Real Estate Finance Practice Test

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.

When a borrower is required to maintain an escrow account with the lending institution, the money in the account is set aside to cover expenses related to the property. This includes paying property taxes or insurance. The purpose of the escrow account is to ensure that these expenses are paid on time and in full, reducing the risk for both the borrower and the lender. The money in the account is not used for other purposes such as paying utility bills or life insurance.

The lien with the first claim on the real estate is the one that was recorded first. This means that it was officially documented and registered with the appropriate authorities before any other liens. Recording a lien first gives it priority over other liens, ensuring that it has the first right to the property's assets in case of foreclosure or sale.

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.

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.

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.

Most investors' principal motivation is making a profit. This is because investing involves putting money into assets or ventures with the expectation of receiving a return or profit in the future. Investors aim to generate income and grow their wealth through various investment opportunities such as stocks, bonds, real estate, or businesses. While some investors may have other goals or motivations, such as housing the needy or increasing prestige, the primary objective for most investors is to make a profit from their investments.

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.

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.

An adjustable-rate mortgage is the correct answer because it states that the rate of the mortgage may change every six months based on the fluctuations in the rate of Treasury bills. This means that the interest rate on the mortgage is not fixed and can go up or down, making it adjustable. The other options do not specifically mention the potential for rate changes based on Treasury bills, making them incorrect choices.

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.

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.

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.

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.

Leverage refers to the practice of using borrowed money to finance an investment purchase. It allows individuals or businesses to amplify their potential returns by using other people's money to make investments. By leveraging, investors can increase their purchasing power and potentially generate higher profits. However, it also comes with increased risk, as any losses incurred will also be magnified.

The homeowner, after failing to make payments on his trust deed for two consecutive months, has received a notice of default from the lender. In this situation, the homeowner has the option to request reinstatement, which means they can make arrangements with the lender to bring their loan current and avoid foreclosure. This allows the homeowner to catch up on missed payments and continue with their mortgage as usual.

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.

A conventional first mortgage loan is typically described as a loan from a mortgage banker that covers 80% of the total loan amount. This means that the borrower is responsible for providing a 20% down payment. Conventional loans are not insured or guaranteed by the government, unlike FHA loans and VA loans. FHA loans are backed by the Federal Housing Administration and allow borrowers to secure a loan with a down payment as low as 3.5%. VA loans are offered to veterans and are guaranteed by the Department of Veterans Affairs, allowing eligible borrowers to obtain a loan with no down payment. A contract to deed is a different type of financing arrangement and does not fall under the category of conventional first mortgage loans.

Commercial real estate is known for its illiquidity, large size, and lack of portability, which makes it less accessible and harder to convert into cash compared to marketable securities. Due to these factors, investors expect commercial real estate to provide a higher return than marketable securities, which are more liquid and easier to trade.

A life insurance company is the least likely source of originating a home mortgage because their primary business is providing life insurance policies, not mortgage lending. Mortgage bankers, commercial banks, and savings and loan associations are all commonly involved in the mortgage industry and have a focus on providing mortgage loans to individuals and businesses. However, life insurance companies typically do not specialize in mortgage lending and are more focused on providing life insurance coverage and related financial products.

A package mortgage is the correct answer because it allows the person to finance both the house and the furniture through a single mortgage loan. This type of mortgage is designed to cover not only the purchase of the property but also any additional costs such as furniture or appliances. It offers convenience and simplicity by combining all the financing into one package, making it easier for the person to manage their payments and expenses.

After paying off a mortgage loan, the property owner should be sure to record the "satisfaction of mortgage" instrument. This document serves as proof that the mortgage has been fully paid and the lien on the property has been released. It is important to record this instrument to ensure that the property owner has clear title to the property and to avoid any future disputes or confusion regarding the mortgage status.

The Federal Emergency Management Agency (FEMA) is not involved in buying mortgage loans. FEMA is a government agency that focuses on disaster response and recovery, providing assistance to individuals and communities affected by natural disasters. On the other hand, Fannie Mae and Freddie Mac are government-sponsored enterprises that buy mortgage loans from lenders, while commercial banks also engage in mortgage lending and may buy and sell mortgage loans as part of their business operations.

