TX 30 Hour Real Estate Finance Practice Exam
Bob just closed on his investment property. He's already identified a replacement property that he'll be exchanging into by using a 1031 tax-deferred exchange. How many days does he have to close on his replacement property?
180 (Investors who want to use the 1031 tax-deferred exchange must identify the property within 45 days and close within 180 days.)
Private mortgage insurance may be required on conventional loans where the loan-to-value ratio is in excess of ______%.
80 (Loans above this amount don't conform to Fannie Mae/Freddie Mac guidelines, so a lender may require PMI to offset the risk.)
What's a participation certificate?
A mortgage-backed security issued by Freddie Mac (Participation certificates are what Freddie Mac calls their mortgage-backed securities.)
The ______ was enacted in 1946 in response to the creation of several new federal agencies.
Administrative Procedure Act (The Administrative Procedure Act balances the power of federal agencies by regulating how they may propose and establish regulations.)
Kendra and her real estate agent are preparing to close on the property she's purchasing on Thursday. Kendra will sign the paperwork with her lender to close on the loan at the same time. When does the lender need to provide Kendra with the Closing Disclosure form?
At least three business days prior to closing on the loan (The lender must provide the Closing Disclosure to the borrower three days prior to closing, and it should reflect the terms of the most recent Loan Estimate.)
A VA loan program that allows a veteran to refinance at a lower rate and receive cash proceeds to fund other investments or purchases is ______.
Cash Out Refinance (The IRRC is merely a refinance. The Cash Out Refinance program requires a credit check, new appraisal and income verification, but allows cash from equity to be obtained in the refinancing process.)
Which of the following describes amortized debt?
Debt that's paid off by making periodic payments (These periodic payments consist of both principal and interest.)
As interest rates rise, the number of buyers in the market is likely to ______.
Decrease (High interest rates make borrowing more expensive, diminishing the number of buyers in the market.)
A second mortgage on property secured by a VA loan is acceptable under certain conditions, one of which is that the first and second mortgage liens ______.
Don't exceed the CRV (The first and second mortgage liens can't exceed the CRV on the property.)
Which generation financed their homes due to also having other debt obligations?
Echo Boomers (Financing is how Echo Boomers were able to purchase homes since they were also paying off school loans.)
A home equity line of credit (HELOC) is based on the homeowner's available ______.
Equity (A HELOC is based on available equity, and is set up as a line of credit that homeowner's can use as an open-end account.)
Ted is in foreclosure but has some equity in his property. An investor suggests that Ted enter into a sales contract with him for a substantially higher price than the investor would actually be paying. The investor pockets the cash and allow the house to be foreclosed on. What sort of scheme is this?
Equity skimming (Equity skimming occurs when an investor receives title to a property, usually rents out the home but doesn't make the mortgage payments. When types of equity skimming fraud like this occurs, houses usually end up in foreclosure.)
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 (An inflated appraisal occurs when an appraiser intentionally submits a misleading report to a lender that indicates an inflated property value. Inflated appraisals are illegal and can get both of these guys in trouble.)
Conventional loans from large commercial banks are the primary target for which secondary market player?
Fannie Mae (Fannie Mae buys conventional loans, mainly from large commercial banks.)
If you were a farmer who obtained a loan for your business, it's most likely that your lender will sell this loan to ______.
Farmer Mac (Farmer Mac purchases many types of loan products for the agricultural market.)
Robbie's lender notified him of an impending foreclosure, and told Robbie that his property will be sold at public auction. After the auction occurred, he receives a notice of eviction for which the lender had to petition a court. What does this describe?
Foreclosure by advertisement (In foreclosure by advertisement, the borrower is notified of the default and pending public auction of the property. After the auction takes place, the winning bidder has to petition the court for a notice of eviction.)
Which entity guarantees mortgage-backed securities which have the full support of the U.S. government?
Ginnie Mae (Think 'G' for Ginnie Mae and its guarantee of MBSs with government issued or guaranteed loans.)
The FHA loan program is designed for borrowers who ______.
Have a minimal down payment and less-than stellar credit (FHA insures lenders against borrower default for accepting higher risks due to lower down payments and lower qualifying standards.)
Identifying the purpose of the appraisal leads the appraiser to do what next?
Identify data needed (The first step is to state the problem so the appraiser can then identify what data is needed.)
Brian is completing a residential loan application. On the application, he lists his assets. What are assets?
Items of value the borrower owns (Assets are items of value and may include cash, amounts on deposit, investments, automobiles, and even real estate.)
Gina's mortgage payment arrives late one month. What language in the promissory note allows the lender to charge her a fee as a result?
Late charge provision (The promissory note includes a late charge provision to encourage borrowers to pay on time.)
Federal Housing Finance Agency established percentage targets and ___________ for loans made to low- to moderate-income borrowers.
Limits for conforming loans (The Federal Housing Finance Agency sets limits for conforming loans.)
Which of the following items directly influences real estate demand?
Loan availability (Demand is directly influenced by factors such as employment levels and wages, interest rates, population changes, confidence in the market, and availability of loans.)
HUD's second goal in support of its mission is to ______.
Meet the need for quality affordable rental homes (Part of HUD's strategic plan is to meet the need for quality affordable homes, which is defined as its second goal.)
Which term describes a lender temporarily agreeing to suspend payments to help the borrower get caught up?
Moratorium (or forbearance) (A temporary suspension of payments is called a moratorium, or forbearance. It allows borrowers an opportunity to avoid default by giving them a chance to catch up on payments.)
The acronym PITI is a reference to what real estate-related concept?
Mortgage payment (PITI stands for principal, interest, taxes, and insurance—the four components of the mortgage payment. Remembering the acronym can help borrowers recall what makes up their payment.)
