applicable to most people D. both A & B
(#99) Answer: D - A late charge usually kicks in after fifteen days on a first mortgage & is a penalty a borrower must pay
Which of the following is not true of the term "depreciation"? A. It is a true expense where money is actually paid B. Lenders add back depreciation expense for self-employed borrowers & count it as income C. It is a decline in the value of property D. It is an accounting term showing the declining monetary value of an asset
(#109) Answer: A - Depreciation is not a true expense where money is actually paid. - It is a decline in the value of property & an accounting term showing the declining monetary value of an asset - Lenders add back depreciation expense for self-employed borrowers & count it as income
Which of the following would not be paid by escrow disbursements? A. Mortgage insurance B. Personal property taxes C. Real estate taxes D. Hazard insurance
(#110) Answer: B - Personal property taxes are not a typical escrow
The following is true of a Home Equity Conversion Mortgage (HECM): A. You don't make payments to the lender, the lender makes payments to you B. It enables older homeowners to convert their equity into cash C. It is also known as reverse annuity mortgage D. All of the above
(#113) Answer: D - Usually called a reverse annuity mortgage, this mortgage is unique in that instead of making payments to a lender, the lender makes payments to you, allowing older homeowners to convert their equity to cash - The loan does not have to be repaid until the borrower no longer occupies the property
A lender is ...... A. the individual offering owner financing B. the firm making the loan C. the individual representing the firm making the loan D. both B & C
(#115) Answer: D - A lender is the firm making the loan or an individual representing the firm making the loan
A margin is ...... A. an artificial line not to write in on a loan document B. the difference between the interest rate & the index on an adjustable rate mortgage C. a measurement of error D. both B & C
(#116) Answer: B - A margin is the difference between the interest rate & the index on an adjustable rate mortgage which remains stable over the life of the loan
Which of the following is the best definition of a mortgage broker? A. Much like a real estate broker, receives a commission on loans B. An individual which originates loans, then sells on the secondary market C. A mortgage company which originates loans, then places with other lending institutions D. A mortgage company which originates loans, then keeps them in house
(#117) Answer: C - A mortgage broker is a mortgage company which originates loans, then places with a variety of other lending institutions with whom they usually have pre-established
The term "note rate" refers to: A. the interest rate stated on a mortgage note B. the interest rate stated on a personal loan C. the rate at which a note is amortized D. the speed at which a musician plays scales
(#118) Answer: A - Note rate means the interest rate stated on a mortgage note
PITI stands for ..... A. prepayment, interest, tariff, & insurance B. principal, interest, taxes, & insurance C. principle, interest, taxes, insurance D. none of the above
(#121) Answer: B - PITI is principal, interest, taxes, & insurance
Which of the following describes "prepayment"? A. Can result from a sale, owner's decision to pay off the loan, or foreclosure B. An amount paid to reduce the principal on a loan before the due date C. An amount paid to reduce the interest on a loan before the due date D. Both A & B
(#122) Answer: D - A prepayment reduces the principal on a loan before the due date & can result from a sale, the owner's decision to pay off the loan early, or foreclosure
What is private mortgage insurance? A. Mortgage insurance provided by a private mortgage insurance company B. Insurance required for loans with a loan-to-value percentage in excess of 80% C. Mortgage insurance that is arranged for by the buyer privately D. Both A & B
(#123) Answer: D - A prepayment reduces the principal on a loan before the due date & can result from a sale, the owner's decision to pay off the loan early, or foreclosure
Which of the following is not true about qualifying ratios? A. The "back" ratio includes all monthly costs as well as "back" taxes B. There are two types of ratios "top" or "front" & "back" or "bottom" C. Both calculations are used in determining whether a borrower can qualify for a mortgage D. The "top" ratio is a calculation of the borrower's monthly housing costs (principal, taxes, insurance, mortgage insurance, homeowner's association fees) as percentage of monthly income
(#127) Answer: A - The "back" or "bottom" ratio includes housing costs as well as all other monthly debt
A legal document evidencing a person's right to or ownership of a property is called a: A. title B. quitclaim deed C. accurate appraisal D. yearly lease
