Real Estate - Prep Edge 1-3

Which of the following statements about the promissory note is true? A promissory note is a negotiable instrument and can be transferred to a secondary holder who has the right to enforce the note's terms. A promissory note isn't a legal document. A promissory note isn't transferable, so it must be held by the original lender until paid in full. A promissory note serves as collateral for a mortgage loan.

A promissory note is a negotiable instrument and can be transferred to a secondary holder who has the right to enforce the note's terms.

Elaina and Allen just purchased a home using a deed of trust. Which of the following is most likely true about their home loan? A trustee will hold title until the loan is paid. Their transaction is secured with a mortgage as well. The lender will hold the mortgage, while a trustee will hold the deed of trust until their loan is paid off. The lender will hold the title until the loan is paid off.

A trustee will hold title until the loan is paid.

Kenneth enters into a contract to sell his home to Valerie, who puts down a $5,000 earnest money deposit. At the last minute, Valerie backs out of the deal. Kenneth keeps the earnest deposit. This is an example of ______. A. Accepting liquidated damages B. Accepting partial performance C. Suing for damages D. Suing for specific performance

A. Accepting liquidated damages When Valerie backed out of the deal, she breached the contract that she had with Kenneth. All of the answer options listed are actual remedies to breach of contract, so you just have to determine which one applies in this situation. Options C and D aren't correct, because Kenneth isn't filing a lawsuit. Partial performance means part of the contract is executed, but in this case Valerie isn't performing any part of the contract. Option B is out. That leaves liquidated damages, which is a specific compensation amount in the event of a breach. That's the correct answer.

Which of the following is a true statement about FHA financing? A. An FHA loan is usually more attractive to borrowers who have lower credit scores and down payments. B. FHA loans are available to all borrowers, regardless of credit history. C. FHA loans are best for borrowers who have large down payments. D. FHA loans have more stringent requirements than conventional loans do.

A. An FHA loan is usually more attractive to borrowers who have lower credit scores and down payments. typically more attractive to borrowers with less-than-stellar credit or to those who have saved a minimal amount for a down payment.

Stacy has gone into default on her mortgage. Her lender is demanding that the entire loan balance be paid in full. Which mortgage clause permits her lender to do this?

Acceleration

Martha made an offer to buy Drake's home, and he accepted it. Under the terms of the agreement, Martha was supposed to make an earnest money deposit of $10,000, but she only put down $5,000. Drake accepted the lesser deposit, and the sale was ultimately finalized. This is an example of ______.

Accepting Partial Performance

Carlson presents a real estate purchase client to his clients. Along with the contract are several supplemental documents attached to it. What are these called?

Addendums

Janice is extremely excited to have purchased her first home. She was able to lock in her monthly payment at a very low rate for the first five years. In year six, Janice's payments will become significantly larger based on the going market rates. What type of loan does Janice have?

Adjustable Rate Mortgage

Janice is extremely excited to have purchased her first home. She was able to lock in her monthly payment at a very low rate for the first five years. In year six, Janice's payments will become significantly higher based on the going market rates. What type of loan does Janice have?

Adjustable rate mortgage Janice has a 5/1 adjustable rate mortgage (ARM) where the payment and interest rate are locked for the first five years, then the interest rate is adjusted based on the behavior of the economic index it's associated with and changes each year.

Camille, a buyer, wants to change the price already agreed to in a sales contract. She should use a(n) ______.

Amendment An amendment changes existing contract terms. Once signed by both parties it becomes part of the contract, with the same legal weight as the original contract. The remaining terms in the original contract remain the same.

Monica received a promotion at work that requires her to relocate. Because of the timing of her promotion, she'll need to buy a new house in her new city before her current one is sold. So, she won't have any equity from her current home to make a down payment on the new house. What loan option would allow her to make the purchase before selling the old house?

Bridge Loan Sometimes there is a delay between the sale of a property and the purchase of another, and the bridge loan allows the homeowner the ability to pay for two homes at the same time.

