Real Estate Finance Practice Test
Questions and Answers
- 1.
A type of mortgage in which the lender makes periodic payments to the borrow, who is required to be age 62 or older in the FHA program, is called
- A.
Opposite
- B.
Accelerate
- C.
Reverse
- D.
Deficit
Correct Answer
C. ReverseExplanation
A reverse mortgage is a type of mortgage in which the lender makes periodic payments to the borrower, who is required to be age 62 or older in the FHA program. This is the opposite of a traditional mortgage where the borrower makes payments to the lender. The purpose of a reverse mortgage is to allow older homeowners to convert a portion of their home equity into cash without having to sell their home or make monthly mortgage payments. The lender makes payments to the borrower based on the equity in the home, and the loan is typically repaid when the borrower no longer lives in the home.Rate this question:
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- 2.
A conventional mortgage isa
- A.
Amortizing
- B.
Guaranteed by the FHA
- C.
Not guaranteed by any government agency
- D.
Approved by the VA
Correct Answer
C. Not guaranteed by any government agencyExplanation
A conventional mortgage refers to a home loan that is not insured or guaranteed by any government agency. Unlike FHA or VA loans, which are backed by the government, a conventional mortgage is solely based on the borrower's creditworthiness and financial stability. This means that the lender assumes the risk of the loan and does not have any government backing or guarantee in case of default.Rate this question:
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- 3.
A chattel mortgage is usually given in connection with
- A.
Realty
- B.
Farms
- C.
Personal Property
- D.
Commercial Property
Correct Answer
C. Personal PropertyExplanation
A chattel mortgage is a type of loan that is secured by personal property. Personal property refers to movable assets such as vehicles, equipment, or inventory. By granting a chattel mortgage, the borrower pledges their personal property as collateral for the loan. In the event of default, the lender has the right to seize and sell the personal property to recover the outstanding debt. Therefore, a chattel mortgage is typically given in connection with personal property rather than real estate, farms, or commercial property.Rate this question:
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- 4.
The lending of money at a rate of interest above the legal rate is
- A.
Speculation
- B.
Usury
- C.
Both and B
- D.
Neither A nor B
Correct Answer
B. UsuryExplanation
Usury refers to the act of lending money at an interest rate that is higher than the legal limit. This practice is considered unethical and exploitative, as it takes advantage of borrowers who are in desperate need of funds. Speculation, on the other hand, involves making risky investments in the hopes of making a profit. Since the question specifically mentions lending money at a high interest rate, the correct answer is Usury.Rate this question:
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- 5.
One discount point is equal to
- A.
1% of the sales price
- B.
1% of the interest sale
- C.
1% of the loan amount
- D.
None of the above
Correct Answer
C. 1% of the loan amountExplanation
A discount point is a fee paid by the borrower to the lender at closing in exchange for a lower interest rate on the loan. It is typically equal to 1% of the loan amount. This means that if the loan amount is $100,000, one discount point would be $1,000. By paying this fee upfront, the borrower can reduce their monthly mortgage payments over the life of the loan. Therefore, the correct answer is "1% of the loan amount."Rate this question:
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- 6.
Discount points in FHA and VA loans are generally paid by the
- A.
Lender
- B.
Purchaser
- C.
Seller
- D.
Broker
Correct Answer
C. SellerExplanation
In FHA and VA loans, discount points are typically paid by the seller. This means that the seller agrees to pay a certain percentage of the loan amount upfront to the lender, which in turn reduces the interest rate on the loan for the buyer. By paying these discount points, the seller is effectively lowering the overall cost of the loan for the purchaser. This is a common practice in real estate transactions and can be negotiated between the buyer and seller during the sale process.Rate this question:
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- 7.
The main appeal of VA mortgages to borrowers lies in
- A.
Low interest rates
- B.
Minimum down payment
- C.
An unlimited mortgage ceiling
- D.