(#13) Answer: A - A title is a legal document evidencing a person's right to or ownership of a property
The person conveying an interest in real property is called: A. the mortgagor B. the buyer C. the grantee D. the grantor
(#21) Answer: D - The grantor is the person conveying an interest in real property to another party
Another term for the lender in a mortgage agreement is the: A. mortgagor B. banker C. mortgagee D. private mortgage company
(#24) Answer: C - The mortgagee is the lender
If you are buying a house & asking the Seller to provide all or part of the financing, you are asking for _________ financing. A. personal B. non-bank C. owner D. special
(#25) Answer: C - When the Seller provides all or part of the financing it is called owner financing
The principal is: A. part of the monthly payment that reduces the remaining balance of a mortgage B. the amount borrowed or remaining unpaid C. an ethic or value D. both A and B
(#28) Answer: D - The principal is the amount borrowed or remaining unpaid - As well as the part of the monthly payment that reduces the remaining balance of a mortgage
When does an assumption take place? A. When the seller assumes the buyer's mortgage B. When someone believes something & it turns out to be true C. When the buyer assumes the seller's mortgage D. All of the above
(#31) Answer: C - When the buyer assumes the seller's mortgage is a transaction called an assumption
The date on which the principal balance of a loan becomes due and payable is called ....... A. end of the paper trail B. delivery C. maturity D. its due date
(#68) Answer: C - The date on which the principal balance of a loan, bond, or other financial instrument becomes due & payable is called maturity
If you have a loan & transfer the title to another individual without informing the lender, it is likely that the lender will demand payment of the outstanding loan balance. He is able to do this because of a clause in your mortgage called the ..... A. acceleration clause B. due on demand clause C. amortization schedule D. both A and B
(#33) Answer: A - An acceleration clause allows the lender to demand payment - Most commonly if the borrower defaults on the loan or transfers title to someone without informing the lender
The most common type of bankruptcy is called: A. Chapter 7 no asset bankruptcy B. Chapter 7 bankruptcy C. Chapter 11 no asset bankruptcy D. Chapter 11 bankruptcy
(#34) Answer: A - The most common type for an individual is a "Chapter 7 No Asset" bankruptcy; which relieves the borrower of most types of debts
A normal contingency in a real estate contract would be that the..... A. seller is allowed to come back & spend 2 weeks in the house each year B. purchaser is able to obtain a satisfactory home inspection from a qualified inspector C. seller is allowed to dig up some of the landscaping & take it from him D. purchaser is able to have occupancy as soon as the sales contract is signed
(#36) Answer: B - A normal contingency in a sales contract would be that the purchaser is able to obtain a satisfactory home inspection from a qualifies inspector - This condition has to be met before the contract is legally binding
The following reason accounts for why bridge loans are not used much anymore: A. Sellers would rather accept offers from Buyers who have already sold their property B. More second mortgage lenders now will lend at a high loan to value C. Neither A or B D. Both A and B
(#4) Answer: D - Bridge loans are not used much anymore because more second mortgage lenders now will lend at a high loan to value - Sellers often prefer to accept offers from buyers who have already sold their property
A term used by appraisers to estimate the physical condition of a building. It may be different from the building's actual age. A. Longevity B. Estimated age C. Preferred age D. Effective age
(#40) Answer: D - An appraiser's estimate of the physical condition of a building is called effective age. Its actual age may be shorter or longer than the effective age
The difference between the fair market value of a property & the amount still owed on the mortgage & other liens is the owner's financial interest in the property & is called his ...... A. indebtedness B. balance due C. equity D. none of the above
(#41) Answer: C - A homeowner's financial interest in a property is called his equity - It is the difference between fair market value & what is still owed on the mortgage & any other liens
If you convey an interest in real property to a relative, that person is known as the ...... A. lucky relative B. receiver C. mortgagor D. grantee
(#44) Answer: D - The person to whom an interest in real property is conveyed is the grantee
The right of a government to take private property for public use upon payment of its fair market value. It is the basis for condemnation proceedings. A. Governmental domain B. Eminent domain C. Encroachment D. Both A and B
