A VA loan may be granted for the purchase of a one-family to four-family property if:
A) The veteran certifies the rent collected will equal the mortgage payments.
B) The loan will be amortized for not more than 20 years.
C) The down payment will be at least 10%.
D) The veteran agrees to live there.
answer
The correct answer is "D - The veteran agrees to live there. " Although the rules and terms can fluctuate, the low down payment and below market interest features of VA loans come with the condition that the borrower live in the property.
question
Which of the following would usually occur in a sale-and-leaseback transaction?
A) The seller gets a return on the purchase in the form of rental payments.
B) The property is sold on the condition that the new owner lease it back to the seller at the time title passes.
C) The buyer keeps capital in inventories rather than in realty.
D) The rent that the seller pays is not income-tax deductible.
answer
The correct answer is "B - The property is sold on the condition that the new owner lease it back to the seller at the time title passes. " A sale-leaseback is usually used for the purpose of creating cash flow from a commercial property. As the name implies, the owner transfers title to the buyer in exchange for cash, then leases the property back at a monthly rate while continuing to run his business from that location or otherwise use the property.
question
A standardized yardstick expressing the true annual cost of borrowing is expressed as the what?
A) ECOA
B) Regulation Z
C) APR
D) RESPA
answer
The correct answer is "C - APR " APR stands for "Annual Percentage Rate" and expresses the true cost of the loan by factoring fees such as points, recording fees, appraisal fees and such into the interest rate. For example, a mortgage that showed an interest rate of 4.85% on the promissory note might have an APR of 5% when associated costs are factored in.
question
RESPA would prohibit which of the following acts?
A) steering
B) paying of kickbacks
C) blockbusting
D) redlining
answer
The correct answer is "B - paying of kickbacks " RESPA concerns itself only with educating consumers about the true costs of borrowing and standardizing lending practices. As such, referral "fees" are prohibited.
question
In most states, by paying the debt after a foreclosure sale, the mortgagor has the right to regain the property. What is this right called?
A) equitable right of redemption
B) owner's right of redemption
C) vendee's right of redemption
D) statutory right of redemption
answer
The correct answer is "D - statutory right of redemption " This right of redemption is called "statutory" because it is legally mandated by law, as opposed to a custom lenders could follow or not at their option.
question
The lender is required, under RESPA, to provide a detailed "GOOD FAITH ESTIMATE" statement at the time of loan application or within three business days to:
A) the buyer.
B) the seller.
C) the buyer and seller.
D) neither the buyer nor the seller.
answer
The correct answer is "A - the buyer. " The "good faith" part of this requirement is the key element to consumers. By standardizing the forms and disclosures used by lenders, borrowers are no longer surprised by substantial and hidden costs at the time of closing.
question
In which of the following markets may a lender sell a loan that a mortgage banker has previously originated?
A) primary market
B) secondary market
C) mortgage market
D) consumer market
answer
The correct answer is "B - secondary market " Many homeowners are surprised the first time they receive a letter from a lender they've never heard of informing them that they now hold the mortgage on their home and that future payments should be sent to them. This secondary market is where lenders buy and sell mortgages to balance their portfolios according to market conditions and their internal needs and objectives. It should be noted that the terms of mortgages bought and sold cannot be changed by the new note holders.
question
Which of the following is considered a conventional loan?
A) FHA insured
B) VA guaranteed
C) commercial bank's ARM loan
D) contract for deed
answer
The correct answer is "C - commercial bank's ARM loan " Once considered a form of creative financing, ARMs are now standard, conventional loans. Options A and B are part of various government programs to help low and moderate income families as well as veterans find affordable home financing.
question
Under an FHA graduated payment mortgage, which of the following fluctuates over the term of the loan?
A) interest rate
B) monthly payments
C) finance charge
D) annual rate
answer
The correct answer is "B - monthly payments " Graduated payment mortgages are aimed particularly at young families who expect to see their earnings rise over the next five to ten years. As such, payments for interest and principal are less than the actual costs in the early years and gradually rise to make up the difference.
question
The maximum permissible "loan to value ratios" are:
A) based on sale price or appraised value, whichever is lower.
B) not determined by federal statute in the case of FHA loans.
C) based on the banker's competitive market analysis.
D) fixed by law for conventional loans.
answer
The correct answer is "A - based on sale price or appraised value, whichever is lower. " Although various banks, mortgage companies and programs have different LTVs, the lower, more conservative number is used.
question
All of the following are true of conventional loans except what?
A) They are made to the buyer without governmental insurance or guarantee.
B) The policy requirements of the lenders are not uniform.
C) The requirements to qualify are uniformly fixed by state law.