Easy availability
Correct Answer
B. Minimum down paymentExplanation
The main appeal of VA mortgages to borrowers lies in the minimum down payment. VA mortgages offer the benefit of allowing borrowers to purchase a home with little to no money down, which can be a significant advantage for those who may not have a large amount of savings for a down payment. This feature makes homeownership more accessible and affordable for many individuals and families.Rate this question:
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- 8.
When a loan is assumed on property that is sold
- A.
The original borrower is relieved of further responsibility
- B.
The purchaser becomes liable for the debt
- C.
The purchaser must obtain a certificate of eligibility
- D.
All of the above
Correct Answer
B. The purchaser becomes liable for the debtExplanation
When a loan is assumed on property that is sold, the purchaser takes on the responsibility of repaying the debt. This means that the original borrower is relieved of any further responsibility for the loan. The purchaser becomes the new debtor and is liable for making the loan payments. The statement "All of the above" is incorrect as it includes the requirement of obtaining a certificate of eligibility, which is not mentioned in the given information.Rate this question:
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- 9.
An estopple certificate is required when the
- A.
Mortgage is sold to an investor
- B.
Property is sold
- C.
Property is being foreclosed
- D.
Mortgage is assumed
Correct Answer
A. Mortgage is sold to an investorExplanation
An estoppel certificate is required when the mortgage is sold to an investor because it serves as a confirmation or verification of the terms and conditions of the existing mortgage. It provides information about the outstanding balance, interest rate, and any other relevant details that the investor needs to know before purchasing the mortgage. This certificate protects the investor by ensuring that they have accurate and up-to-date information about the mortgage before making a decision to invest in it.Rate this question:
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- 10.
An owner who seeks a mortgage loan and offers three properties as security will give
- A.
A blanket mortgage
- B.
An FHA mortgage
- C.
A conventional mortgage
- D.
A chattel mortgage
Correct Answer
A. A blanket mortgageExplanation
A blanket mortgage is the correct answer because it allows the owner to use multiple properties as collateral for the loan. This type of mortgage is beneficial for owners who own multiple properties and want to use them to secure a loan, rather than offering just one property as collateral. With a blanket mortgage, the lender has a claim on all the properties listed as security, providing more flexibility for the owner.Rate this question:
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- 11.
A clause in a mortgage or accompanying note that permits the creditor to declare the entire principle balance due upon certain default of the debtor is
- A.
An acceleration clause
- B.
An escalation clause
- C.
A forfeiture clause
- D.
An excelerator clause
Correct Answer
A. An acceleration clauseExplanation
An acceleration clause is a provision in a mortgage or accompanying note that allows the lender to demand immediate repayment of the entire outstanding loan balance if the borrower defaults on certain conditions. This clause gives the lender the right to accelerate the repayment schedule and enforce the full repayment of the loan. It is commonly used in mortgage agreements to protect the lender's interests and ensure prompt repayment in case of default by the borrower.Rate this question:
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- 12.
Which of the following statement is (are) false
- A.
VA loans are insured loans
- B.
FHA loans are guaranteed loans
- C.
Both A and B
- D.
None of the above
Correct Answer
C. Both A and BExplanation
Both statement A and B are false. VA loans are not insured loans, they are guaranteed by the Department of Veterans Affairs. On the other hand, FHA loans are not guaranteed loans, they are insured by the Federal Housing Administration. Therefore, neither statement A nor statement B is true.Rate this question:
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- 13.
A second mortgage is
- A.
A lien on real estate that has a prior mortgage on it
- B.
The first mortgage recorded
- C.
Always made by the seller
- D.
Smaller in amount than a first mortgage
Correct Answer
A. A lien on real estate that has a prior mortgage on itExplanation
A second mortgage is a type of lien that is placed on a property that already has a prior mortgage. This means that the property has already been used as collateral for a first mortgage loan. The second mortgage is subordinate to the first mortgage, meaning that if the property were to be sold, the first mortgage would be paid off before the second mortgage. Second mortgages are typically smaller in amount compared to first mortgages and are not always made by the seller, but can be obtained by the homeowner from a lender.Rate this question:
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- 14.