When Stacy's clients ask her if she can recommend a mortgage broker, she promptly gives them the name of the best mortgage broker she knows, Gary Jones. Later, she always receives a check from Gary as payment for the referral. Would this be legal or illegal under the Real Estate Settlement Procedures Act (RESPA)?

This is illegal under RESPA because it's considered a kickback between settlement service providers. RESPA prohibits kickbacks between settlement service providers. Also, Stacy may suggest a few mortgage brokers, but the final decision is up to her clients.

Gregory and Dianne are American citizens of Cuban origin, and when they're denied a home loan, they suspect discrimination. Which act prohibits lender discrimination on the basis of the protected class of national origin?

Equal Credit Opportunity Act The Equal Credit Opportunity Act prohibits lender discrimination on the basis of an applicant's protected class status, such as national origin.

If Acme Bank, a primary lender, wants to sell its loans on the secondary market, it would be easier for it to do so if its loans met ______.

FDIC guidelines If Acme Bank meets Fannie Mae and Freddie Mac guidelines, its loans are conforming and are easier to sell on the secondary market. Both Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs). Loans that don't meet their guidelines are called non-conforming loans. When lenders create a non-conforming loan, they carry a higher risk and tend to charge higher interest rates.

Commander Halfback retires after 25 years of service in the Coast Guard. He is looking to buy a home. What type of loan should he use?

FHA, VA, or conventional The fact he was in the military doesn't mean he has to take a VA loan. There isn't enough information to determine the best loan, so at this point all loans mentioned are viable options to consider.

Which entity services rural development loans?

FSA The Farm Service Agency, an agency of the USDA, administers this program.

What's the most common indicator of illegal property flipping? Falsely inflated appraisal Underwriting hassles Unrepresented seller Violation of fair housing laws

Falsely inflated appraisal

Mike's been friends with Tim since college. They often work together: Mike flips houses and Tim's an appraiser that he uses frequently. It works out great for both friends and Mike definitely gets a better appraised value on the flips Tim handles. For every appraisal Tim handles for him, Mike gives him a $100 gift card. In what illegal practice does it sound like they're engaging?

Falsely inflating appraisals

In eight years, Margot will inherit a sizable chunk of money from her grandmother. Margot wishes to purchase a home now and qualifies for a 10-year loan with regular, affordable monthly payments. At the end of the loan's term, she'll owe the entire principal balance at once, which she's prepared to pay with some of Grandma's money. What kind of loan will Margot be using?

Balloon loan A balloon loan allows borrowers to make regular amortized payments, then make a "balloon," or lump sum, payment at the maturity date. A lender can amortize the loan over a 30-year period with a balloon payment at the end of 10 years.

Desmond has a signed listing agreement with his clients, the Harpers. In exchange for helping the Harpers list, market, and sell their home, the Harpers have agreed to pay Desmond a commission. What type of contract do Desmond and the Harpers have?

Bilateral A contract involving two parties who both make a promise to the other party in exchange for consideration is a bilateral contract.

Tristan's offer has been signed by all parties and delivered back to the seller. This means that ______ has occurred.

Binding Acceptance Binding acceptance happens when a signed contract is delivered according to the delivery procedures and deadline outlined in the contract.

When considering loan risk, which two items will lenders consider in equal measure?

Borrowers and property The property's value (as underlying collateral) and the borrower's ability to repay the loan will be equal considerations for the lender.

Which of these statements about a conventional mortgage loan is true? Borrowers with larger down payments and higher credit scores are most likely to select a conventional mortgage. Conventional mortgages are non-conforming. FHA imposes loan limits (maximum loan amounts) on conventional mortgages. The government insures up to 25% of conventional mortgages for qualifying buyers.

Borrowers with larger down payments and higher credit scores are most likely to select a conventional mortgage.

What happens to an initial offer from the buyer after a seller counters?

It's no longer in play. If a seller (or buyer, for that matter) wants to counter an offer, it should be related to a significant term because it essentially takes the original offer out of play. A counter-offer is NOT a seller's way of saying "I will accept your offer if you don't accept my counter." A counter cancels the original offer.