A ______ is a mortgage-backed security issued by Freddie Mac.
Participation certificate (Participation certificates are what Freddie Mac calls their mortgage-backed securities.)
Which type of participation agreement involves more than one mortgagee as owner of the finance instrument in which each receives an equal share of the mortgage payment?
Partnership among mortgagees (A partnership among mortgagees involves more than one mortgagee as owner. Each contributes an equal investment in exchange for equal share of mortgage payments.)
In which type of partnership is there is more than one mortgagor as owner?
Partnership among mortgagors (A partnership among mortgagors involves several mortgagors sharing responsibility for a single mortgage. This is usually on a multi-family dwelling, and may be called a cooperative.)
A single late ___________ does not automatically mean the loan has gone into default.
Payment (Even the most responsible homeowner can make a mistake sometimes. Missing a payment doesn't mean the loan defaults automatically. Most lenders allow a small grace period for getting payments made, although late fees might be charged.)
Which of the following statements is true regarding closing costs on a VA loan?
Payment of closing costs may be negotiated. (Closing costs that are charged to the borrower may be negotiated.)
Which of the following can a lender do if a borrower fails to keep homeowners insurance on the collateral property?
Place lender-acquired insurance on the property and bill the borrower (Lenders may place lender-acquired insurance on the property and invoice the borrower. If not resolved, foreclosure activities may be initiated.)
Roger has a sufficient income, has never missed a loan or credit payment, and has an adequate credit history. His credit score makes him a very creditworthy consumer. When obtaining a loan, which rate will he most likely get?
Prime rate (Roger can borrow money at the prime rate, a rate reserved for only the most creditworthy consumers.)
Two areas of vulnerability for the lender occur when homeowners insurance is allowed to lapse. What are they?
Property damage and judgment liens (The lender is vulnerable when homeowners insurance is allowed to lapse. A continued lapse can lead to default, because lenders don't like it when their assets are not protected. Two major areas of vulnerability are property damage and judgment liens.)
Which of these describes the Texas Mortgage Credit Certificate program?
Provides eligible homeowners the opportunity to reduce their federal tax liability (The Texas Mortgage Credit program seeks to improve affordability by offering qualified homeowners the opportunity to receive a dollar-for-dollar reduction in their federal taxes owed for the amount they pay in mortgage interest.)
Which alternative to foreclosure is being utilized when a lender creates a schedule for the borrower to catch up on delinquent mortgage payments?
Repayment plan (If borrowers are able to arrange a repayment plan with their lender, it may be possible to avoid foreclosure by catching up on delinquent payments.)
What information does Schedule B-1 of a title commitment provide?
Requirements that must met before a title policy will be issued (Schedule B-1 lists items the title insurance company requires to be addressed before they'll issue the title insurance policy. This may include resolving liens or paying taxes that are due, among other items.)
______ is the term that the VA uses to describe the amount of net income remaining after deduction of debts, obligations, such as utility and phone bills, and monthly shelter expenses.
Residual income (This is the definition of residual income.)
Because of the funding fee required for a VA loan, a borrower with no down payment funds saved should ______.
Roll the funding fee into the loan (The funding fee is often rolled into the loan.)
There are fewer properties available in the market than there are interested buyers. What type of market does this describe?
Seller's market (When there are more buyers than there are properties, the seller has the advantage. This is a seller's market.)
Which of the following best describes a buyer's market?
Supply is greater than demand (When there are more properties than there are buyers, the buyer has the advantage. This is a buyer's market.)
When a homeowner has repairs made to a home using an FHA 203(k) loan, HUD requires ______.
That the work meet FHA's basic energy efficiency and structural standards (All work done using an FHA loan must meet basic standards set by the FHA.)
Which of the following statements is true about the MIP on an FHA loan?
The FHA may adjust the percentage used to calculate MIP on FHA loans. (The FHA occasionally adjusts the percentage of MIP charged on a loan.)
Maria is a borrower reviewing her Closing Disclosure. She notices that the appraisal fee is listed under "Paid by Others" and has an L listed with the amount. What does this mean?
The L indicates that the creditor pays the item at consummation. (The L indicates that the creditor pays the item at consummation.)
How is a loan assumption documented?
The buyer and seller both sign an assumption agreement. (If the lender agrees to let the buyer assume the loan, an assumption agreement between buyer and seller documents the change.)
Who must provide the buyer and seller with a copy of the closing disclosure?
The buyer's lender (The lender must provide the closing disclosure to the borrower at least three days prior to closing. The settlement agent will provide a closing statement to both buyer and seller.)
The annual MIP is recalculated each year using ______.
The end-of-year loan balance, plus the balance after the next 11 payments (The annual MIP is recalculated each year using the end-of-year loan balance, plus the balance after the next 11 payments.)
John's home is up for sale. He originally bought it five years ago for $300,000. Its current value is $350,000. His real estate agent notified him that a buyer just made an offer on his home for $365,000, which is the price other similar homes in the neighborhood are selling for and John accepts. What does the price of $365,000 represent?
The market value (Market value is the price at which a willing buyer and a willing seller would strike a deal, given normal market conditions.)
When does the mortgage insurance requirement end for a borrower with a VA loan?
There is no mortgage insurance requirement for a VA loan. (A big benefit of the VA loan is that it doesn't require mortgage insurance, even though the borrower is placing less than 20% down (in most cases the borrower doesn't have a down payment).
Which of the following is true about mortgage brokers?
They don't service the loan beyond placement. (Mortgage brokers facilitate connections between borrowers and lenders but don't service loans beyond placement. On the other hand, mortgage bankers tend to have long-term relationships with borrowers and often service the loans they make.)
Mutual savings banks prefer to keep their lending activities in their immediate geographic area. Why?