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.

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.

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.

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.

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.

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.

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.

An easement is not a lien. A lien is a legal claim or right on a property as security for a debt or obligation. A mortgage loan, mechanic's lien, and judgment are all examples of liens because they involve a debtor owing a debt to a creditor and the creditor having a claim on the debtor's property. However, an easement is a right to use someone else's property for a specific purpose, such as a right of way or access, but it does not involve a debt or obligation.

Private mortgage insurance (PMI) is a type of insurance that protects the lender in case the borrower defaults on their mortgage payments. It is typically required when the borrower has a down payment of less than 20% of the home's purchase price. PMI allows borrowers to obtain a mortgage with a lower down payment, but it adds an additional cost to the monthly mortgage payment. Therefore, the correct answer is "Private mortgage insurance."

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.

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.

A loan from the seller to the buyer is called a purchase money mortgage. This type of loan is used when the seller provides financing to the buyer to help facilitate the purchase of the property. The seller essentially acts as the lender, and the buyer makes regular payments to the seller until the loan is fully repaid. This type of arrangement is common in real estate transactions, particularly when the buyer is unable to secure traditional financing from a bank or other financial institution.

A loan that is approved quickly and has a low down payment usually has higher costs and interest rates. This is because lenders take on more risk when approving loans quickly and with a low down payment. To compensate for this increased risk, they charge higher costs and interest rates. This helps protect the lender in case the borrower defaults on the loan.

An acceleration clause is a provision in a deed of trust that states that the full principal amount of the loan becomes due immediately if the borrower defaults on certain conditions. This means that if the borrower fails to make their payments or violates any other terms of the loan agreement, the lender has the right to demand full repayment of the loan. This clause helps protect the lender's interests and allows them to take prompt action in case of default.

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.

After a mortgage is paid off, most lenders are expected to send a recorded satisfaction piece. This is a legal document that serves as proof that the mortgage has been fully paid and satisfied. It is typically recorded with the county or local land records office to ensure that the lien on the property is released. This document is important for the borrower as it provides evidence that the mortgage has been paid off and the lender no longer has any claim on the property.

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."

An open end mortgage is the correct answer because it allows the borrower to borrow additional funds in the future without needing to obtain a new loan. In this case, Ira received $200,000 immediately and can borrow the remaining $100,000 balance in installments, indicating that the loan has the flexibility to be extended. This type of mortgage is beneficial for borrowers who may need additional funds later on and eliminates the need for them to go through the loan application process again.

A blanket mortgage is a type of mortgage loan that includes two or more mortgage priorities. It allows the borrower to use one property as collateral for multiple loans. This type of mortgage is commonly used in real estate investments where the borrower wants to finance multiple properties with a single loan. With a blanket mortgage, the lender has a claim on all the properties included in the loan, providing them with a level of security.

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.

In a foreclosure sale, the unpaid liens on a house, including property taxes, mechanic's lien, and first mortgage, need to be settled. The correct answer is taxes. Property taxes are typically considered a priority lien and are paid first in the foreclosure process. This is because property taxes are owed to the government and failure to pay them can lead to serious consequences, such as the government seizing and auctioning off the property to recover the unpaid taxes. Therefore, settling the outstanding property taxes is the first step in resolving the unpaid liens.

In order to secure a loan in some states, the borrower transfers the title of the property to a disinterested third party for safekeeping. This third party, known as the trustee, holds the title until the loan is fully paid off. The document required for this situation is a deed of trust. This document serves as a security instrument and provides the lender with the right to foreclose on the property if the borrower fails to repay the loan. Unlike a mortgage, which involves a two-party agreement between the borrower and the lender, a deed of trust involves a third party trustee for added security.

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.

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.

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.

In a fixed-rate fully amortized loan, the monthly principle and interest payment remains constant throughout the duration of the loan. This means that the borrower will pay the same amount every month towards both the principle (the original amount borrowed) and the interest (the cost of borrowing). The interest paid, principle paid, and remaining principle balance will vary from month to month as the loan is paid off, but the monthly payment amount will stay the same.