Gus has applied for a home equity line of credit from his federally insured bank so that he can make some renovations to his kitchen. The same bank is his lender for his home mortgage. Will this loan be subject to Real Estate Settlement Procedures Act requirements?

Yes, because RESPA applies to any residential loan transaction from a federally insured financial institution, including equity lines of credit.

Gail was supposed to close on her new home by the end of May, but she kept asking the sellers if they could push the closing back. Even after the summer was over the transaction still hadn't closed. Gail was guilty of not adhering to which aspect of the contract?

Time is of the essence Reasonable time is what parties are supposed to adhere to if a date hasn't been specified in the contract. But Gail's contract mentioned the end of May, so that isn't the case. "Time is of the essence" means that the parties will proceed without delay. Gail is delaying, so she's guilty of violating the time is of the essence aspect of the contract.

Which of the following best describes the purpose of a sales contract? To identify the buyer's agent/buyer agency relationship's terms To identify the landlord/tenant relationship's terms To identify the listing agent/buyer agency relationship's terms To identify the terms of a real estate sales transaction between the seller and the buyer

To identify the terms of a real estate sales transaction between the seller and the buyer

Phoebe's gross monthly income is $4,200, and she has $360 in monthly non-housing debt payments. The lender's qualifying ratios are 28% for the housing ratio and 36% for the total DTI ratio. What's the maximum housing payment she can afford?

$1,152 The maximum house payment is the lesser of the amounts calculated using both ratios. DTI: $4,200 x .36 = $1,512. $1,512 - $360 = $1,152. Housing ratio: $4,200 x .28 = $1,176. Phoebe's maximum payment is $1,152.

Jeffrey has accepted an offer of $299,000 for his house. The buyer is making a $50,000 down payment and the buyer's appraisal came in at $300,000. On what number will the buyer's lender base the loan-to-value ratio?

$299,000 Lenders use the lesser of the sales price or appraised value.

The purchase price of the home Leroy is buying is $300,000. He's putting $100,000 down and is paying three discount points. How much will this cost?

$6,000 Each point is 1% of the loan value. The amount of Leroy's loan is $200,000, so each point is $2,000 ($200,000 × 1%, or .01). He's paying three points, for a total of $6,000 ($2,000 × 3).

Sandra retired from a career in the Navy and is ready to buy her first home—a small bungalow in a quiet neighborhood—for $169,900. Her military service qualifies her for a VA-guaranteed loan. What's her required down payment?

0% The VA loan program was part of the G.I. Bill of 1944, and it offers financing with no down payment.

Generally, what's the common range for loan origination fees?

1-3%

A buyer anticipates a house payment of $1,000 per month, with monthly homeowner association fees of $150. The buyer also has a car payment of $400 per month. If the buyer earns a monthly gross income of $5,000, what's the housing ratio?

23%

A buyer anticipates a house payment of $1,000 per month, with monthly homeowner association fees of $150. The buyer also has a car payment of $400 per month. If the buyer earns a monthly gross income of $5,000, what is the total debt ratio?

31%

Private mortgage insurance may be required on conventional loans where the loan-to-value ratio is in excess of ______%.

80%

Sondra, a buyer, signs all the required mortgage documentation, and promises to make all payments to her lender. Unfortunately, Sondra falls on hard times and misses multiple payments, and the bank indicates that it is going to foreclose on her. The foreclosure proceedings are more difficult for the lender because Sondra holds the title to the land. What kind of state does Sondra live in?

A lien theory state In a lien theory state, the mortgage becomes a lien on the property, but title remains with the buyer. Foreclosure proceedings in a lien theory state may be more difficult for the lender due to the fact that the buyer is holding title to the land and not the lender.

Which of the following statements is true about conventional loans? A. Originators usually package and sell the loans on the secondary market. B. They're guaranteed by the U.S. Department of Veterans Affairs. C. They're insured by the Federal Housing Administration. D. They're provided by the U.S. Department of Agriculture.