(#49) Answer: B - Eminent domain is the right of the government to take private property for public use upon payment of its fair market value
A mortgage with a lien position subordinate to the first mortgage on a piece of property is called a ........ A. lien position mortgage B. mortgage which is not legal C. second mortgage D. first subordinate mortgage
(#50) Answer: C - A second mortgage is a mortgage with a lien position subordinate to the first mortgage
The limitation of how much an adjustable rate mortgage may adjust over a six-month period, annual period, and over the life of the loan is called a ....... A. top stop B. buy-down C. high point D. cap
(#54) Answer: D - The limitation on how much the loan may adjust over a period of time & for the life of the loan is a cap
When is a real estate transaction considered to be "closed"? A. When the buyer has signed all the sales contracts B. When all the documents are signed & money changes hands C. When the closing documents have been recorded at the local recorder's office D. Both B and C
(#55) Answer: D - In some states "closed" means when the documents are recorded at the courthouse & in others it is a meeting where the documents are signed & money changes hands
If you list your property with a real estate agent and sign a written agreement that they are the only ones entitled to a listing for a specific time you have given them an ....... A. inclusive listing B. exclusive right to show C. exclusive listing D. exclusive right to advertise
(#59) Answer: C - A written contract giving a licensed real estate agent the exclusive right to sell a property for a specified time is called an exclusive listing
Fair market value could be defined as ....... A. how much a property is worth, determined by a realtor's market analysis B. the least a seller, willing, but not compelled to sell C. the most a buyer, willing, but not compelled to buy D. both B and C
(#60) Answer: D - Fair market value is the highest price that a buyer, willing but not compelled to buy, would pay, & the lowest a seller, willing but not compelled to sell, would accept
If a lender agrees to make a loan to a specific borrower on a specific property, he has made a ..... A. firm commitment B. decision to make the loan C. statement that both the buyer & the property pass inspection D. both B and C
(#61) Answer: A - A lender's agreement to make a loan to a specific borrower on a specific property is called a firm commitment
A home inspection is ...... A. often a contingency in a contract that turns out satisfactorily B. a thorough inspection by a professional which evaluates the structural & mechanical condition of a property C. not required by law D. both A and B
(#63) Answer: D - A home inspection is a thorough inspection by a professional that evaluates the structural & mechanical condition of a property - A satisfactory home inspection is often a contingency
Which of the following is true of a lease-option? A. Each month's rent may also consist of an additional amount applied toward the purchase B. The price is already set in the beginning C. It is an alternative financing option D. All of the above
(#65) Answer: D - A lease-option is an alternative financing option that allows home buyers to lease a home with an option to buy - Each month's rent payment may consist of not only the rent, but an additional amount which can be applied toward the down payment on an already specified price
Which of the following is true about origination fee? A. It is usually 1% on a government loan B. It is applies to both government & conventional loans C. It is usually 2% on a. conventional loan D. Both A and B
(#70) Answer: D - Origination fees apply to government & conventional loans - A government loan origination fee is 1% of the loan amount, but additional points may be charged which are called "discount points" - In a conventional loan, the origination fee refers to the total amount of points a borrower has to pay
Which of the following statements is true regarding the term "pre-approval"? A. It is a loosely used term B. It applies only to the property C. It is done before the loan application is complete D. None of the above
(#73) Answer: A - Pre-approval is a loosely used term generally taken to mean a borrower has completed a loan application & provided debt, income, & savings documentation which an underwriter has reviewed & approved
PITI reserves applies to ..... A. an amount which is financed with the mortgage B. a cash amount the borrower must have on hand after down payment & closing costs C. both A and B D. none of the above
(#74) Answer: B - PITI reserves must equal the cash amount that the borrower would have to pay for principal, interest, taxes, & insurance for a predefined number of months