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.

The borrower of a mortgage is referred to as the mortgagor. The mortgagor is the individual or entity that obtains the loan from a lender and agrees to repay the borrowed amount plus interest over a set period of time. In a mortgage agreement, the mortgagor pledges their property as collateral for the loan. This means that if the mortgagor fails to make the required payments, the lender has the right to foreclose on the property and sell it to recover the outstanding debt.

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.

The VA (Veterans Administration) is not active in the secondary mortgage market. The VA primarily focuses on providing mortgage assistance to eligible veterans and their families. Unlike FNMA (Fannie Mae), GNMA (Ginnie Mae), and FHLMC (Freddie Mac), which are government-sponsored enterprises that actively participate in the secondary mortgage market by purchasing and guaranteeing mortgage-backed securities, the VA does not engage in these activities.

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.

Low interest rates cause housing to be more affordable because when interest rates are low, the cost of borrowing money decreases. This means that individuals can secure mortgages at lower interest rates, resulting in lower monthly mortgage payments. As a result, housing becomes more affordable for potential buyers, as they can afford to purchase homes with lower monthly payments.

Equity value does not affect the interest rate adjustment in an adjustable-rate mortgage loan. The interest rate adjustment in an adjustable-rate mortgage loan is typically based on the index, margin, and cap. The index is a benchmark interest rate that the adjustable rate is tied to, the margin is an additional percentage added to the index, and the cap is the maximum limit on how much the interest rate can increase or decrease. Equity value, which represents the homeowner's ownership interest in the property, does not directly impact the interest rate adjustment.

A home equity loan is secured because it is backed by the borrower's home as collateral. This means that if the borrower fails to repay the loan, the lender has the right to seize the property to recover their money. Secured loans typically have lower interest rates compared to unsecured loans because the collateral reduces the risk for the lender.

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.

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.

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.

A package mortgage is a loan that is secured by both real property (such as a house) and personal property (such as furniture or appliances). This means that if the borrower defaults on the loan, the lender has the right to take possession of both the real property and the personal property to recover the debt. This type of mortgage provides additional security for the lender, as they have multiple assets to use as collateral.

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.

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.

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.

When a property is foreclosed and sold for nonpayment of the mortgage loan, there may be a remaining balance on the loan that is not covered by the sale. In such cases, the bank can go to court to collect this shortfall, which is known as a deficiency judgment. This allows the bank to pursue the borrower for the remaining amount owed on the loan, even after the property has been sold. Therefore, the correct answer is deficiency judgment.

A subordinate clause in a trust deed that gives priority to liens subsequently recorded against the property means that if any new liens are recorded against the property after the trust deed, those liens will take priority over the trust deed. This means that if the property is sold or foreclosed upon, the liens recorded after the trust deed will be paid off first before the trust deed is paid off. This can affect the rights and interests of the trustor and any other parties involved in the trust deed.

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.

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.

A VA loan amount is based on the Certificate of Reasonable Value. This certificate is issued by the Department of Veterans Affairs and determines the maximum amount that can be borrowed for a VA loan. It is based on an appraisal of the property being purchased, ensuring that the loan amount does not exceed the value of the property. This helps protect both the borrower and the lender by ensuring that the loan is not too high for the property's worth.

A mortgage is a legal agreement where a borrower pledges their property as collateral for a debt. This means that if the borrower fails to repay the loan, the lender has the right to take possession of the property and sell it to recover the debt. The definition does not include a promise to repay the loan or personal liability in case of delinquency, as those aspects are separate from the concept of a mortgage.

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.

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.

The mortgagor is not obligated to advise the mortgage of a change in the escrow account balance. This responsibility typically falls on the mortgagee or lender, as they are the ones managing the escrow account. The mortgagor, on the other hand, is obligated to maintain the property, keep hazard insurance in force, and get permission for alterations. These obligations ensure that the property is well-maintained and protected, which benefits both the mortgagor and the mortgagee.