A. Originators usually package and sell the loans on the secondary market. Originators of commercial loans don't typically keep and service loans, although some do. Usually, they're packaged and sold on the secondary market.

What's it called when all parties sign a contract, but before the seller's acceptance is delivered to the buyer?

Acceptance

_______ is a standardized measure for interest rates and other costs of the loan.

Annual Percentage Rate

Seller Gina feels awful that Martha, who was going to buy Gina's property, lost her job. Gina decides to ______ Martha from her obligation to pay earnest money, so that money is returned to Martha. A. Rescind B. Release C. Reform D. Assign

B. Release Rescission is when both parties mutually agree that it makes sense to terminate the contract. Release is when one party wants out and the other agrees to release that party from any obligations. That's what's happening in this scenario.

Breanna signs a contract offering to purchase Kathy's home for $150,000. Kathy replies, "No way," but offers to sell it to her for $200,000. Breanna agrees to these terms and they add their signatures. Which of the following statements is correct? A. The contract is valid, but unenforceable. B. The contract is invalid. C. Breanna accepted the offer Kathy made. D. Kathy accepted the offer Breanna made.

C. Breanna accepted the offer Kathy made. Kathy's offer to sell the home is a counter offer, and when Breanna agrees to the terms of the counter, it constitutes acceptance.

Your buyer client, Percival, was pre-approved for the exact amount he needed to buy the home of his dreams, and he made an offer that was accepted by the seller. What's his next step?

Complete a Loan Application

The Baxters are looking at a $425,000 home. They have $90,000 in savings to use as a down payment. What loan type(s) would likely be the best option for them?

Conventional A $90,000 down payment would be a little more than 20% down ($90,000 ÷ $425,000 = 0.212, or 21.2%). The Baxters should qualify for a conventional loan with that much to put down on the home, and will avoid having to buy mortgage insurance.

What factors does the underwriter consider in reviewing a mortgage loan application?

Credit, capacity, and collateral Underwriters look at a borrowers credit history and scores (credit), ability to repay the loan (capacity), and whether the home value is sufficient to support the loan (collateral).

Which of the following best describes annual percentage rate (APR)? A. The amount a borrower pays in interest for a single year B. Fees charged by a lender, expressed as a percentage C. The amount a lender can collect in interest from a borrower during a single year D. A standardized measure for interest rates and other loan costs

D. A standardized measure for interest rates and other loan costs Regulation Z requires lenders to use a standardized measure for loan costs, including interest rates, which is the APR.

A trustee is holding the title to Cassandra's house until the loan is paid in full. Which type of security instrument was used?

Deed of Trust

A buyer, hoping to beat out all other offers, included a clause in the offer that reads, "Buyer to beat all competing offers by $1,000 up to a price of $700,000. Seller to provide copies of competing offer to buyer on acceptance." What type of offer is this an example of?

Escalator

The Graysons just closed on their new home. They move in tomorrow. What type of contract do the Graysons have?

Executed

Jerry and Lewis have entered into a sales contract. They're about three weeks into the transaction, with several terms of the agreement yet to be met. What type of contract do Jerry and Lewis have?

Executory A valid contract that is in progress is an executory contract, which means that one or more terms of the agreement remain undone.

The Nettles have accepted the Briars' purchase offer, and both parties have signed the sales contract. What type of contract do the Nettles and the Briars have?

Executory The Nettles and Briars have a valid contract that's in the process of being completed. Because one or more terms of the contract must still be completed, they have an executory contract.

Hannah wasn't able to get the financing to open her boutique, so her mother came on as a silent partner and provided additional cash. Hannah and her mother have an agreement that states Hannah's mother can't be held financially or legally liable if there are any problems with the store. What type of contract clause is this?

Idemnification Indemnifying one of the contract parties releases that party from all liability or loss.

Which clause in a contract states that one or more parties won't be held liable if there are losses or expenses related to the contract?

