Real Estate Finance Practice Test Questions and Answers 2023, Exams of Real Estate Management

Download Real Estate Finance Practice Test Questions and Answers 2023 and more Exams Real Estate Management in PDF only on Docsity! Real Estate Finance Practice Test Questions and Answers 2023 • 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 o A. Opposite o B. Accelerate o C. Reverse o D. Deficit Correct Answer C. Reverse Explanation 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: • 2. A conventional mortgage isa o A. Amortizing o B. Guaranteed by the FHA o C. Not guaranteed by any government agency o D. Approved by the VA Correct Answer C. Not guaranteed by any government agency Explanation 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: • 3. A chattel mortgage is usually given in connection with o A. Realty o B. Farms o C. • 6. Discount points in FHA and VA loans are generally paid by the o A. Lender o B. Purchaser o C. Seller o D. Broker Correct Answer C. Seller Explanation 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: • 7. The main appeal of VA mortgages to borrowers lies in o A. Low interest rates o B. Minimum down payment o C. An unlimited mortgage ceiling o D. Easy availability Correct Answer B. Minimum down payment Explanation 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: • 8. When a loan is assumed on property that is sold o A. The original borrower is relieved of further responsibility o B. The purchaser becomes liable for the debt o C. The purchaser must obtain a certificate of eligibility o D. All of the above Correct Answer B. The purchaser becomes liable for the debt Explanation 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: • 9. An estopple certificate is required when the o A. Mortgage is sold to an investor o B. Property is sold o C. Property is being foreclosed o D. Mortgage is assumed Correct Answer A. Mortgage is sold to an investor Explanation 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: Correct Answer C. Both A and B Explanation 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: • 13. A second mortgage is o A. A lien on real estate that has a prior mortgage on it o B. The first mortgage recorded o C. Always made by the seller o D. Smaller in amount than a first mortgage Correct Answer A. A lien on real estate that has a prior mortgage on it Explanation 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: • 14. Fannie Mae Is o A. An originator of mortgage loans o B. A purchaser of mortgage loans o C. An agency of the Federal Housing Administartion o D. A branch of the Federal Reserve Correct Answer B. A purchaser of mortgage loans Explanation 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: • 15. A large final payment on a mortgage loan is o A. An escalator o B. A balloon o C. An amortization o D. A package Correct Answer B. A balloon Explanation 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: • 16. A requirement for a borrower under an FHA-insured loan is that he o A. Not be eligible for a VA or conventional loan o B. Have cash for the down payment and closing costs o C. Have his wife sign as coborrower o D. New financing by buyer o B. Purchase money mortage o C. Assumption of loan by buyer o D. Purchase "subject to" mortgage Correct Answer A. New financing by buyer Explanation 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: • 20. The mortgage’s right to reestablish ownership after delinquency is known as o A. Reestablishment o B. Satisfication o C. Equity of redemption o D. Acceleration Correct Answer C. Equity of redemption Explanation 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: • 21. A first-time buyer's down payment source may be o A. Savings o B. A gift from a relative o C. A personal loan o D. Any of the above Correct Answer D. Any of the above Explanation 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: • 22. The money for making FHA loans is provided by o A. Qualified lending institutions o B. The Department of Housing and Urban Development o C. The Federal Housing Administration o D. The Federal Saving and Loans Insurance Corporation Correct Answer A. Qualified lending institutions Explanation 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: • 23. Amortization is best defined as 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: • 26. In an amortization mortgage, the o A. Principal is reduced periodically along with the payment of interest for that period o B. Principal is paid at the end of the term o C. Lenders have greater security than in an unamortizing mortgage o D. Loan to value ratio does not exceed 30% Correct Answer A. Principal is reduced periodically along with the payment of interest for that period Explanation 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: • 27. A term mortgage is characterized by o A. Level payment towards principal o B. Interest only payments until maturity o C. Variable payments o D. Fixed payments including both principal and interest Correct Answer B. Interest only payments until maturity Explanation 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: • 28. The most important function of the FHA is to o A. Make loans o B. Insure loans o C. Purchase loans o D. Sell loans Correct Answer B. Insure loans Explanation 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: • 29. Which of the following participate(s) in the secondary loan market? o A. Fannie Mae o B. Freddie Mac o C. Ginnie Mae Rate this question: • 32. The sellers of realty takes, as partial payment, a mortgage called o A. Sales financing o B. Note toting o C. Primary mortgage o D. Purchase money mortgage Correct Answer D. Purchase money mortgage Explanation 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: • 33. P&I in real estate finance stands for o A. Property and investments o B. Property of inventory o C. Principle and interest o D. Principle and inventory Correct Answer C. Principle and interest Explanation 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: • 34. A state in which a borrow retains title to the real property pledged as security for a debt is a o A. Lien theory state o B. Title theory state o C. Ceeditor state o D. Community property state Correct Answer A. Lien theory state Explanation 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: • 35. A state in which a mortgage conveys title to the lender is known as o A. Lien theory state o B. Title theory state o C. Conveyance state o D. Community property state Correct Answer B. Title theory state Explanation 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. Correct Answer B. Helps elderly people who are house rich but cash poor Explanation 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: • 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? o A. $6,400 o B. $4,800 o C. $5,120 o D. $6,000 Correct Answer B. $4,800 Explanation 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: • 40. The Federal Housing Administration’s role in financing the purchase of real proptrerty is to o A. Act as the lender of funds o B. I sure loans made by approved lenders o C. Purchase specific trust deeds o D. Do all of the above Correct Answer B. I sure loans made by approved lenders Explanation 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: • 41. The instrument used to remove the lien of a trust deed form record is called a o A. Satisfaction lien o B. Release deed o C. Deed of conveyance o D. Certificate of redemption Correct Answer B. Release deed Explanation 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: • 42. Thyme or mortgage loan that permits borrowing additional funds at a later date is called o A. An equitable mortgage o B. A junior mortgage o C. Rate this question: • 45. The instrument used to secure a loan on personal property is called a o A. Bill of sale o B. Trust deed o C. Chattel mortgage o D. Bill of exchange Correct Answer C. Chattel mortgage Explanation 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: • 46. Lender A has a first mortgage but allows Lender B's loan to have priority. This is an example of o A. Home equity swap o B. Upside-down loan o C. Subordination o D. Deficiency judgment Correct Answer C. Subordination Explanation 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: • 47. A secur d real property loan usually consists of o A. Financing statement and trust deed o B. The debt (note) and the lien (deed of trust) o C. FHA or PMI insurance o 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: • 48. The function of the Federal Housing Administration (FHA) is to o A. Lend money o B. Insure loans o C. Guarantee loans o D. Buy loans Correct Answer B. Insure loans Explanation 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