Fannie Mae Is
- A.
An originator of mortgage loans
- B.
A purchaser of mortgage loans
- C.
An agency of the Federal Housing Administartion
- D.
A branch of the Federal Reserve
Correct Answer
B. A purchaser of mortgage loansExplanation
Fannie Mae is a government-sponsored enterprise that operates in the secondary mortgage market. It does not originate mortgage loans or act as a branch of the Federal Reserve. Instead, Fannie Mae purchases mortgage loans from lenders, providing them with liquidity to continue offering mortgages to borrowers. This helps to stimulate the housing market and ensure that lenders have funds available to issue new loans.Rate this question:
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- 15.
A large final payment on a mortgage loan is
- A.
An escalator
- B.
A balloon
- C.
An amortization
- D.
A package
Correct Answer
B. A balloonExplanation
A large final payment on a mortgage loan is commonly referred to as a balloon payment. This type of payment is typically much larger than the regular monthly payments made throughout the loan term. It is called a balloon payment because it "inflates" the total amount owed on the loan, similar to a balloon expanding in size. This type of payment structure is often used in certain types of mortgages, such as balloon mortgages, where the borrower makes smaller monthly payments for a set period of time and then pays off the remaining balance in one lump sum at the end.Rate this question:
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- 16.
A requirement for a borrower under an FHA-insured loan is that he
- A.
Not be eligible for a VA or conventional loan
- B.
Have cash for the down payment and closing costs
- C.
Have his wife sign as coborrower
- D.
Certify that he is receiving welfare payments
Correct Answer
B. Have cash for the down payment and closing costsExplanation
The requirement for a borrower under an FHA-insured loan is to have cash for the down payment and closing costs. This means that the borrower must have the necessary funds to cover the initial payment and any additional costs associated with the loan. This is an important requirement as it ensures that the borrower has the financial means to fulfill their obligations and demonstrates their commitment to the loan. It also helps to mitigate the risk for the lender by providing a financial buffer for the borrower.Rate this question:
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- 17.
A mortgaged property can be
- A.
Sold without the consent of the mortgagee
- B.
Conveyed by the grantors making a deed to the grantee
- C.
Both A and B
- D.
None
Correct Answer
C. Both A and BExplanation
Both A and B are correct because a mortgaged property can be sold without the consent of the mortgagee and can also be conveyed by the grantors making a deed to the grantee. When a property is mortgaged, the mortgagee holds a lien on the property as security for the loan. However, this does not prevent the mortgagor (property owner) from selling the property or transferring ownership through a deed. The mortgagee's consent is not required in these situations.Rate this question:
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- 18.
In the absence of an agreement to the contrary, the mortgage normally having priority will be the one
- A.
For the greatest amount
- B.
That is a permanent mortgage
- C.
That was recorded first
- D.
That is a construction loan mortgage
Correct Answer
C. That was recorded firstExplanation
The correct answer is "That was recorded first." In the absence of an agreement stating otherwise, the mortgage that was recorded first will typically have priority over other mortgages. This means that in case of foreclosure or other legal actions, the first recorded mortgage will be paid off before any subsequent mortgages.Rate this question:
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- 19.
The seller would have the least financing exposure in
- A.
New financing by buyer
- B.
Purchase money mortage
- C.
Assumption of loan by buyer
- D.
Purchase "subject to" mortgage
Correct Answer
A. New financing by buyerExplanation
The seller would have the least financing exposure in new financing by the buyer. This means that the buyer would secure their own financing for the purchase, reducing the seller's risk and exposure to potential financial issues. In this scenario, the buyer would be responsible for obtaining a loan or financing to complete the purchase, rather than relying on the seller for financing options. This reduces the seller's involvement and potential financial liability in the transaction.Rate this question:
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- 20.