They prefer to personally monitor the loans they issue. (Mutual savings banks prefer to keep their mortgage lending in the immediate geographic area (think East Coast) so they can closely monitor the loans.)
Which of the following statements is true about buydowns with a VA loan?
They're allowed only on fixed rate loans. (A borrower may buy down the interest rate on a fixed rate VA loan, but buydowns are not allowed on ARMs.)
Kendra has applied for a mortgage from Best Bank. When is Best Bank required to provide Kendra with a Loan Estimate?
Three business days (Kendra should receive a Loan Estimate from the lender within three business days after submitting her application.)
How is title usually conveyed to the buyer during a foreclosure process?
Through a referee's deed (Title is usually conveyed using a referee's deed, such as a sheriff's deed or a commissioner's deed.)
What's one reason a borrower would choose a split—or piggyback—loan option?
To avoid going over the conforming loan limit (One reason a borrower would choose the piggyback loan option is to avoid going over the conforming loan limit for any one loan. Another reason would be to avoid having to pay private mortgage insurance.)
The ______ was enacted in 1968 as part of the Consumer Credit Protection Act.
Truth in Lending Act (The Truth in Lending Act (TILA) was enacted in 1968 and requires lenders to disclose financing terms to consumers in a manner that's not misleading or deceitful.)
The _______ requires lenders to disclose financing terms to consumers in a manner that's not misleading or deceitful.
Truth in Lending Act (The Truth in Lending Act (TILA) was enacted in 1968 and requires lenders to disclose financing terms to consumers in a manner that's not misleading or deceitful.)
Which veteran loan program offers qualified veterans help with the purchase of their primary home?
Veterans Housing Assistance Program (The VHAP helps qualifying veterans purchase their primary home.)
Which veteran loan program offers qualified veterans help with the purchase of land in Texas?
Veterans Land Program (The VLP helps qualifying veterans purchase at least one acre of land in Texas. Remember that the "L" in VLP represents "land.")
With this alternative to foreclosure, a borrower hands over the property to the lender rather than face foreclosure proceedings.
Voluntary conveyance of deed (In lieu of foreclosure, some lenders will allow borrowers to voluntarily convey the property to the lender. This is also called a deed in lieu of foreclosure.)
Mutual savings banks were created to serve ______ during the mid-19th century.
Workers (Mutual savings banks are primarily concentrated along the East Coast and were created to serve workers during the industrial expansion of the mid-19th century.)
The American Recovery and Reinvestment Act provided mortgage assistance to ___________.
Wounded servicemen and servicewomen (Mortgage assistance for wounded servicemen and servicewomen was part of the ARRA.)
You have a client who wants to obtain a VA loan. You refer them to ______.
A VA-approved lender (The VA doesn't make direct loans in most circumstances; only VA-approved lenders may make VA-guaranteed loans.)
Cathy is hoping to purchase a home using a VA loan. A VA-assigned real estate appraiser is required to provide ______ for the property.
A certificate of reasonable value (The certificate of reasonable value must be provided by a VA-assigned real estate appraiser.)
What does ARM stand for?
Adjustable Rate Mortgage
Payment history, credit usage, inquiries, types of accounts, and _______ are factors considered in calculating a credit score.
Age of accounts (There are five factors considered: payment history, age of accounts, credit usage, inquiries, and types of accounts.)
Which of the following individuals would qualify to purchase a home under the Good Neighbor Program?
An emergency medical technician (The Good Neighbor Next Door program offers specific FHA-foreclosed properties to individuals who are law enforcement officers, K-12 teachers, firefighters, and EMTs for a 50% discount and only $100 down. The owner must also occupy the home after the purchase.)
A CMA or a BPO is an example of ______.
An informal estimate of market value (A CMA or a BPO is an example of an informal estimate of market value. Remember, it's good practice to never call anything you'll produce as a real estate professional an "appraisal.")
What is the three-property rule as it relates to tax-deferred exchanges?
An investor can identify up to three replacement properties and not encounter a restriction regarding fair market value as long as debt load requirement is met.
Who needs to obtain a mortgage loan originator endorsement and register with the Nationwide Mortgage Licensing System and Registry?
Anyone who acts as a mortgage loan originator (Anyone who acts as a mortgage loan originator must obtain an MLO endorsement and register with the Nationwide Mortgage Licensing System and Registry.)
To qualify as a Texas veteran, a person must ______.
Be at least 18 years old (In order to qualify as a Texas veteran, an individual must be at least 18 years old.)
Which of the following would the FDIC most likely not insure?
Stock certificates
Both the Housing and Economic Recovery Act and the American Recovery and Reinvestment Act funded a program called ______________, which provided emergency assistance grants to states to purchase and redevelop foreclosed and abandoned homes and residential properties.
The Neighborhood Stabilization Program (The Neighborhood Stabilization Program was funded through recovery legislation.)
What's the most common way that a seller can help a buyer come up with the funds to complete a real estate transaction?
With a contract for deed (A contract for deed is a common form of seller financing.)
The _______ section contains the seller's existing mortgage loan payoff amount that must be paid to complete the transaction.
"Due from Seller at Closing" (The "Due from Seller at Closing" section lists transaction-related amounts that the seller must pay in order to complete the transaction.)
Calvin purchased a house for $220,000, financing $200,000 using a 30-year conventional mortgage at 4% interest. His monthly payment is $955, including both principal and interest. The annual property taxes are $1,400 and the combined annual insurance premium is $900. What's Calvin's PITI payment each month?
$1,146.67 (Combine annual property taxes and annual insurance premiums ($1,400 + $900) then divide by 12 ($2,300 ÷ 12 = $191.67). Add the monthly property taxes and insurance to the monthly principal and interest: $191.67 + $955 = $1,146.67.)
