Arizona Real Estate License FREE Arizona Real Estate License Financing and Valuation Principles Questions and Answers 2 — Questions and Answers
Question 1: In Arizona, what does the loan-to-value (LTV) ratio represent?
- The ratio of the loan amount to the appraised value of the property (Correct answer)
- The ratio of the down payment to the purchase price
- The ratio of monthly income to monthly mortgage payment
- The ratio of total debt to total assets
Correct answer: The ratio of the loan amount to the appraised value of the property
The LTV ratio compares the mortgage loan amount to the appraised value or purchase price of the property, whichever is lower.
Question 2: Which appraisal approach estimates value by calculating the cost to rebuild the structure minus depreciation plus land value?
- Sales comparison approach
- Income capitalization approach
- Cost approach (Correct answer)
- Gross rent multiplier approach
Correct answer: Cost approach
The cost approach estimates value by adding the land value to the current cost of constructing the improvements, then subtracting accrued depreciation.
Question 3: A borrower obtains an adjustable-rate mortgage (ARM) in Arizona; what component sets the baseline for rate adjustments?
- The discount rate
- The index (Correct answer)
- The margin
- The cap
Correct answer: The index
The index is a published benchmark interest rate, such as the Treasury rate, that serves as the baseline for calculating ARM rate adjustments.
Question 4: What is the primary purpose of a deed of trust in Arizona real estate financing?
- To transfer ownership from seller to buyer
- To serve as the security instrument that pledges the property as collateral for the loan (Correct answer)
- To establish the interest rate and repayment terms
- To record the property boundaries and legal description
Correct answer: To serve as the security instrument that pledges the property as collateral for the loan
In Arizona, a deed of trust is the security instrument that pledges the property as collateral, involving a borrower, lender, and neutral trustee.
Question 5: When using the income capitalization approach, how is the value of an investment property determined?
- By comparing recent sales of similar properties
- By dividing the net operating income by the capitalization rate (Correct answer)
- By multiplying the gross rent by a standard factor
- By subtracting depreciation from the replacement cost
Correct answer: By dividing the net operating income by the capitalization rate
The income capitalization approach divides the property's net operating income (NOI) by an appropriate capitalization rate to estimate market value.
Question 6: Under Arizona law, what is the typical redemption period after a judicial foreclosure sale?
- 30 days
- 6 months (Correct answer)
- 1 year
- No redemption period exists
Correct answer: 6 months
Arizona generally allows a six-month statutory redemption period after a judicial foreclosure, during which the borrower may reclaim the property by paying the full amount owed.
Arizona Real Estate License FREE Arizona Real Estate License Financing and Valuation Principles Questions and Answers 2
In Arizona, what does the loan-to-value (LTV) ratio represent?