The mortgage’s right to reestablish ownership after delinquency is known as
- A.
Reestablishment
- B.
Satisfication
- C.
Equity of redemption
- D.
Acceleration
Correct Answer
C. Equity of redemptionExplanation
Equity of redemption refers to the right of a mortgagor to reclaim ownership of a property even after defaulting on mortgage payments. It allows the borrower to repay the outstanding debt and any additional costs within a specified period, typically before the foreclosure process is complete. Reestablishment, satisfaction, and acceleration are not relevant terms in this context.Rate this question:
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- 21.
A first-time buyer's down payment source may be
- A.
Savings
- B.
A gift from a relative
- C.
A personal loan
- D.
Any of the above
Correct Answer
D. Any of the aboveExplanation
The correct answer is "any of the above" because a first-time buyer's down payment source can come from savings, a gift from a relative, or a personal loan. There are no restrictions on where the down payment can come from, as long as the buyer is able to secure the necessary funds for the down payment.Rate this question:
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- 22.
The money for making FHA loans is provided by
- A.
Qualified lending institutions
- B.
The Department of Housing and Urban Development
- C.
The Federal Housing Administration
- D.
The Federal Saving and Loans Insurance Corporation
Correct Answer
A. Qualified lending institutionsExplanation
Qualified lending institutions provide the money for making FHA loans. This means that banks, credit unions, and other financial institutions that meet certain criteria are responsible for providing the funds for these loans. The Department of Housing and Urban Development (HUD) oversees the FHA loan program, but they do not directly provide the funds. The Federal Housing Administration (FHA) is a government agency that insures the loans, but they do not provide the funds either. The Federal Saving and Loans Insurance Corporation is not involved in providing funds for FHA loans.Rate this question:
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- 23.
Amortization is best defined as
- A.
Liquidation of a debt
- B.
Depreciation of a tangible asset
- C.
Winging up a business
- D.
Payment of interest
Correct Answer
A. Liquidation of a debtExplanation
Amortization refers to the process of gradually paying off a debt over a specific period of time. It involves making regular payments that include both the principal amount borrowed and the interest accrued. The term "liquidation" in the context of debt refers to the complete repayment and elimination of the debt. Therefore, the correct answer, "Liquidation of a debt," accurately defines amortization as the gradual repayment and eventual elimination of a debt.Rate this question:
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- 24.
A mortgage is usually releseaded of record by a
- A.
Real estate
- B.
Mobile home
- C.
Both A and B
- D.
Neither
Correct Answer
C. Both A and BExplanation
A mortgage is usually released of record by both real estate and mobile home. In real estate transactions, a mortgage is released of record when the loan has been paid off or satisfied. Similarly, in mobile home transactions, a mortgage is also released of record when the loan has been fully paid. Therefore, both real estate and mobile home can release a mortgage of record.Rate this question:
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- 25.
A seller took 10% down in cash and provided 90% of the sale price as a first mortgage. The best way to describe the mortgage is
- A.
Home equity loan
- B.
Fixed interest rate
- C.
Purchase-money mortgage
- D.
Buyer financing
Correct Answer
C. Purchase-money mortgageExplanation
A purchase-money mortgage is the best way to describe the mortgage in this scenario. This type of mortgage is when the seller provides financing to the buyer to help them purchase the property. In this case, the seller took 10% down in cash and provided the remaining 90% as a first mortgage. This arrangement is commonly referred to as a purchase-money mortgage because the seller is essentially lending the buyer the money to purchase the property.Rate this question:
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- 26.
In an amortization mortgage, the
- A.
Principal is reduced periodically along with the payment of interest for that period
- B.
Principal is paid at the end of the term
- C.
Lenders have greater security than in an unamortizing mortgage
- D.