Up to what amount will the FDIC insure?
$250,000 (The FDIC insures up to $250,000 per depositor, per insured bank.)
Qualified mortgages require debt-to-income ratios of no more than ______.
43% (Although it seems generous, the 43% debt-to-income ratio is a firm limit.)
In the residential mortgage market, charging borrowers more than ______ over market rate for interest is considered a predatory lending practice.
5% (Subprime loans can have interest rates 1% to 5% over the current market rate. Anything over 5% is an indication of predatory lending.)
Recently retired Admiral Bongo and his wife, Lucy, contact you. They want you to help them purchase their dream house now that he's retired, but one that has the necessary accommodations for the admiral's disability. They also confide in you that they don't have a lot of money saved up for a down payment. Which type of financing may work best for them?
A VA loan, which requires no down payment. (Current and former members of the military may be eligible for a VA loan. Although the FHA 203K loan allows for renovation financing, VA loans require no down payment.)
What happens after a lien foreclosure sale if not enough money were made from the auctioning of the property to pay off the lien holders?
A deficiency judgment against the property owner for the outstanding balance to the lien holders is issued. (A deficiency judgment is an option for a lien holder to collect the outstanding balance if the proceeds from the foreclosure sale are insufficient.)
By stabilizing and improving the mortgage market, the FHA helped to build ______.
A global market for mortgage-backed securities (As the mortgage market stabilized and improved, it allowed investors to buy and sell mortgage-backed securities on a global scale.)
The Farm Credit System is ______.
A government-sponsored enterprise (The Farm Credit System is a government-sponsored enterprise.)
Horace recently purchased 1,000 shares of a security that's made up of hundreds of mortgages. The principal and interest that borrowers of these underlying mortgages pay are eventually passed through to Horace and the other investors. What did Horace purchase?
A mortgage-backed security (An MBS is a type of investment or security that groups hundreds of mortgages bought from primary lenders into pools. Investors buy shares of the security. They don't actually have ownership of the property or the mortgage.)
Jose is an investor who found and closed on an investment property, then decided to sell a property other than the one originally marked for the exchange. What is this an example of?
A reverse tax-deferred exchange (If your client finds and closes on an investment property and then decides to sell a property other than the one originally marked for the exchange, they can do a tax deferral "backward." This is called a reverse exchange.)
Which of the following is an example of an inquiry a consumer initiated that may appear on a credit report?
Application for a loan (Inquiries are either those the consumer initiated (as a result of applications) or those the consumer didn't initiate (pre-approved credit, employment, account monitoring).
Marsha made an offer of $325,000 on a home listed for $350,000. The seller accepted her offer. She's now having a(n) ______ done on the home to determine its actual value and hopes it comes in at more than $350,000.
Appraisal by an appraiser (An appraisal by an unbiased appraiser will give her an estimate of the true (or fair market) value of what the home is worth.)
The Federal Housing Administration's qualifying standards for a mortgage loan ______, but the mortgage insurance the FHA provides balances the risk for the lender.
Are somewhat less stringent than standards for conventional loans (FHA qualification standards are less stringent than standards for conventional loans, but a down payment is required.)
Which of the following actions toward an appraiser would be considered improper?
Asking an appraiser to remove information about adverse property conditions from an appraisal report (Real estate licensees can ask appraisers to consider additional (relevant) information and to correct errors in reports. They cannot ask an appraiser to hide or remove information relevant to the value, such as adverse property conditions.)
Which of the following net worth examples may a lender view most favorably?
Assets exceed liabilities (Net worth describes the difference between a borrower's assets (items of value) and liabilities (obligations). A positive net worth (where assets are more than liabilities) is preferred.)
By when must a borrower be provided with a closing disclosure?
At least three days prior to closing (The lender must provide the borrower with the loan estimate at the time of application or within three days after application. The lender must provide the closing disclosure to the parties at least three days prior to closing.)
Ava is borrowing money to buy some commercial property for her business. The loan agreement she signs includes a lock-in clause. What does that mean?
Ava will not be allowed to prepay the loan prior to the date specific in the loan agreement. (The lock-in clause is a form of prepayment penalty typically used only for high-yield loans.)
Which of the following is a likely effect when the discount window is closed?
Banks don't have access to additional funds. (When the discount window is closed, banks cannot obtain additional funds from their reserve bank to make more loans to consumers.)
Which of the following represents a potential concern when borrowing funds from a pension or retirement plan?
Borrowing without consulting a financial expert can result in unintended consequences, such as income tax liability and loss of retirement income. (Borrowing funds from any kind of retirement account is a potentially dangerous financial plan. Anyone considering this type of loan should consult with a professional and carefully weigh all the options.)
What is one way that the FHA has helped to stabilize and improve the mortgage market?
By requiring appraisers to be state licensed or certified to evaluate property for FHA-insured loans (The FHA established a requirement for appraisers to be state licensed or certified in order to appraise property for an FHA loan, creating a higher standard for appraisals that reduces the risk for borrowers and lenders.)
Which of the following would the FDIC most likely insure?
Checking account deposits (The FDIC protects deposits in checking, saving, and money market accounts at insured banks and thrifts, as well as certificates of deposits at these institutions.)
A bank that addresses a community development need in its assessment area and donates to recovery efforts of a flooded lower-income area might be an example of the bank supporting what act?
Community Reinvestment Act (The CRA requires lenders to meet the needs of their communities by investing in development and rehabilitation efforts, especially those that enable low- and moderate-income individuals and families to attain affordable housing.)
Which of the following is NOT part of the assumptions section of the Loan Estimate?
