CMC Real Estate Finance 2 — Questions and Answers
Question 1: A borrower has a gross monthly income of $8,000 and total monthly debt payments of $2,400. What is their debt-to-income ratio?
- 20%
- 25%
- 30% (Correct answer)
- 35%
Correct answer: 30%
DTI is calculated by dividing total monthly debt ($2,400) by gross monthly income ($8,000), which equals 30%.
Question 2: Which type of mortgage allows the borrower to pay only interest for an initial period before principal and interest payments begin?
- Balloon mortgage
- Interest-only mortgage (Correct answer)
- Graduated payment mortgage
- Reverse mortgage
Correct answer: Interest-only mortgage
An interest-only mortgage requires the borrower to pay only interest for a set period, after which payments increase to include principal.
Question 3: What is the primary purpose of a title search in a real estate transaction?
- To determine the property's market value
- To verify the seller has clear ownership and no liens (Correct answer)
- To inspect the physical condition of the property
- To assess the neighborhood's flood risk
Correct answer: To verify the seller has clear ownership and no liens
A title search examines public records to confirm the seller has legal ownership and identifies any existing liens or encumbrances.
Question 4: Under RESPA, within how many business days must a lender provide a Loan Estimate to a mortgage applicant?
- 1 business day
- 3 business days (Correct answer)
- 5 business days
- 7 business days
Correct answer: 3 business days
RESPA requires lenders to deliver a Loan Estimate within three business days of receiving a completed loan application.
Question 5: What does the term 'seasoning' refer to in the context of mortgage lending?
- The interest rate adjustment period on an ARM
- The length of time assets or credit history have been established (Correct answer)
- The process of converting rental income to qualifying income
- The period between rate lock and loan closing
Correct answer: The length of time assets or credit history have been established
Seasoning refers to the length of time a borrower has held an asset, account, or credit tradeline, which lenders use to assess stability.
Question 6: A property is purchased for $300,000 with a 10% down payment. What is the loan-to-value ratio at origination?
- 10%
- 80%
- 90% (Correct answer)
- 95%
Correct answer: 90%
LTV is the loan amount ($270,000) divided by the property value ($300,000), resulting in a 90% LTV.
Question 7: Which federal law requires lenders to disclose the Annual Percentage Rate (APR) to borrowers?
- RESPA
- ECOA
- TILA (Correct answer)
- HMDA
Correct answer: TILA
The Truth in Lending Act (TILA) requires lenders to disclose the APR and other key loan terms to borrowers.
CMC Real Estate Finance 2
A borrower has a gross monthly income of $8,000 and total monthly debt payments of $2,400.
What is their debt-to-income ratio?