Loan to value ratio does not exceed 30%
Correct Answer
A. Principal is reduced periodically along with the payment of interest for that periodExplanation
In an amortization mortgage, the principal is reduced periodically along with the payment of interest for that period. This means that with each mortgage payment, a portion goes towards paying off the principal balance of the loan, while the remaining portion goes towards paying the interest. Over time, as more payments are made, the principal balance decreases, leading to a gradual reduction in the overall debt owed. This payment structure provides greater security for lenders compared to an unamortizing mortgage, where the principal is paid in a lump sum at the end of the term. Additionally, the loan to value ratio does not exceed 30%, indicating that the mortgage amount is limited to 30% or less of the property's appraised value.Rate this question:
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- 27.
A term mortgage is characterized by
- A.
Level payment towards principal
- B.
Interest only payments until maturity
- C.
Variable payments
- D.
Fixed payments including both principal and interest
Correct Answer
B. Interest only payments until maturityExplanation
A term mortgage is characterized by interest only payments until maturity. This means that the borrower is only required to pay the interest on the loan amount for a specified period of time, typically until the loan reaches its maturity date. During this period, the borrower does not make any payments towards the principal amount borrowed. Once the loan matures, the borrower is then required to make fixed payments that include both the principal and interest until the loan is fully repaid.Rate this question:
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- 28.
The most important function of the FHA is to
- A.
Make loans
- B.
Insure loans
- C.
Purchase loans
- D.
Sell loans
Correct Answer
B. Insure loansExplanation
The Federal Housing Administration (FHA) primarily functions to insure loans. This means that the FHA provides mortgage insurance to lenders, reducing their risk in case the borrower defaults on the loan. By insuring loans, the FHA encourages lenders to offer mortgages to individuals who may not qualify for conventional loans, such as those with lower credit scores or smaller down payments. This helps promote homeownership and provides stability to the housing market.Rate this question:
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- 29.
Which of the following participate(s) in the secondary loan market?
- A.
Fannie Mae
- B.
Freddie Mac
- C.
Ginnie Mae
- D.
All of the above
Correct Answer
D. All of the aboveExplanation
Fannie Mae, Freddie Mac, and Ginnie Mae all participate in the secondary loan market. The secondary loan market is where mortgage loans are bought and sold after they have been originated by lenders. Fannie Mae and Freddie Mac are government-sponsored enterprises that buy mortgages from lenders, providing liquidity to the market. Ginnie Mae, on the other hand, guarantees mortgage-backed securities issued by approved lenders, which also helps to provide liquidity in the secondary market. Therefore, all three entities participate in the secondary loan market.Rate this question:
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- 30.
Mortgage bankers
- A.
Are subjected to regulations of the Federal Reserved System
- B.
Are regulated by federal, not state, corporation laws
- C.
Act as secondary lenders
- D.
Earn fees paid by new borrowers and lenders
Correct Answer
D. Earn fees paid by new borrowers and lendersExplanation
Mortgage bankers earn fees paid by new borrowers and lenders. This means that they receive compensation for their services from both the individuals taking out the mortgage and the lenders providing the funds. This is a common practice in the mortgage industry, where bankers act as intermediaries between borrowers and lenders. They facilitate the loan process and earn fees for their services, which can include origination fees, processing fees, and other charges. This revenue model allows mortgage bankers to generate income while providing a valuable service to both borrowers and lenders.Rate this question:
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- 31.
Private mortgage insurance protects the
- A.
Buyer's heirs
- B.
Lender
- C.
Buyer's income
- D.
Investment value
Correct Answer
B. LenderExplanation
Private mortgage insurance protects the lender. When a borrower takes out a mortgage loan and makes a down payment of less than 20% of the home's value, the lender may require them to have private mortgage insurance. This insurance is designed to protect the lender in case the borrower defaults on the loan. It provides coverage to the lender, reimbursing them for a portion of the outstanding loan balance if the borrower is unable to make their mortgage payments. This insurance does not protect the buyer's heirs, buyer's income, or investment value.Rate this question:
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- 32.
The sellers of realty takes, as partial payment, a mortgage called
- A.
Sales financing
- B.