Comparisons (The comparisons section allows the borrower to make comparisons between loans with different interest rates and isn't related to the proposed loan estimate.)
The ______ uses education, enforcement, and research to promote fairness and transparency for consumer financial services.
Consumer Financial Protection Bureau (The Consumer Financial Protection Bureau uses a three-pronged approach to completing its mission of consumer protection when using financial services.)
You may see a ________ named as a land contract, real estate contract, contract for sale, agreement for deed, or as articles of agreement.
Contract for deed (A contract for deed is a common form of seller financing involving the buyer/borrower and the seller/lender.)
Which of the following items increases the supply of real estate properties on the market?
Conversion of properties (The number of total properties on the market is directly influenced by the conversion of existing commercial properties to residential properties.)
Secured corporate bonds use ________ as collateral.
Corporate assets (Corporate assets are used as collateral so that bond purchasers can repossess the asset in the event of default)
Farmer Mac is a program that ____________ for agricultural property loans, rural utility loans, and certain loans guaranteed by the U. S. Department of Agriculture.
Creates a secondary market (Farmer Mac creates a secondary market for agricultural loans.)
Kelly is reviewing Steve's loan application. She wants to verify that he has a solid history of paying obligations on time. What should she request to do this?
Credit report (Obtaining a prospective borrower's credit report will provide the lender with a history of the applicant's credit.)
Private mortgage insurance protects the lender in case the borrower ______.
Defaults on the loan (PMI protects the lender in case the borrower defaults on the loan. Should default occur, the insurance kicks in and covers the amount of the loan over 80% LTVR.)
What's the primary source of funds for commercial banks?
Demand deposits (The primary supply of funds for commercial banks comes from demand deposits.)
Mario lives in a state that requires an abstract of title for property conveyance. The chain of title is broken approximately 50 years prior to the current date. Which of these properly identifies the status of Mario's title?
Depending on his state's laws, Mario may have marketable title. (If a link in the chain of title is broken, the attorney performing the search will branch out from public records to try to mend the link. State laws dictate how far back the chain must be unbroken for a title to be marketable)
What's the acronym for the legislation that prohibits lenders from denying credit to applicants on the basis of their protected class status?
ECOA (ECOA stands for the Equal Credit Opportunity Act.)
The ______ clause protects the borrower's assets that aren't part of the voluntary lien from a deficiency judgment in case of foreclosure.
Exculpatory (If a lender uses a judicial foreclosure, it may also ask for a deficiency judgment, unless the exculpatory clause is present in the security instrument.)
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.)
On an FHA 203(k) loan, the combined cost of home value and rehab must ______.
Fall within the FHA mortgage limit for the area where the property is located. (The 203(k) loan includes the cost of rehabilitating the home, but the loan amount must still fall within the mortgage limits that the FHA sets by region.)
_________ works with lenders to make long-term credit available to homeowners and businesses in agricultural and rural communities, including farmers and ranchers.
Farmer Mac (Farmer Mac works with lenders to provide credit to rural communities.)
______ creates a secondary market for agricultural loans by buying the loans, pooling them, and selling them as securities.
Farmer Mac (The Farmer Mac program buys agricultural loans, pools them, and sells them as securities.)
When establishing guidelines for conforming loans, Fannie Mae and Freddie Mac use loan limits set by which entity?
Federal Home Financing Agency (Conforming loan limits are set by the Federal Home Financing Agency, and accepted by Fannie Mae and Freddie Mac.)
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 (The USDA Farm Service Agency offers guaranteed loans to agricultural lenders.)
What's the acronym for the legislation that requires financial institutions to document and publicly disclose lending practices?
HMDA (HMDA stands for Home Mortgage Disclosure Act.)
When a real estate transaction is financed using a contract for deed, what advice should real estate agents give to their clients?
Have an attorney review the contract. (The contract for deed holds risks for the seller, but especially for the buyer. It should be reviewed by an attorney to protect all parties' rights.)
Jarod has obtained an FHA loan for which he pays an annual mortgage insurance premium. How will he likely make this payment?
He will pay 1/12 of it monthly with his mortgage payment. (Annual premiums will decrease as the loan balance is paid off; 1/12 of the annual premium will be added to the monthly mortgage payment.)
Celia was obtaining a conventional loan, and she put $50,000 down as a down payment. Why might her lender also require her to obtain private mortgage insurance?
Her down payment of $50,000 isn't at least 20% of the purchase price. (When loan-to-value ratios exceed 80% on a conventional loan, lenders may require private mortgage insurance.)
Wendy is buying a house from Tom. Tom helps Wendy out by paying for a 2-1 buydown. The lender has given Wendy an interest rate of 5%. Which of the following describes what the buydown will do to Wendy's interest rate?
Her rate will be 3% for the first year, 4% the second year, and 5% after that. (The 2-1 buydown reduces the interest rate by 2% the first year, 1% the second year, and then reaches the rate stated on the borrower's note.)
Which of the following was created as part of the Homeowner Affordability and Stability Plan?
Home Affordable Modification Program (HAMP) (The Home Affordable Modification Program (HAMP) was part of the Homeowner Affordability and Stability Plan.)
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.
Home equity (If the property is owned free and clear, the home equity loan is a first mortgage. Otherwise, it becomes a second, or junior, mortgage.)
Which of the following specifies a requirement of pre-loan counseling for consumers?
Homeowner and Equity Protection Act (HOEPA requires pre-loan counseling for consumers.)
Which of the following is classified as the least liquid on the scale?
Institutional money market funds (Items in the M3 category are less liquid than M1 and M2 items. This includes assets in institutional money market funds.)
Only ______ is paid until the end of a straight mortgage loan term, when the principal is repaid in full.
Interest (A straight mortgage is one where interest-only payments are made until the end of the loan term, when the full principal becomes due.)