Idemnification clause

In the eyes of a lender, when financing a residence, what advantage does an investor have over owner-occupied borrowers? Investors always pay cash. Investors are less of a risk. Investors can use rental income to qualify. Investors maintain their property better.

Investors can use rental income to qualify. Investors can use rental income to offset debt-to-income imbalances.

What does a balloon payment represent at the end of a loan term?

It means that some principal remains at the end of the loan term. A balloon payment is due at the end of a balloon loan, because the loan has only been partially amortized, which means that some of the principal remains at the end of the loan term.

What's one benefit of a rural development loan?

Its optional longer term means a lower monthly payment.

Charles is selling his property to Seth. Charles paid off his own mortgage on the property years ago, so he's in a position to provide 100% financing of Seth's purchase. Seth will make payments to Charles while Charles retains the property title. What's this an example of?

Land contract The seller retains the title in a land contract. When the loan balance is paid in full, the seller gives the buyer title. While the loan is being repaid, Seth has equitable title. When the loan balance is paid in full, Charles will give Seth the full title to the property.

A mortgage is a legally binding document that creates a lien on a piece of property and gives the lender the right to foreclose on the property if the borrower defaults. Who or what entity is considered the mortgagee?

Lender

What could be a consequence if there was no secondary mortgage market?

Lenders might not have funds available to make new loans to the public. Purchases made on the secondary market provide primary lenders with funds to continue making loans. Without this market, lending funds might become scarce.

Lawrence is a buyer closing on a home for which he's obtaining financing. Which document will give Lawrence an estimate of the costs he'll likely pay at closing?

Loan Estimate The Loan Estimate, required by the Dodd-Frank Act, informs buyers of the costs they're likely to pay at settlement and discloses the mortgage loan specifics, such as its key features, costs, and risks.

When the lender gathers all kinds of information about the borrower's assets, debts, income, employment history, and pulls their credit report, the buyer is ___________________.

Making an application for a loan

Mick focuses on originating mortgage loans. He works at a company that has in-house loan processors and underwriters. The options he offers consumers are limited to the products offered by his company. What's Mick's position?

Mortgage banker Mortgage bankers actually do the lending. They have in-house loan processors and underwriters and tend to limit product offerings. Wells Fargo Mortgage is an example.

When buyers haven't spoken to their bank or another lender, how should you handle the situation?

Offer to refer them to a lender and prepare them for the meeting. Offering to refer them to a lender and helping them prepare for the meeting will help build trust and loyalty.

Kendra made an offer on Sam's property. Sam rejected Kendra's offer, but made a counter-offer. Kendra is now considering the counter. What is Kendra in this scenario?

Offeree The person considering the offer is the offeree, so that's Kendra's role now that Sam made a counter-offer.

While Martha's paying off her loan, her lender is holding on to something that includes her name, property address, the interest rate on her loan, what the late charge amount would be, and the amount and term of the loan. When her loan is paid off, the lender returns it to Mary, marked paid in full. What is this item?

Promissory Note A promissory note is the borrower's promise to repay the loan. When the loan is paid in full, the note is marked as paid in full and returned to the borrower.

What factors directly affect an adjustable rate mortgage? Amortization tables, index, and rate Index, tax basis, and margin Rate, index, and margin Rate, loan-to-value ratio, and index

Rate, index, and margin Rate adjustments are based on index rates, such as London Interbank Offered Rate (LIBOR), from which lenders determine their margins and the rate that they charge customers at each adjustment.

The purpose of the Truth in Lending Act (TILA) is to ______.

Require lenders to make disclosures that allow consumers to compare the costs of making a purchase using credit from different lenders, and to compare those with the cost of using cash The Truth in Lending Act requires lenders to provide credit applicants with disclosures that allow credit offer comparisons.

Chris is in the process of purchasing a property with 20 acres of farmland in a rural area of the state. Assuming his income meets the criteria of the program, what type of loan may Chris find the most desirable?

