Real Estate Sales Exam Financing and Mortgages 2 — Questions and Answers
Question 1: A buyer wants to purchase a home with no down payment. Which loan program is most likely to accommodate this?
- Conventional loan
- VA loan (Correct answer)
- Jumbo loan
- FHA loan
Correct answer: VA loan
VA loans are available to eligible veterans and active-duty military and require no down payment.
Question 2: What does the term 'amortization' refer to in mortgage lending?
- The process of appraising property value
- The gradual repayment of a loan through scheduled payments (Correct answer)
- The penalty for early loan payoff
- The lender's profit margin on a loan
Correct answer: The gradual repayment of a loan through scheduled payments
Amortization is the process of paying off a loan over time through regular principal and interest payments.
Question 3: Which type of mortgage has a fixed interest rate for an initial period, then adjusts periodically based on a market index?
- Balloon mortgage
- Interest-only mortgage
- Adjustable-rate mortgage (ARM) (Correct answer)
- Reverse mortgage
Correct answer: Adjustable-rate mortgage (ARM)
An ARM starts with a fixed rate for an introductory period, then the rate adjusts at set intervals based on an index.
Question 4: A lender charges 2 discount points on a $300,000 loan. How much will the borrower pay in points?
- $3,000
- $6,000 (Correct answer)
- $9,000
- $2,000
Correct answer: $6,000
Each discount point equals 1% of the loan amount, so 2 points on $300,000 = $6,000.
Question 5: What is the primary purpose of private mortgage insurance (PMI)?
- To protect the buyer from title defects
- To protect the lender if the borrower defaults (Correct answer)
- To insure the property against damage
- To guarantee the appraised value
Correct answer: To protect the lender if the borrower defaults
PMI protects the lender — not the borrower — in case of borrower default on a conventional loan with less than 20% down.
Question 6: What is the 'loan-to-value' (LTV) ratio on a $250,000 home with a $200,000 mortgage?
- 75%
- 80% (Correct answer)
- 85%
- 90%
Correct answer: 80%
LTV = loan amount ÷ property value = $200,000 ÷ $250,000 = 80%.
Question 7: Under RESPA, a lender must provide the borrower with a Loan Estimate within how many business days of receiving a loan application?
- 1 business day
- 3 business days (Correct answer)
- 5 business days
- 7 business days
Correct answer: 3 business days
RESPA requires lenders to deliver the Loan Estimate to borrowers within 3 business days of receiving a completed application.
Real Estate Sales Exam Financing and Mortgages 2
A buyer wants to purchase a home with no down payment.
Which loan program is most likely to accommodate this?