Real Estate Investing FREE Real Estate Investing Real Estate Financing Strategies Questions and Answers 2 — Questions and Answers
Question 1: Which financing strategy allows an investor to assume the seller's existing mortgage terms instead of obtaining a new loan?
- Subject-to financing (Correct answer)
- Hard money lending
- Seller carryback
- Blanket mortgage
Correct answer: Subject-to financing
Subject-to financing involves taking over the seller's existing mortgage payments while the loan remains in the seller's name.
Question 2: What is the primary advantage of using a DSCR loan for investment property financing?
- Qualification is based on property cash flow rather than personal income (Correct answer)
- It requires no down payment
- Interest rates are always below conventional loans
- It eliminates the need for property appraisal
Correct answer: Qualification is based on property cash flow rather than personal income
DSCR loans qualify borrowers based on the property's debt service coverage ratio, making personal income documentation unnecessary.
Question 3: In a wraparound mortgage, what happens to the original underlying loan?
- It remains in place while the new loan wraps around it at a higher amount (Correct answer)
- It is paid off immediately at closing
- It is transferred to the new buyer's name
- It is converted into a home equity line of credit
Correct answer: It remains in place while the new loan wraps around it at a higher amount
A wraparound mortgage keeps the original loan in place while creating a new, larger loan that encompasses it, with the seller collecting the difference.
Question 4: What is the typical loan-to-value ratio range that most hard money lenders offer on investment properties?
- 60% to 75% (Correct answer)
- 90% to 100%
- 80% to 95%
- 50% to 55%
Correct answer: 60% to 75%
Hard money lenders typically offer 60% to 75% LTV to protect their investment since these loans carry higher risk and shorter terms.
Question 5: Which federal program allows investors to use tax-advantaged financing in designated low-income census tracts?
- Opportunity Zone funds (Correct answer)
- 1031 exchange
- FHA 203(k) loans
- USDA rural development loans
Correct answer: Opportunity Zone funds
Opportunity Zone funds provide capital gains tax benefits for investments made in designated low-income census tracts established by the 2017 Tax Cuts and Jobs Act.
Question 6: What is the main risk of using a balloon payment mortgage to finance an investment property?
- The entire remaining balance becomes due on a specific date, creating refinance risk (Correct answer)
- Monthly payments increase each year by a fixed percentage
- The interest rate resets daily based on market conditions
- The lender can demand additional collateral at any time
Correct answer: The entire remaining balance becomes due on a specific date, creating refinance risk
Balloon mortgages require the full remaining balance to be paid on a set date, which creates significant risk if the borrower cannot refinance or sell by that time.
Real Estate Investing FREE Real Estate Investing Real Estate Financing Strategies Questions and Answers 2
Which financing strategy allows an investor to assume the seller's existing mortgage terms instead of obtaining a new loan?