Rural Development Loan

Chris owns Country Time Ranch and wants to expand his sheep and lamb farm by branching into milk production and cheese making. He wants to purchase the property adjacent to his farm, which would give him an extra 10 acres of farmland. Chris's ranch will provide a significant boost to the local economy. Assuming his income meets the program's criteria, what type of loan may Chris find the most desirable?

Rural development loan Rural development loans, also known as USDA loans, are government loans specifically offered to family farms and to help finance housing in rural areas through the Farm Service Agency an agency of the USDA.

Jerry and Simon signed a contract so that Jerry could purchase all of Simon's restaurant equipment for one price after Simon closes his restaurant next month. The contract contains a provision that states Jerry has one year from the purchase date to file a suit relative to the purchase. After the year is up, Jerry forfeits the right. What kind of contract clause is this?

Statute of Limitations Statute of limitations basically gives a date by which all performance must be completed or the party forfeits any legal rights.

Samuel and Yoshi have worked at the same firm for a few months and get along well. Samuel mentions he has a credit score in the low 800s. Yoshi, who's just starting out, persuades Samuel to sign for a loan to help Yoshi buy a property, since his credit isn't good enough. Yoshi promises to make the mortgage payments, but two months after the deal closes, Yoshi moves across the country. Samuel's now stuck with a $400,000 mortgage. What type of scheme is this?

Straw Buyer

You're explaining to your client that using electronic documents and signatures simplifies the home buying process. Your client is skeptical about these signatures. You describe the Uniform Electronic Transactions Act (UETA) and tell your client ______.

The UETA gives electronic signatures the same legal weight as "wet" signatures

Olivia took out a 15-year loan secured with a deed of trust. She worked two jobs in order to pay the loan back and finally made her last payment this month. What happens now?

The lender tells the trustee to release the title to Olivia.

What's the meaning of "good faith" in relation to contract law?

The parties agree that they'll execute the contract to the best of their ability and without any fraud or misrepresentation.

Sophia and Antonio are expecting twins. They want to sell their old house and buy a larger home using a conventional loan. In order to be sure they'll get the PMI waived, what will they need to have?

They should have a loan-to-value ratio of 80% or less.

Gail was supposed to close on her new home by the end of May, but she kept asking the sellers if they could push the closing date back. Soon the summer was over and she still hadn't closed. Gail was guilty of not adhering to which aspect of the contract?

Time is of the essence

Garrett wanted to move his real estate closing so that he can get through his wedding first. His broker and attorney encouraged him not to do it because of which contract clause?

Time is of the essence

Which of the following is a reason a lender might charge a prepayment penalty? Because the lender is a subprime lender To cover the costs of processing an early payoff To deter buyers from ever paying off their mortgage To recover the money lost in anticipated interest

To recover the money lost in anticipated interest

Starla, 35, and Gwen, 32, are going into business! Gwen is buying a share of Starla's franchise. Their attorneys drew up a contract that had Gwen providing $45,000 to Starla in return for 50% ownership. Gwen and Starla happily signed the contract, Gwen paid Starla the $45,000, and Starla presented Gwen with a notarized certificate showing Gwen's 50% ownership in the company. What type of contract is this?

Valid

Sylvia, who's 15 years old, and her neighbor Marge, who's 24, agree that Sylvia will babysit Marge's toddler for the summer for $10 an hour. What type of contract is this?

Voidable

Ken signed a contract to purchase Debra's condo. Ken signed the contract two weeks prior to turning 18, which is the age of majority in their state. Debra found out about his age prior to the closing but honored the contract and they closed on the condo a month after Ken's birthday. What was the status of the contract when Ken and Debra entered into it?

Voidable The contract COULD have been cancelled, because it was missing one of the essential elements: a legally competent party (Ken was a minor when he entered into the contract). However, parties to a voidable contract may choose to follow through with—or execute—it, which is what happened here.

Sondra thinks the new business contract she's signed with her business partner is valid. Both parties are legally competent, the purpose is a business transaction so it's a legal purpose, an offer was made and accepted, and a fee has been negotiated and documented. Which essential element of a valid contract has Sondra not yet considered?