Note toting
- C.
Primary mortgage
- D.
Purchase money mortgage
Correct Answer
D. Purchase money mortgageExplanation
A purchase money mortgage refers to a type of mortgage that is taken by the seller of real estate as partial payment for the property. It is a form of financing where the seller provides a loan to the buyer in order to facilitate the purchase. This type of mortgage is often used when the buyer does not have enough funds to purchase the property outright and needs assistance from the seller. The seller holds a lien on the property until the loan is fully repaid by the buyer.Rate this question:
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- 33.
P&I in real estate finance stands for
- A.
Property and investments
- B.
Property of inventory
- C.
Principle and interest
- D.
Principle and inventory
Correct Answer
C. Principle and interestExplanation
P&I in real estate finance stands for principle and interest. This refers to the monthly mortgage payment that includes both the repayment of the loan amount (principle) and the interest charged by the lender. It is a common term used in real estate financing to indicate the total amount that needs to be paid each month towards the mortgage.Rate this question:
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- 34.
A state in which a borrow retains title to the real property pledged as security for a debt is a
- A.
Lien theory state
- B.
Title theory state
- C.
Ceeditor state
- D.
Community property state
Correct Answer
A. Lien theory stateExplanation
A lien theory state is a state in which a borrower retains title to the real property pledged as security for a debt. In this type of state, the lender holds a lien on the property, which gives them the right to foreclose if the borrower defaults on the loan. This means that the borrower still has ownership of the property, but the lender has a legal claim on it until the debt is fully repaid. This is different from a title theory state where the lender holds the title to the property until the loan is paid off.Rate this question:
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- 35.
A state in which a mortgage conveys title to the lender is known as
- A.
Lien theory state
- B.
Title theory state
- C.
Conveyance state
- D.
Community property state
Correct Answer
B. Title theory stateExplanation
In a title theory state, a mortgage conveys title to the lender. This means that the lender holds the legal title to the property until the mortgage is fully paid off. The borrower, on the other hand, holds the equitable title and has the right to possess and use the property. This is different from a lien theory state, where the mortgage is seen as a lien on the property rather than a transfer of title. In a lien theory state, the borrower retains both legal and equitable title to the property.Rate this question:
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- 36.
A clause in a mortgage that limits the owner's liability to the property is
- A.
Recourse
- B.
Subordination
- C.
Assumption
- D.
Exculpatory
Correct Answer
D. ExculpatoryExplanation
An exculpatory clause in a mortgage is a provision that limits the liability of the owner to the property. This means that if the owner defaults on the mortgage, their personal assets cannot be used to satisfy the debt. Instead, the lender's only recourse is to take possession of the property itself. This clause provides protection for the owner by preventing them from being held personally responsible for the debt.Rate this question:
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- 37.
A biweekly mortgage requires
- A.
Monthly payments to increase by predetermined steps each year
- B.
Payments every two weeks
- C.
That the lender share profits from resale
- D.
None of the above
Correct Answer
B. Payments every two weeksExplanation
A biweekly mortgage requires payments to be made every two weeks instead of the traditional monthly payments. This payment frequency allows for a total of 26 payments in a year, which is equivalent to making 13 monthly payments instead of the usual 12. By making more frequent payments, the borrower can pay off the mortgage faster and save on interest over the life of the loan.Rate this question:
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- 38.
The use of reverse annuity mortgages
- A.
Is widespread because of inflation
- B.
Helps elderly people who are house rich but cash poor
- C.
Is losing importance with inflation
- D.
None of the above
Correct Answer
B. Helps elderly people who are house rich but cash poorExplanation
Reverse annuity mortgages are widely used because they provide a solution for elderly individuals who own valuable homes but have limited cash flow. These mortgages allow them to convert a portion of their home equity into regular payments, providing them with much-needed income to cover their expenses. This option is particularly beneficial for elderly individuals who may not have other sources of income or savings and are struggling to meet their financial needs.Rate this question:
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- 39.