D) They require a higher down payment than non-conventional loans.
answer
The correct answer is "C - The requirements to qualify are uniformly fixed by state law. " Not only are guidelines not uniform, qualification standards can vary enormously from lender to lender. There are no state-mandated qualifying requirements for conventional loans.
question
A buyer wants to take out an FHA loan. The broker should refer the buyer directly to:
A) any approved lending institution such as a bank or savings and loan association.
B) an FHA appraiser in the area.
C) the Federal Housing Administration Office.
D) the Federal National Mortgage Association.
answer
The correct answer is "A - any approved lending institution such as a bank or savings and loan association. " Lenders must be approved by the Federal Housing Authority before they can offer FHA loans. Part of the approval process includes waiving fees customarily charged on conventional mortgages.
question
An owner advertised "beautiful acreage; only $5,000 down; owner will personally finance down payment." Would this be in violation of the Truth in Lending Act?
A) Yes. Acreage is not exempt from Reg Z.
B) Yes--since a down payment was stated.
C) No. Owners are not covered by Reg. Z.
D) No. Brokers can advertise the down payment.
answer
The correct answer is "C - No. Owners are not covered by Reg. Z. " Regulation Z requires disclosure of all financing terms and conditions if a low interest rate, downpayment or other enticement is featured in an ad. This does not apply in this case, however, because Regulation Z applies only to institutions, not individuals selling their own property.
question
A mortgage company makes a number of loans to be assembled into one package and sold to permanent investors. This process is an example of interim financing to the mortgage company and is called:
A) blanket financing.
B) package financing.
C) warehousing.
D) discounting.
answer
The correct answer is "C - warehousing. " Warehousing refers to the process whereby banks and other lenders make mortgage loans to consumers for the purpose of quickly selling those loans on the secondary market. The "warehousing" occurs when individual loans are bundled, often with a common element such as the size of the mortgage or credit worthiness of the borrowers, and sold as a single unit.
question
The primary purpose of Truth in Lending is to:
A) Control interest rates on behalf of the consumer.
B) Control the true costs to close a transaction.
C) Disclose the true costs of only an FHA loan.
D) Disclose the true costs of obtaining credit.
answer
The correct answer is "D - Disclose the true costs of obtaining credit. " Truth in Lending, otherwise known as Regulation Z, is intended to do away with deceptive financing tactics, especially those involving hidden costs--for example, advertising a $250 car lease as zero-down and then tacking a $1,200 upfront payment at the time of contract disguised as an "incidental" acquisition fee.
question
Why is the RESPA closing statement allowed to be examined on or before closing?
A) to allow the buyer to see costs at or before closing to see if he/she can get the loan at a cheaper price
B) to make sure the title insurance came from the right company
C) to check for mathematical errors
D) to provide for special fees to specific parties for business related to the real estate transaction
answer
The correct answer is "C - to check for mathematical errors " This is not a step that should be dismissed. With the increased volume in home mortgages, the fact is a significant amount of closing statements do contain errors and it's easer and better to correct them before closing than after.
question
If a single parent is applying for a real estate loan, when would the fact have to be revealed that part of the parent's income is from child support?
A) when applying for a VA or FHA loan if the parent's income is less than $25,000
B) If more than 50% of the parent's income is from non-wage sources
C) If the parent was relying on the income for repayment of the loan
D) This type of income never needs to be disclosed. It would be a violation of ECOA.
answer
The correct answer is "C - If the parent was relying on the income for repayment of the loan " Income of any type--whether alimony, child support, freelance work or a second job--only needs to be disclosed if the applicant is relying on it to qualify for the loan.
question
When the lender under a deed of trust requires title insurance, who would be the most likely person to pay for it?
A) the mortgagee
B) the trustee
C) the trustor
D) the beneficiary
answer
The correct answer is "C - the trustor " "Trustor" is another name for the borrower and "trustee" is a "supposedly" neutral third party who holds naked legal title, the right to foreclose at the instructions of the beneficiary for non-payment of a promissory note. The beneficiary is the lender in a Deed of Trust. Even though it's the lender who requires the insurance to protect his/her position, it's the borrower who pays for it.
question
The Pickets are purchasing a home for $78,000 and the lender is giving them a 90% loan at 10% interest, plus a 2% loan origination fee. How much is the loan origination fee?
A) $1,404
B) $1,560
C) $1,650
D) $7,020
answer
The correct answer is "A - $1,404 " A loan for 90% of the $78,000 purchase price results in a $70,200 mortgage. Since the origination fee is based on the amount of the mortgage, not the price of the home, the fee is 2% of $70,200 or $1,404.
question
Discrimination is prohibited in lending practices under:
A) ECOA
B) RESPA
C) Truth in Lending Act
D) FNMA
answer
The correct answer is "A - ECOA " Passed in 1992, the Equal Credit Opportunity Act prohibits a broad spectrum of discriminatory lending practices, including the granting or denial of credit or the costs associated with borrowing based on race, gender, marital status, source of income (e.g., public assistance) and other factors.
question
A buyer assumes the mortgage. How is the owner relieved of the liability?