In the early years of a mortgage loan term, which portion of the payment is likely to be the largest?
Interest (Interest receives proportionally more of the mortgage payment in the beginning; over time, more and more of the payment goes toward principal.)
Which of the following could be different from the amount on Loan Estimate that was initially received and can impact the monthly payment?
Interest rate (The interest rate can be different than the one shown on the Loan Estimate.)
Kevin is having an appraisal performed on a piece of property he's interested in buying. He's especially interested in hearing about the estimated rate of return the property could pull. What type of value is he interested in?
Investment value (An investment value can tell a consumer about the expected rate of return for a property.)
What is the impact to lenders when mortgage packages are sold?
It provides additional cash flow for new loans. (The lenders gain income so they may offer more loans to borrowers.)
What is the interest rate on a VA loan?
It varies by lender (The interest rate will be up to the lender, and isn't related to the VA guarantee.)
David purchased a house three years ago for $300,000. Considering historical property value fluctuations, what is the likely value of the property today?
It's impossible to tell. Historically, property values fluctuate up and down in the short term. (Over short periods, property values tend to fluctuate. We may see increases and decreases in values from year to year. Three years is a short period of time, so it's difficult to say what today's value would be.)
Joseph's got B-rated credit, and his commercial bank suggested he check with the specialty mortgage company down the street because they deal in subprime loans. What's NOT true about Joseph's situation?
Joseph should avoid taking the commercial bank's advice, since a subprime loan is most likely made by a predatory lender. (Yes, there are some lenders with unscrupulous practices, but there are also legitimate lenders who help people like Joseph achieve their dream of homeownership by offering subprime loans.)
The CFPB uses education to accomplish its mission, such as the ______ publications.
Know Before You Owe (The CFPB's "Know Before You Owe" publications target all consumers of credit, including mortgagors.)
Tonia is buying a new home. She has a down payment of $30,000 and will obtain a $250,000 mortgage from a local bank to make up the remainder of the purchase price. What is this an example of?
Leveraging (Making a down payment, then obtaining a loan to complete a purchase, is an example of leveraging.)
When consumers make a small down payment and borrow the remaining amount of the purchase price from a lender, they are demonstrating what concept?
Leveraging (To leverage is to put up a small amount of money to obtain a loan of a larger amount.)
Lewis is reviewing his Loan Estimate and notices under "Other Costs" that there are items listed that don't include an amount. What does this mean?
Lewis should ask his lender about it. (Lewis should ask his lender about any items that aren't clear to him, such as line items without an associated amount.)
The lender, the employer, and the ______ all complete parts of the request for verification of employment form.
Loan applicant (Although the lender and employer have heavier roles in completing the form, the applicant must sign it to give the employer permission to provide information to the lender. The employer may be either a current or previous employer.)
Which act temporarily removed the requirement that taxpayers whose homes were sold as a result of a foreclosure had to include the loan write-off amount as taxable income?
Mortgage Forgiveness Debt Relief Act of 2007 (The Mortgage Forgiveness Debt Relief Act of 2007 temporarily removed the requirement that taxpayers whose homes were sold as a result of a foreclosure had to include the loan write-off amount as taxable income. This benefit expired in 2014.)
Which person or entity works with many different lenders to find the best loan for the customer?
Mortgage broker (Mortgage brokers work with many different lenders to find the best loan. They don't originate their own loans.)
An industrial development bond is a variety of _____ bond.
Municipal (An industrial development bond is a variety of municipal bond. They give private investors an opportunity to take advantage of tax-exempt funds in exchange for helping to fund municipal projects, such as apartment buildings.)
The town of Oak, Nebraska has been growing and needs a new elementary school. What kind of bond instrument will they use to finance this project?
Municipal bond (Municipal bonds are used for community improvements, such as schools, street improvements, etc.)
Which organization manages and charters credit unions?
NCUA (The National Credit Union Administration (NCUA) manages and charters credit unions.)
Private loan companies may be found in many places. There are ______, regional, and local lenders, and even individual entrepreneurs who loan money.
National (Private loan companies can be found in many places. There are local, regional, and national lenders, and even individual entrepreneurs who loan money to others.)
Yancey purchased a home six months ago using a VA loan. Due to an inheritance, he is suddenly able to pay off his mortgage. Will he pay a pre-payment penalty?
No (One benefit of the VA home loan is that it doesn't include a pre-payment penalty.)
Maria is a borrower reviewing her Closing Disclosure. She notices a section under "Other Costs" with a number of fees that were not shown on her Loan Estimate, such as the commissions to the real estate brokers and the home inspection fee. Should Maria contact her lender about this issue?
No, these are costs that are part of the total cost to close but aren't part of obtaining the loan, so they weren't required to be on the Loan Estimate. (Maria can always contact her lender for an explanation, but the fees listed in this section are not shown on the Loan Estimate because they aren't part of obtaining the loan, and aren't required on that form.)
A mortgage with a clause that prohibits the lender from suing the borrower for unpaid amounts if foreclosure occurs is called a _______ mortgage.
Non-recourse (A non-recourse mortgage prohibits the lender from going after the borrower if a foreclosure sale doesn't provide enough proceeds to compensate the lender for its losses.)
Chanel is buying a brand new home with a VA loan. She's obtained a certificate of reasonable value. For how long is that CRV valid?
One year (A CRV has a shelf life of six months for resale properties and 12 months for new construction.)
In which type of partnership does each mortgagee receive a share of the mortgage payment?
Partnership among mortgagees (In a partnership among mortgagees several mortgagees come together, usually to finance a large project. They contribute an equal share of funding in exchange for equal share of the mortgage payments.)
What type of partnership is a cooperative?
