Arizona Real Estate License Financing and Valuation Principles 2 — Questions and Answers
Question 1: A borrower obtains a loan where the interest rate can adjust periodically based on an index. What type of mortgage is this?
- Fixed-rate mortgage
- Adjustable-rate mortgage (ARM) (Correct answer)
- Balloon mortgage
- Wraparound mortgage
Correct answer: Adjustable-rate mortgage (ARM)
An ARM has an interest rate tied to an index that adjusts at set intervals.
Question 2: In an appraisal, the principle that a property's value tends to equal the cost of acquiring an equally desirable substitute is called:
- Principle of substitution (Correct answer)
- Principle of conformity
- Principle of anticipation
- Principle of contribution
Correct answer: Principle of substitution
The principle of substitution holds that a buyer will pay no more than the cost of an equally desirable alternative.
Question 3: Which loan program is insured by the Federal Housing Administration?
- VA loan
- Conventional loan
- FHA loan (Correct answer)
- USDA guaranteed loan
Correct answer: FHA loan
FHA loans are insured by the Federal Housing Administration, allowing lower down payments.
Question 4: A property generates $24,000 in annual net operating income and sold for $300,000. What is the capitalization rate?
- 6%
- 8% (Correct answer)
- 10%
- 12%
Correct answer: 8%
Cap rate = NOI / value = $24,000 / $300,000 = 8%.
Question 5: Which clause allows a lender to demand full repayment if the borrower sells the property?
- Acceleration clause
- Due-on-sale clause (Correct answer)
- Defeasance clause
- Subordination clause
Correct answer: Due-on-sale clause
A due-on-sale (alienation) clause lets the lender call the loan due upon transfer of title.
Question 6: The appraisal approach most appropriate for valuing a newly built special-purpose building like a school is the:
- Sales comparison approach
- Income approach
- Cost approach (Correct answer)
- Gross rent multiplier approach
Correct answer: Cost approach
The cost approach is best for unique or special-purpose properties with few comparable sales.
Question 7: Points paid to a lender to lower the interest rate are also known as:
- Origination fees
- Discount points (Correct answer)
- PMI premiums
- Escrow reserves
Correct answer: Discount points
Discount points are prepaid interest that buy down the loan's interest rate.
Arizona Real Estate License Financing and Valuation Principles 2
A borrower obtains a loan where the interest rate can adjust periodically based on an index.
What type of mortgage is this?