Real Estate Investing Real Estate Investing Real Estate Financing Methods Questions and Answers 2 β Questions and Answers
Question 1: Which financing method allows a buyer to assume the seller's existing mortgage terms instead of obtaining a new loan?
- Subject-to financing (Correct answer)
- Hard money loan
- Bridge loan
- Mezzanine financing
Correct answer: Subject-to financing
Subject-to financing lets a buyer take over the seller's existing mortgage while the loan remains in the seller's name.
Question 2: What is the primary advantage of seller financing for a real estate investor?
- Bypassing traditional lender qualification requirements (Correct answer)
- Eliminating the need for a down payment entirely
- Avoiding all closing costs
- Guaranteeing a lower interest rate than banks offer
Correct answer: Bypassing traditional lender qualification requirements
Seller financing allows buyers who may not qualify for conventional loans to negotiate terms directly with the property owner.
Question 3: In a blanket mortgage, what clause allows a borrower to sell individual parcels without triggering full loan repayment?
- Partial release clause (Correct answer)
- Due-on-sale clause
- Acceleration clause
- Defeasance clause
Correct answer: Partial release clause
A partial release clause permits the borrower to free individual properties from the blanket lien as portions of the debt are repaid.
Question 4: What distinguishes mezzanine financing from a traditional second mortgage in commercial real estate?
- Mezzanine debt is secured by an ownership interest in the borrowing entity rather than the property itself (Correct answer)
- Mezzanine loans always carry lower interest rates
- Mezzanine financing requires no collateral of any kind
- Mezzanine debt must be repaid before the senior loan
Correct answer: Mezzanine debt is secured by an ownership interest in the borrowing entity rather than the property itself
Mezzanine financing is secured by a pledge of the borrower's equity interest in the entity that owns the property, not by a lien on the real estate.
Question 5: Which government-backed loan program is specifically designed for purchasing properties with up to four units where the buyer occupies one unit?
- FHA loan (Correct answer)
- SBA 504 loan
- USDA business loan
- HUD 221(d)(4) loan
Correct answer: FHA loan
FHA loans allow owner-occupants to purchase properties with one to four units with low down payments and flexible qualification criteria.
Question 6: What is the typical loan-to-value ratio range that hard money lenders offer on investment properties?
- 60% to 75% (Correct answer)
- 90% to 100%
- 80% to 95%
- 50% or less
Correct answer: 60% to 75%
Hard money lenders typically lend between 60% and 75% of a property's value to protect their investment given the higher risk profile.
Real Estate Investing Real Estate Investing Real Estate Financing Methods Questions and Answers 2
Which financing method allows a buyer to assume the seller's existing mortgage terms instead of obtaining a new loan?