Partnership between mortgagors (A cooperative is a partnership between mortgagors, and operates as a corporation. Cooperatives usually purchase multi-unit buildings, such as apartments.)
Which of the following best describes foreclosure by writ of entry?
Petition for legal ownership, opportunity to redeem property, notice of eviction if property is not redeemed (In foreclosure by writ of entry, the lender petitions the court for legal ownership, but gives the borrower an opportunity to redeem the property before foreclosure is complete. If the property is not redeemed, the borrower is evicted.)
Which clause is standard in a deed of trust and affects the foreclosure process that can be used if the borrower defaults?
Power of sale (The power of sale clause is standard in a deed of trust and allows the non-judicial foreclosure process to be used in case of default.)
What are the types of institutions that issue loans directly to consumers commonly called?
Primary market players (Banks, credit unions, thrifts, and other institutions that issue loans directly to consumers are primary market players.)
What factors affect an adjustable rate mortgage?
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.)
Which of the following lending regulations apply to mortgage loans and settlement services?
Real Estate Settlement Procedures Act (RESPA applies to mortgage loans and settlement services. This includes real estate licensees, appraisers, and title companies.)
Which of these items is an asset to list on a residential loan application?
Real estate (Real estate is an example of an asset (whether encumbered or not). The outstanding loan used to purchase the real estate is considered an obligation or liability.)
Which clause in the deed of trust is the equivalent of the defeasance clause in the mortgage?
Reconveyance (The reconveyance clause and the defeasance clause stipulate that the borrower receives full title to the property when the debt has been repaid.)
What type of investment strategy is most similar to a 1031 tax-deferred exchange?
Rolling over funds from one IRA into another (The 1031 is similar to rolling over retirement funds because with the 1031, the investor rolls over the capital gains from the sale of one property into the purchase price of the next property, deferring (but not avoiding) taxes on that gain.)
The ______ table discloses the amounts associated with the transaction that the seller will pay and receive, usually resulting in a total cash to seller.
Seller's Transaction (The Seller's Transaction table lists what the seller will pay and receive as a result of the transaction.)
Which of the following types of residential dwellings do life insurance companies purchase from the secondary mortgage market?
Single-family on one lot (Life insurance companies purchase single-family homes from the secondary market.)
What's the first step an appraiser will perform when conducting an appraisal?
State the problem. (The first step is to state the problem so the appraiser can identify what data is needed. After that, the appraiser will identify the data needed, then gather and analyze it.)
A lender wants to ensure that the legal description of a property is accurate, and determine whether any improvements, encroachments, or lot size changes have been made. What may the lender request to determine this?
Survey (Some transactions require a property survey to uncover any changes in the legal description.)
The Mortgage Disclosure Improvement Act amends ______ in terms of the timing of lender disclosures.
TILA (The Mortgage Disclosure Improvement Act amends Truth In Lending Act timing requirements.)
What is TRID?
TILA-RESPA Integrated Disclosures (TILA and RESPA initially required similar but separate disclosures to be given to consumers. These have been combined and simplified and are referred to as TRID.)
Which term describes the legal regulation of a property to the detriment of the owner, and must include reimbursement for the property owner?
Taking (Taking is when an action by the government, such as down zoning, harms property value, resulting in some form of compensation to the property owner.)
Fannie Mae, Freddie Mac, and the Federal Home Loan Bank are regulated by ______.
The Federal Housing Finance Agency (GSEs are regulated by the Federal Housing Finance Agency, or the FHFA.)
Tom's CRV came in low and he's decided to make up the difference in cash. What else will be required?
The VA may require Tom to prove the source of his funds. (The VA may require Tom to explain the source of his funds.)
The signature lines on the multi-state Fannie Mae promissory note are set up for ______ to sign.
The borrower (Only the borrower, as maker of the promise, is required to sign the note.)
Which of the following features is shared by the mortgage and the deed of trust?
The borrower is required to maintain the property and pay property taxes and insurance. (Regardless of the security instrument used, it's the borrower's responsibility to maintain the property during the term of the loan.)
What is the 200% rule as it relates to tax-deferred exchanges?
The combined fair market value of the property (or properties) being exchanged into cannot be more than 200% of the relinquished property. (
For tax years 2018 to 2025, a borrower can write off the interest on a home equity loan only if _______.
The funds are used to buy, build, or improve the home that secures the loan (For tax years 2018 to 2025, the funds must be used to improve the home that secures the loan. Other restrictions also apply.)
Which was not part of the Fed's program quotative easing?
The funds available to consumers froze. (More money became available to consumers for lending and spending.)
From a lender's perspective, the lower the credit score, _______.
The higher the risk (A credit score is a number ranging between 300 and 850. The lower the number, the higher the risk.)
Which of the following is true regarding value?
The principle of substitution means that people won't pay more for a property than they have to (The principle of substitution says that buyers won't pay more for a property than it's worth, and if there's a similar property nearby that they can substitute for it that is priced less, it will bring down the value of the original property in the buyer's eyes.)
Anna is selling her home and met a nice young couple she really wanted to sell to, but they couldn't get financing. If Anna agrees to carry part of the loan for the buyers, what does she need to understand?
The risks involved (It's important for sellers to understand all of the risks involved in carrying a loan for potential buyers. A financial advisor should be consulted.)
Which of the following is a reason a seller might consider selling his property through an installment contract rather than a traditional sale?
The seller may pay less in capital gains taxes if he receives the proceeds from the sale over time rather than in a lump sum. (One reason a seller might choose to sell his property through an installment contract is to minimize capital gains tax liability.)
Which of the following statements about the VA guaranteed home loan program is true?