A) subject to mortgage
B) novation
C) substitution
D) graduation
answer
The correct answer is "B - novation " Essentially, novation means to substitute a new contract for an old one; thus the holder of the original is relieved of his or her responsibilities.
question
Which type of loan will result in the largest reduction of the principal balance most quickly?
A) 10% over 30 years
B) 11% over 20 years
C) 13% over 15 years
D) 14% over 20 years
answer
The correct answer is "C - 13% over 15 years " The shorter the term of a loan, the more quickly principal is paid down and the faster equity builds. A 15-year loan at 13% interest rate would provide the LARGEST and FASTEST reduction in the principal. Interestingly, the payments on a 15-year loan are often not that much higher than the same loan with a 30-year payback. However, there are other considerations and options borrowers should understand.
question
Who is the largest purchaser in the secondary market?
A) Ginnie Mae
B) Fannie Mae
C) FHA
D) Freddie Mac
answer
The correct answer is "B - Fannie Mae " Fannie Mae stands for the Federal National Mortgage Association (FNMA). It was established by the National Housing Act specifically to start the secondary mortgage market, thus attracting more investors and funds to help support home ownership.
question
Which transaction requires a securities license?
A) leasing a commercial building
B) selling a commercial warehouse
C) selling shares in Fannie Mae
D) arranging a sale-leaseback on a commercial property
answer
The correct answer is "C - selling shares in Fannie Mae " Even though Fannie Mae is a mortgage-based business, its shares sell just like any other stock and only people with a securities license may offer them for sale.
question
Who is NOT an originator of primary loans?
A) savings and loans
B) credit unions
C) commercial banks
D) FHA
answer
The correct answer is "D - FHA " The FHA encourages lenders to make these low-interest, low-down payment loans by insuring them against default. It does not actually lend money itself.
question
A buyer wanted to use a promissory note for consideration on the purchase of a property. Can he do this?
A) Yes. The buyer can do as he wishes since he is making the contract.
B) Yes. This is acceptable as long as the seller agrees.
C) No. Only money can be used for consideration.
D) No. Only the seller can write a promissory note.
answer
The correct answer is "B - Yes. This is acceptable as long as the seller agrees. " This is a form of owner financing and is perfectly acceptable, so long as both parties agree to the terms and conditions.
question
If advertised alone, which would be in violation of TRUTH IN LENDING?
A) "FHA financing available"
B) "assumable loan"
C) "No down payment required."
D) "easy financing terms"
answer
The correct answer is "C - "No down payment required." " "No down payment required" triggers the Truth in Lending disclosures because it is a specific statement about only one aspect of the financing. "Easy terms" does not trigger the regulation because it's non-specific.
question
Why would a mortgagee (beneficiary) have an appraisal on the property?
A) to make sure the buyer did not pay too much
B) to determine the value of the property
C) to protect the buyer from fraud
D) to assure the property value is sufficient to cover the loan
answer
The correct answer is "D - to assure the property value is sufficient to cover the loan " Appraisals are third-party valuations of a property based on a wide range of variables. Lenders generally insist on this independent assessment to make sure the value of the property is at least sufficient to pay off the loan amount in case of default.
question
In a repayment of a mortgage loan, which type of interest is used?
A) simple
B) discount
C) compound
D) floating
answer
The correct answer is "A - simple " Compound interest is associated with savings accounts and reflects the fact that money left on deposit earns interest on the interest it has already earned. "Floating" and "discount" are terms associated with the bank-to-bank transactions and financial markets.
question
An owner was selling his own home. Can he advertise the down payment?
A) No, because it violates RESPA.
B) No, because it violates Regulation Z.
C) Yes--as long as it was listed with a broker.
D) Yes, because it was his own home.
answer
The correct answer is "D - Yes, because it was his own home. " Broadly speaking, an individual homeowner is free to sell his/her own home as he/she chooses and is not subject to Truth in Lending or real estate practice restrictions.
question
Which is true about restrictive covenants?
A) They are placed by private parties in a deed.
B) They are placed by government agencies in a deed.
C) They are voidable by successive owners.