Which of the following is not true of a "revolving debt"? A. It revolves around no interest for the first six months B. The customer is billed for the amount borrowed plus any interest due C. A customer borrows against a pre-approved line of credit D. It is a type of credit arrangement, like a credit card
(#78) Answer: A - Revolving debt is a credit arrangement, such as a credit card, which allows a customer to borrow against a pre-approved line of credit when purchasing goods & services. - The borrower is billed for the amount that is actually borrowed plus any interest due
What is meant by "seller carry-back"? A. The seller carries the principal, but not the interest on a loan B. The seller agrees to be on the mortgage with the buyer C. The seller provides financing, often in combination with an assumable mortgage D. The seller physically carries his furnishings out of the house on the day of closing
(#80) Answer: C - A seller carry-back is an agreement in which the owner of a property provides financing, often in combination with an assumable mortgage
A title company in one which ..... A. is not called upon until one year after the sale is closed B. specializes in preparing deeds & deeds of trust C. is usually not needed in a real estate transaction D. specializes in examining & insuring titles to real estate
(#81) Answer: D - A title company specializes in examining & insuring titles to real estate
Which of the following is not true of "amortization"? A. Over time the interest portion decreases as the loan balance decreases B. Over time the interest portion increases as the loan balance decreases C. Over time the amount applied to principal increases so the loan is paid off in the specified time D. None of the above
(#85) Answer: B - The loan payment consists of a portion which will be applied to pay the accruing interest on a loan, with the remainder being applied to the principal - Over time the interest portion decreases as the loan balance decreases & and the amount applied to principal increases so that the loan is paid off (amortized) in the specified time
The valuation placed on property by a public tax assessor for taxation purposes is called ...... A. predicted value B. real value C. fair market value D. assessed value
(#86) Answer: D - The valuation placed on property by a public tax assessor for purposes of taxation is called assessed value
If a veteran is eligible for a VA loan, he or she would receive a document from the VA called ..... A. Certificate of Met Requirements B. Certificate of Eligibility C. Certificate of Approval D. Certificate of Authenticity
(#87) Answer: B - A certificate of eligibility is a document issued by the Veteran's Administration that certifies a veteran's eligibility for a VA loan
An unwritten body of law based on general custom in England and used to an extent in some states is called ..... A. common law B. casual law C. it is not law if it is not written down D. uncommon law
(#89) Answer: A - An unwritten body of law based on general custom in England & used to an extent in some states is called common law
A right-of-way which gives persons other than the owner access to or over a property is known as an: A. egress B. easement C. ingress D. none of the above
(#9) Answer: B - An easement is a right-of-way to persons other than the owner & gives them legal access
A person to whom money is owed is known as a ..... A. lender B. debtor C. mortgagee D. creditor
(#91) Answer: D - A creditor is a person to whom money is owed
Discount points refer to ...... A. a system of figuring out how much the property will be discounted B. usually only FHA and VA loans C. points paid in addition to the one percent loan D. both B and C
(#92) Answer: D - This term is usually used in reference to only government loans (FHA & VA) - Discount points are any points paid in addition to the one percent loan origination fee
Which of the following is true about Fannie Mae's Community Home Buyer's Program? A. Borrows who participate must attend pre-purchase home-buyer education sessions B. It is an income-based community lending model C. It has flexible underwriting guidelines to increase low to moderate income family's buying power D. All of the above
(#95) Answer: D - Fannie Mae's Community Home Buyer's Program is an income-based community lending model, under which mortgage insurers & Fannie Mae offer flexible underwriting guidelines to increase a low or moderate income family's buying power & to decrease the total amount of cash needed to purchase a home - Participating borrows are required to attend pre-purchase home-buyer education sessions
The mortgage that is in first place among any loans recorded against a property & usually refers to the date in which loans are recorded, but not always, is called a ..... A. first in line mortgage B. first mortgage C. primary mortgage D. both B & C
(#96) Answer: B - The mortgage that is in first place is a first mortgage