The service member's length of service, duty status, and character of service determine eligibility. (Provided they otherwise qualify, individuals on active duty, Reserves, National Guard, surviving spouses, and other government employees may be eligible for a VA loan.)
When the Torrens system is used to perform a title search, who acts as title guarantor in case a claim is filed?
The state (With this approach, the state handles the title insurance process. In the end, a Torrens certificate is issued with the state as the title guarantor in case a claim is later filed.)
Historically, what do property values tend to do over long periods of time?
They increase only.
What's one reason a borrower may choose a piggyback (or split) loan?
To avoid paying private mortgage insurance (If borrowers don't have 20% for a down payment, they have an option to take a piggyback (or split) loan to cover the difference and avoid paying PMI. This option can also be used to avoid going over the conforming loan limit.)
Lawrence is a buyer closing on a home purchase for which he's obtaining financing. He receives a Loan Estimate from his lender. What's the purpose of this document?
To detail the estimated closing costs for Lawrence's loan (The Loan Estimate, which the lender must provide within three days of loan application, provides an estimate of mortgage loan costs.)
What is the trustee's role when a deed of trust is used to secure property for a loan?
To hold legal title to the property on behalf of the beneficiary until the loan is repaid (When a deed of trust is used in a title theory state, the trustee holds legal title to the property on behalf of the beneficiary.)
What program allowed the U.S. Treasury to spend hundreds of billions of dollars to stabilize our financial system, boost credit markets, help families avoid foreclosure, and promote economic growth?
Troubled Asset Relief Program (In an effort to stabilize our financial system, boost credit markets, help families avoid foreclosure, and promote economic growth, TARP gave the Treasury permission to spend as much as $700 billion (later reduced to $475 billion).)
Which government program assists rural Americans by offering loans, grants, and loan guarantees for housing?
USDA Rural Development (The USDA Rural Development Program assists rural Americans by offering loans, grants, and loan guarantees for housing (as well as economic development, health care, first responder services and equipment, and)
Which of the following provides the lender with an accurate opinion of a property's market value?
Uniform Residential Appraisal Report (The top of the report reads, "The purpose of this summary appraisal report is to provide the lender/client with an accurate, and adequately supported, opinion of the market value of the subject property.")
How long does the borrower have to pay private mortgage insurance?
Until the borrower reaches a 22% equity position (PMI is cancelled when a borrower reaches a 22% equity position. This is based on payments of principal made toward the original loan balance and not on current market value.)
Which governmental legislation established the Consumer Financial Protection Bureau?
Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) (The Consumer Financial Protection Bureau was established by the Dodd-Frank Act to ensure fairness and transparency in consumer financial products and services.)
Celeste hopes to qualify for an FHA loan. She calculates her housing ratio as 31%, and her total debt obligation as 42%. Her credit score is 580. Does she qualify under FHA underwriting guidelines?
Yes (Underwriting requirements for an FHA loan specify a housing ratio of no more than 31%, a total debt obligation that doesn't exceed 43%, and a minimum credit score of 500, with 620 or higher being preferable.)
Vantagestar Ltd. would like to construct a high-end condominium complex. Where will they likely go for financing this project?
A life insurance company (This is a project for a life insurance company because they prefer to be involved with large commercial projects.)
What is the name for a loan that creates a lien against property that already has been pledged as collateral?
Junior loan (When a second loan places a lien against property already pledged as collateral, it creates a junior lien and so is called a junior loan.)
Barb is considering a refinance. She wants to stick with a conventional loan. Why might she be wary of an introductory rate?
After an initial low rate, her payments may increase beyond the level of affordability. (Barb should be wary because although the initial rate may be attractive, that rate may increase dramatically after the initial period is over. This potential increase could drive her payments up over her budget and she could end up in trouble with her new loan.)
Which of the following can you offer to your low-income buyer clients with a small down payment?
Housing choice vouchers (Housing choice vouchers help candidates that are wanting to either rent or purchase a home.)
With an interest-only loan, what happens after the specific period of time that interest-only payments are made is over?
The full principal of the loan is due. (With an interest-only payment, the periodic payments of interest only last for a few years. When the loan term is over, the borrower has to repay the entire principal. This is known as a lump sum payment. This lump sum payment is usually accomplished through refinancing the loan.)
What are advances?
Loans the Federal Home Loan Bank makes to member banks (FHLB lends money, called advances, to member banks in exchange for collateral.)
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?
Maggie will take over Jim's loan payments without telling his lender she's doing so. (When the new buyer makes the payments on a loan as if nothing has changed, this is called a "subject to" purchase.)
Which of the following is a true statement about FHLBanks?
Member banks can borrow for up to one year without collateral. (FHLBanks offer short-term loans without collateral to member banks with FHLBanks stock.)
About 50% of the borrowers in Neighborhood One are Hispanic, while only 4% in Neighborhood Two are Hispanic. The median home price in both neighborhoods is the same. However, statistics show that there is a significantly greater percentage of minority and low-income borrows who were denied financing for loans on properties in Neighborhood Two and were offered lower rates to live in Neighborhood One. What act is intended to prevent this type of potentially discriminatory lending pattern?
Home Mortgage Disclosure Act (The Home Mortgage Disclosure Act requires many financial institutions to publicly disclose information about mortgages, allowing public officials to make informed policy decisions and revealing potentially discriminatory lending patterns.)
Which of the following entities generally acts in the secondary market?
Fannie Mae (Traditional secondary market players are national institutions, such as Fannie Mae, Freddie Mac, Ginnie Mae, and the Federal Home Loan Bank.)
Mark and Nancy purchased a municipal bond to help with the funding of a new school gymnasium. In exchange for their investment, what will they receive?
Interest (Municipal bonds are issued for community improvements. Mark and Nancy will receive interest on their bond purchase.)