D) They are placed by government agencies in the public record.
answer
The correct answer is "A - They are placed by private parties in a deed. " Restrictive covenants are most commonly associated with subdivisions and community management associations and are intended to maintain consistency within the neighborhood. While viewed as a benefit by most, they do limit the owner's use of the property and are binding on future owners.
question
Looking at shopping centers in the appraisal process, the social fiber of the community and distances from schools is called:
A) neighborhood analysis
B) market data approach
C) site analysis
D) social analysis
answer
The correct answer is "A - neighborhood analysis " This involves more than just driving around. It is a formal process of identifying, measuring and analyzing the influences that help determine a neighborhood's vitality and desirability.
question
Which best describes why a buyer purchases a home using the market data approach?
A) Buyers buy on impulse.
B) Buyers buy based on how much income can be derived from other property.
C) Buyers buy after they compare the house with others.
D) Buyers buy based on current construction costs.
answer
The correct answer is "C - Buyers buy after they compare the house with others. " While emotion and impulse are certainly strong motivators, a home is also a considered purchase. What most people seek, within their affordability range, is value more than price. The only way to determine which home combines the elements of price, features, quality, condition, location and other factors that give a particular buyer the best value for his or her needs is to compare as many properties as possible.
question
A scale drawing shows a room to be 3 inches by 4-1/2 inches. Carpet, which is $15 per square yard, is to be installed in the room. If the scale is 1 inch to 4 feet, how much would it cost to install the carpet?
A) $120
B) $202
C) $360
D) $3,240
answer
The correct answer is "C - $360 " At a scale of 4' to the inch, the room measures 12' x 18' or 216 square feet. Since there are nine square feet to one square yard, the room will require twenty-four square yards of carpet at $15 per yard.
question
A tenant leased 3000 square feet at $10 per square foot and 8% of gross income. The total annual rent she paid was $60,000. What was the gross income on which she paid percentage rent?
A) $120,000
B) $160,000
C) $300,000
D) $375,000
answer
The correct answer is "D - $375,000 " At $10 per square foot, the tenant's base rent is $30,000. Since the total rent was $60,000, that means the remaining $30,000 was due to the gross sales percentage. Since that figure is 8%, simply divide $30,000 by .08 to arrive at $375,000.
question
The Rose family owns a home in a semi-rural area, which is about five years old. Recently announced plans for a new regional airport will place their home directly in line with a main runway ending 1 mile before their home. If the airport is constructed, will this diminish the value of the Rose Home?
A) Yes, because of functional obsolescence.
B) Yes, because of economic obsolescence
C) No, because value would increase due to the location close to the airport.
D) No, because noise from aircraft passing overhead is not recognized as affecting property values.
answer
The correct answer is "B - Yes, because of economic obsolescence " Economic obsolescence occurs when factors unrelated to the property itself and outside of the owner's control diminish its value. A quick way to judge whether or not a property has become economically obsolete is to analyze whether, under the new circumstances, the location would still be chosen as a home site and, if yes, at what value compared with the current property.
question
Mrs. Jones, an appraiser, is appraising a single family residence for which she has located six closely comparable properties, all sold within the past six months. The subject property is rented for $500 per month. It is a custom-built home, approximately three years old. Mrs. Jones would probably give the most weight in her final estimate of value to which of the following appraisal methods?
A) cost approach
B) market data approach
C) income approach
D) gross rent multiplier
answer
The correct answer is "B - market data approach " Market data would be used because it is the most reliable indicator of a home's true value. Since it is a single family residence rather than a multi-unit investment property, the fact that it is rented, as well as the amount of rent, is irrelevant to the calculations.
question
Which is the best example of functional obsolescence?
A) residential home built next to a factory
B) peeling paint
C) steep, narrow stairway in a 1 3/4 story home
D) residential home with central air conditioning
answer
The correct answer is "C - steep, narrow stairway in a 1 3/4 story home " "Functional obsolescence" typically shows itself in one of two forms: first, in poor initial design, as in this case; second, when the features and design of the home have become outdated compared with competing properties.
question
A real estate agent should tell the buyer, his customer, which of the following?
A) how long a property has been on the market
B) the seller's motivation for marketing his property
C) a pending or recent zoning change
D) The seller is getting a divorce.
answer
The correct answer is "C - a pending or recent zoning change " A zoning change is a "material fact"--something that can have a direct impact on the property's value or desirability. For example, if the zoning in a middle class neighborhood on the edge of a growing city was changed from residential to mixed use, it means that a number of homes could be turned into businesses, which will make the property less desirable to people seeking a quiet place to raise a family.
question
A square is 1/8 of a mile by 1/8 of a mile. How many acres is this?
A) 10 acres.
B) 20 acres.
C) 40 acres.
D) 160 acres.
answer
The correct answer is "A - 10 acres. " One-eighth of a mile square is the same as 10 acres. Multiply 1/8 X 1/8 = 1/64 divided into 640 acres = 10 acres
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