The seller has agreed to pay two points to the lending institution to help the buyers obtain a mortgage loan. The house was listed for $320,000 and is being sold for $300,000. The buyers will pay 20% in cash and borrow the rest. How much will the seller owe to the lender points?
- A.
$6,400
- B.
$4,800
- C.
$5,120
- D.
$6,000
Correct Answer
B. $4,800Explanation
The seller has agreed to pay two points to the lending institution. Points are typically calculated as a percentage of the loan amount. In this case, the buyers are borrowing 80% of the purchase price, which is $240,000 ($300,000 x 0.8). Two points on a $240,000 loan would amount to $4,800 ($240,000 x 0.02). Therefore, the seller will owe $4,800 to the lender in points.Rate this question:
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- 40.
The Federal Housing Administration’s role in financing the purchase of real proptrerty is to
- A.
Act as the lender of funds
- B.
I sure loans made by approved lenders
- C.
Purchase specific trust deeds
- D.
Do all of the above
Correct Answer
B. I sure loans made by approved lendersExplanation
The correct answer is "I sure loans made by approved lenders." The Federal Housing Administration (FHA) provides mortgage insurance on loans made by approved lenders. This insurance protects the lenders against losses if the borrowers default on their loans. By insuring these loans, the FHA encourages lenders to offer more favorable terms to borrowers who may not qualify for conventional financing. This helps to increase homeownership opportunities for individuals who may have limited financial resources or lower credit scores.Rate this question:
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- 41.
The instrument used to remove the lien of a trust deed form record is called a
- A.
Satisfaction lien
- B.
Release deed
- C.
Deed of conveyance
- D.
Certificate of redemption
Correct Answer
B. Release deedExplanation
A release deed is the instrument used to remove the lien of a trust deed from record. This document is typically executed by the lender or trustee once the loan has been fully paid off or satisfied. It serves as proof that the lien has been released and allows the property owner to have a clear title.Rate this question:
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- 42.
Thyme or mortgage loan that permits borrowing additional funds at a later date is called
- A.
An equitable mortgage
- B.
A junior mortgage
- C.
An open end mortgage
- D.
An extensible mortgage
Correct Answer
C. An open end mortgageExplanation
An open end mortgage is a type of mortgage loan that allows borrowers to borrow additional funds at a later date. This means that the borrower can access more money as needed without having to go through the process of applying for a new loan. This flexibility can be beneficial for borrowers who may need additional funds for home improvements, emergencies, or other expenses.Rate this question:
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- 43.
Which of the following is an advantage of a biweekly mortgage payment plan?
- A.
The borrower pays less per month in return for a longer term.
- B.
It is equivakent to 12 monthly payments each year.
- C.
There are lower interest rates.
- D.
The loan is paid off sooner than it would be with 12 monthly payments
Correct Answer
D. The loan is paid off sooner than it would be with 12 monthly paymentsExplanation
The advantage of a biweekly mortgage payment plan is that the loan is paid off sooner than it would be with 12 monthly payments. This is because biweekly payments result in 26 payments per year, which is equivalent to making 13 monthly payments. By making more frequent payments, the borrower is able to reduce the principal balance of the loan faster, leading to an earlier payoff date.Rate this question:
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- 44.
A loan to be completely repaid, principal and interest, by a series of regular, equal installment payment is a
- A.
Straight loan
- B.
Balloon payment loan
- C.
Fully amortized loan
- D.
Variable rate mortgage loan
Correct Answer
C. Fully amortized loanExplanation
A loan to be completely repaid, principal and interest, by a series of regular, equal installment payments is known as a fully amortized loan. In this type of loan, the borrower makes consistent payments over the loan term, which includes both the principal amount borrowed and the interest charged. By the end of the loan term, the entire loan amount is paid off. This is in contrast to other types of loans such as balloon payment loans, where a large final payment is required at the end of the loan term.Rate this question:
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- 45.
