Real Estate License Financing 2 — Questions and Answers
Question 1: Which clause in a mortgage allows the 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 when the property is transferred.
Question 2: What does PITI stand for in a monthly mortgage payment?
- Principal, Interest, Taxes, Insurance (Correct answer)
- Payment, Interest, Term, Income
- Principal, Income, Title, Insurance
- Premium, Interest, Taxes, Interest
Correct answer: Principal, Interest, Taxes, Insurance
PITI is the sum of principal, interest, property taxes, and homeowner's insurance.
Question 3: A loan that requires a large lump-sum payment at the end of the term is called a:
- Amortized loan
- Balloon loan (Correct answer)
- Adjustable-rate loan
- Wraparound loan
Correct answer: Balloon loan
A balloon loan has small periodic payments with a large final balloon payment.
Question 4: The federal law requiring lenders to disclose the true cost of credit, including APR, is:
- RESPA
- ECOA
- Truth in Lending Act (Regulation Z) (Correct answer)
- Fair Housing Act
Correct answer: Truth in Lending Act (Regulation Z)
The Truth in Lending Act, implemented by Regulation Z, mandates APR and finance-charge disclosure.
Question 5: In a buydown, what is reduced for the borrower?
- The principal balance
- The interest rate (Correct answer)
- The loan term
- The property taxes
Correct answer: The interest rate
A buydown pays points upfront to lower the borrower's interest rate, often temporarily.
Question 6: Which type of loan adjusts the interest rate periodically based on an index?
- Fixed-rate mortgage
- Adjustable-rate mortgage (ARM) (Correct answer)
- Term loan
- Purchase-money mortgage
Correct answer: Adjustable-rate mortgage (ARM)
An ARM's rate changes over time as the underlying index moves, within set caps.
Question 7: Private mortgage insurance (PMI) is typically required when the down payment is less than:
- 5%
- 10%
- 15%
- 20% (Correct answer)
Correct answer: 20%
Lenders require PMI on conventional loans when the borrower puts down under 20%.
Real Estate License Financing 2
Which clause in a mortgage allows the lender to demand full repayment if the borrower sells the property?