Whether consent was voluntary. Sondra has considered four of the five essential elements. The only remaining essential element is whether the contract was entered into voluntarily. Elements of a Contract: o Legally competent parties o Offer and acceptance o Consent o Legal purpose o Consideration

Manuel is selling his home to Selena. He has an existing loan that he'll continue to make payments on, and he's extending credit to Selena for the balance of the purchase price. She will make monthly payments to him. What type of financing are the parties using in this transaction?

Wrap-around Loan

Your 15-year-old son just signed a contract joining a health club, which costs $50 a month. Is this contract valid?

Yes, the contract is valid. While legal capacity includes whether or not all parties are of legal age, contracts signed by minors are valid but voidable by the minor.

Charles is selling his property to Seth. Charles is financing part of the transaction for Seth, who will make payments to Charles while Charles retains the property title. What is this an example of?

a land contract

Buyer Daphne and seller Kurt signed a sales contract with a definite closing date of May 15. Daphne then learned that she needs to move the closing date to June 15. She'll accomplish this with an ________ to the sales contract.

amendment

Esmerelda makes regular monthly payments on her loan. In addition to paying interest, she's slowly paying down the principal of the loan. With each payment she makes, more will go towards the principal and less to interest. What type of loan does she have?

amortized

Fred is an agricultural lender who helps the ranchers and farmers in his community by providing credit for purchasing land, making repairs to their buildings, and improving their agricultural property. He's able to do this in part because of the ______ offered by the USDA Farm Service Agency.

guaranteed loans

What attracts borrowers to adjustable rate mortgages?

lower initial interest rate

Brynn's listing agent told potential buyers that all offers on Brynn's property would be considered at 5 p.m. on May 3. By that date and time, four offers had been made. The persons making these offers are the ______.

offerors

Sam's not very good with planning for his expenses. He has a mortgage payment that includes his property taxes and property insurance (PITI), so he can knock those all out with his mortgage payment every month. Sam's also happy to know that his monthly payment will remain the same for the life of his loan. What type of mortgage does Sam have?

Budget Budget mortgages are a type of amortized loan that include principal, interest, taxes, and insurance (PITI) in each amortized monthly payment. The type of mortgage Sam has includes principal, interest, tax, and insurance (PITI). Straight mortgages involve interest-only payments until the end of the loan term, when the entire principal balance comes due. Sam definitely doesn't plan ahead enough for this, so option A is out. Amortized loans don't necessarily include tax and insurance payments, so option C isn't viable, either. An adjustable rate loan may include taxes and insurance, but the payment will fluctuate based on the current index rate it's associated with, and we know that Sam's payments will remain stable throughout the life of his loan, so option D is not correct. Sam's mortgage will help him "budget" his monthly expenses by combining PITI into one payment. Option B is the correct answer.

Leonard is offered a loan at 5.75%. Because he plans to be in his home for several years, he chooses to pay points up front to have the rate reduced to 5.25%. What's this an example of?

Buydown When buyers voluntarily pay to bring interest rates down, this is called a buydown.

Which offer would be the most appealing to a seller? A. An all-cash offer $15,000 over list price, closing in two weeks. B. An offer $10,000 over list price, contingent upon appraisal and inspection, conventional financing with 20% down, closing in 30 days. C. A full-price offer waiving inspection, conventional financing with 20% down, closing in 45 days. D. It depends on the needs and motivations of the seller.

D. It depends on the needs and motivations of the seller. The first principle of evaluating multiple offers is this: The appeal of any offer comes down to the seller's needs and motivations.