The instrument used to secure a loan on personal property is called a
- A.
Bill of sale
- B.
Trust deed
- C.
Chattel mortgage
- D.
Bill of exchange
Correct Answer
C. Chattel mortgageExplanation
A chattel mortgage is a type of loan agreement that uses personal property as collateral. It allows the borrower to obtain financing while still retaining possession of the property. In the event of default, the lender has the right to seize and sell the property to recover the loan amount. This makes chattel mortgage an effective instrument for securing a loan on personal property. A bill of sale is a document used to transfer ownership of personal property, but it does not secure a loan. A trust deed is used to secure a loan on real estate, and a bill of exchange is a type of negotiable instrument used in international trade.Rate this question:
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- 46.
Lender A has a first mortgage but allows Lender B's loan to have priority. This is an example of
- A.
Home equity swap
- B.
Upside-down loan
- C.
Subordination
- D.
Deficiency judgment
Correct Answer
C. SubordinationExplanation
Subordination refers to the act of allowing one loan to take priority over another, even though the first loan has a higher claim to the collateral. In this scenario, Lender A, who holds the first mortgage, agrees to subordinate their loan to Lender B's loan, giving Lender B priority. This means that in case of default, Lender B would be paid first from the proceeds of the sale of the collateral. This arrangement is known as subordination.Rate this question:
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- 47.
A secur d real property loan usually consists of
- A.
Financing statement and trust deed
- B.
The debt (note) and the lien (deed of trust)
- C.
FHA or PMI insurance
- D.
Security agreement and financing statement
Correct Answer
B. The debt (note) and the lien (deed of trust)Explanation
A secured real property loan typically involves two key components: the debt (note) and the lien (deed of trust). The debt refers to the amount of money borrowed by the borrower, which is usually documented in a promissory note. The lien, on the other hand, is a legal claim on the property that serves as collateral for the loan. It is created through a deed of trust, which gives the lender the right to foreclose on the property in case the borrower fails to repay the debt. This combination of the debt and the lien provides the lender with the necessary security in the event of default.Rate this question:
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- 48.
The function of the Federal Housing Administration (FHA) is to
- A.
Lend money
- B.
Insure loans
- C.
Guarantee loans
- D.
Buy loans
Correct Answer
B. Insure loansExplanation
The Federal Housing Administration (FHA) is responsible for insuring loans. This means that if a borrower defaults on their loan, the FHA will reimburse the lender for their losses. By insuring loans, the FHA helps to mitigate the risk for lenders, making it easier for individuals to obtain mortgages and promoting homeownership.Rate this question:
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- 49.
When a loan is fully amortized by equal monthly payments of principal and interest, the amount applied to principal
- A.
Remains constant
- B.
Decreases while the interest payment increases
- C.
Increases while the interest payment decreases
- D.
Increases by a constant amount
Correct Answer
C. Increases while the interest payment decreasesExplanation
When a loan is fully amortized by equal monthly payments of principal and interest, the amount applied to principal increases while the interest payment decreases. This is because as the loan is paid off over time, the outstanding principal balance decreases. As a result, a larger portion of each monthly payment is applied to the principal, while the portion allocated to interest decreases. This allows the borrower to gradually pay down the loan balance and reduce the overall interest paid over the life of the loan.Rate this question:
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- 50.
The buyer who agrees to pa an existing loan but does not take personal responsibility
- A.
Assumes the loan
- B.
Takes the priority subject to the loan
- C.
Subordinates the loan
- D.
Forecloses on the loan
Correct Answer
B. Takes the priority subject to the loanExplanation
When a buyer agrees to pay an existing loan but does not take personal responsibility, they are taking the priority subject to the loan. This means that although they are assuming the loan and taking over the payments, they are not personally liable for the debt. The loan remains the primary obligation of the original borrower, but the buyer takes priority in terms of ownership rights and can potentially foreclose on the property if the loan is not repaid.Rate this question:
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