Buying real property "subject to the mortgage" means that the buyer is taking ownership of the property but is not assuming any personal responsibility for paying the mortgage loan. The buyer is not liable for the mortgage payments and if they default on the loan, the lender cannot pursue them personally for the outstanding debt. However, the lender still has the right to foreclose on the property if the mortgage payments are not made.

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.

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.

High loans to value ratio loans generally are accompanied by FHA insurance, VA insurance, or PMI. This is because loans with a high loans to value ratio (meaning the loan amount is high compared to the value of the property) are considered riskier for lenders. To mitigate this risk, lenders often require borrowers to obtain insurance, such as FHA insurance, VA insurance, or private mortgage insurance (PMI). These insurance policies protect the lender in case the borrower defaults on the loan. Therefore, any of the options listed (FHA insurance, VA insurance, or PMI) could be the correct answer.

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.

The secondary mortgage market engages in the sale of first mortgages. This means that once a borrower obtains a mortgage from a lender, the lender has the option to sell that mortgage to another investor in the secondary market. This allows the lender to free up funds to originate new loans, while the investor in the secondary market earns interest on the mortgage. This practice helps to increase liquidity in the mortgage market and provides more opportunities for borrowers to obtain financing.

When the buyer pays the cost with a lump sum check and the seller delivers the deed, the arrangement is referred to as "closing". Closing is the final step in a real estate transaction where the buyer pays the remaining balance of the purchase price and the seller transfers the property title to the buyer. It typically involves the signing of various legal documents, including the deed, and the exchange of funds.

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.

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.

Discount points on a conventional loan are an upfront fee that buyers can choose to pay to lower the interest rate on their mortgage. By paying discount points, the buyer essentially "buys down" the interest rate, which in turn increases the effective interest rate that the lender receives on the loan. This means that the lender will receive a higher interest payment over the life of the loan, making it a beneficial option for the lender. Therefore, the statement "Points increase the effective interest rate the lender receives on the loan" is true.

When the seller takes back a mortgage from the buyer as part payment for the sale, it is referred to as a purchase-money mortgage. This means that the seller provides financing to the buyer and retains legal title to the property until the debt is fully paid. In this arrangement, the buyer is not able to place a second mortgage on the property.

In a fully amortized loan, the payment toward principal increases as the loan is amortized because with each payment, a larger portion goes towards reducing the principal balance. The payment towards interest decreases as the loan is amortized because as the principal balance decreases, the interest charged on the remaining balance also decreases. The principle and interest payment remains constant throughout the loan term, as it is calculated to ensure that the loan is fully paid off by the end of the term. Therefore, all of the above statements are correct.

Out of the options provided, the loan that is unlikely to be provided as a second mortgage is a ** Mechanic's lien**. Here's why:

Construction loans: These are specifically designed for financing the construction of a new property and can be used as second mortgages if there is enough equity in the existing property.

Home equity loans: These are secured by the existing equity in your home and are commonly used as second mortgages.

Wraparound mortgages: These combine an existing first mortgage with a new loan, allowing the borrower to obtain additional funds. They can be used as second mortgages in some situations.

Mechanic's lien: This is not a true loan, but rather a legal claim placed against a property due to unpaid work or materials related to its improvement. While it can create a secondary financial burden, it doesn't function as a loan and cannot be directly replaced or refinanced with another mortgage.

Therefore, while all other options have scenarios where they can be used as second mortgages, a mechanic's lien is primarily a legal claim and not a loan product.

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.

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.

Rental income received is a cash inflow and therefore it appears on the cash flow statement. The cash flow statement shows the cash generated and used by a company during a specific period of time, including cash inflows from operating activities such as rental income. The balance sheet, on the other hand, shows the financial position of a company at a specific point in time and does not include specific details about cash inflows. Therefore, the correct answer is cash flow statement.

When property is sold "subject to" a mortgage, the seller remains primarily responsible for repayment. This means that even though the property is being transferred to a new owner, the seller is still obligated to repay the mortgage. The buyer assumes the ownership of the property, but they are not responsible for repaying the mortgage. The lender is also not primarily responsible for repayment in this situation.

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.

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.

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.

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.