You're explaining to your client that using electronic documents and signatures simplifies the homebuying process. Your client is skeptical about these signatures. You describe the Uniform Electronic Transactions Act (UETA) and tell your client that ______. A. UETA provides a guarantee that electronic signatures will hold up in court B. UETA gives electronic signatures the legal weight to override any existing "wet" signatures C. UETA requires states to permit electronic signatures on all real estate-related documents D. State laws take precedence over UETA

D. State laws take precedence over UETA The UETA is an attempt to standardize acceptance of electronic documents and signatures, but state laws govern the use of these electronic items, and will take precedence of the UETA.D. State laws take precedence over UETA The Uniform Electronic Transactions Act is an attempt to standardize states' acceptance of electronic documents and signatures. It's not legally binding on anyone, and thus provides no guarantees regarding the validity of electronic signatures, eliminating option A. The UETA recommends that states accept electronic signatures just as they would "wet" signatures, but again, they can't guarantee that states will accommodate electronic signatures, and certainly the UETA doesn't give electronic signatures greater weight or the ability to override "wet" signatures, making options B and C incorrect. While most states do now recognize electronic documents and signatures, state laws take precedence over UETA provisions. Option D it is!

Katelyn really wants to include an inspection contingency in her purchase offer. Her agent explains that the inspection contingency only documents which of the following? A. How much money the sellers will spend on fixing inspection issues B. The inspector who Katelyn will use C. Whether Katelyn will ignore some of the inspection issues D. The date by which all inspection issues must be addressed

D. The date by which all inspection issues must be addressed An inspection contingency is a way of signaling to the seller that if the inspector finds property condition issues, the buyer may require the sellers to fix those issues or may even terminate the contract. The one thing that the inspection contingency must do is document the date prior to closing by which all inspection issues must be fixed.

Shirley's lender discharged the mortgage lien on Shirley's property after processing her final payment. Which clause requires the lender to take this action?

Defeasance

Jason's having trouble paying his monthly rent. His landlord agrees to float him the rent for the next few months with 20% interest. The deal with his landlord is in violation of the state's usury law. Which of these statements must be true? Consumers are not supposed to be charged interest on a personal loan. His state's personal loan interest rate cap is less than 20%. His state's personal loan interest rate cap is more than 20%. Landlords loaning tenants money is a violation of usury law.

His state's personal loan interest rate cap is less than 20%.

Tawna agrees to sell her small plot of land to Morris for $5,000 cash. They don't write up a contract, but otherwise all the necessary elements for a valid contract are in place. What's the status of this contract?

It's valid but not enforceable. An oral contract for the transfer of real estate isn't enforceable in a court of law, but it's a valid contract. So the transfer could still take place, but neither party would be able to sue for completion of the contract.

The Bransons have a conventional loan for which they were required to obtain private mortgage insurance. Their local real estate market has been on fire lately, and their house is now appraised at twice their loan balance! Will their PMI be automatically cancelled?

Maybe, but they'll have to petition their lender. When the loan the loan-to-value ratio is 80% or less, PMI is automatically cancelled. Borrowers may have to petition for PMI to be cancelled and must be current on payments. PMI protects the lender when the borrower has less than 20% equity in the property. As payments are made and equity increases, borrowers (hopefully) eventually exceed the 20% minimum equity, so PMI doesn't last for the life of the loan. This means options B and C are out. If a borrower's equity is over 20% it doesn't mean their PMI will be automatically cancelled, so we can rule out option A. Cancellation of PMI happens once the borrower reaches a 22% equity position. This is determined by the loan-to-value ratio at the time of the purchase. Unless the loan-to-value ratio is now 78% or lower, the Bransons would have to petition to get PMI cancelled, making option D the correct answer.

The Hendersons don't have enough money to make the full 20% down payment their lender requires. To close the sale, the seller is willing to finance a loan for the gap between the home's list price and the amount the institutional lender is willing to loan. What's this type of financing called?

Purchase Money Mortgage

The Shores are in the process of buying a beautiful 3,000-square-foot home from the Bishops. They've completed all the required paperwork on their loan application. Mary's analyzing the package to determine their ability to repay the loan. She examines the property's value, the property type, and the loan-to-value ratio, among other things. Her recommendation is that the Shores' loan application be approved. What is Mary's role?

The underwriter