Real Estate Sales Exam FREE Real Estate Sales Financing and Mortgages Questions and Answers 3

Question 1

What is the purpose of private mortgage insurance (PMI) on a conventional loan?

Accepted Answer

To protect the lender against default when the down payment is less than 20%

Answer

To protect the borrower in case of job loss

Answer

To guarantee the property's appraised value

Answer

To insure the title against defects

Question 2

What distinguishes a balloon mortgage from a fully amortizing loan?

Accepted Answer

A balloon mortgage has a large lump-sum payment due at the end of the term

Answer

A balloon mortgage never requires monthly payments

Answer

A balloon mortgage always has a lower interest rate

Answer

A balloon mortgage cannot be refinanced

Question 3

In mortgage lending, what does the term 'points' refer to?

Accepted Answer

Fees paid upfront to the lender to reduce the interest rate, each equal to 1% of the loan amount

Answer

The number of years in the loan term

Answer

The borrower's credit score categories

Answer

The annual property tax assessment divisions

Question 4

What is the primary risk to a borrower who agrees to a negative amortization loan?

Accepted Answer

The loan balance can grow larger than the original amount borrowed

Answer

The interest rate decreases over time

Answer

The borrower must make double payments each month

Answer

The lender can change the loan to a fixed rate at any time

Question 5

Which federal agency insures loans made under the FHA mortgage program?

Accepted Answer

The Federal Housing Administration within HUD

Answer

The Federal Reserve

Answer

Fannie Mae

Answer

The Department of Veterans Affairs

Question 6

What is an alienation clause (due-on-sale clause) in a mortgage?

Accepted Answer

A clause requiring full loan repayment upon transfer of property ownership

Answer

A clause that allows the borrower to sell the property without lender consent

Answer

A clause that reduces the interest rate when the property is sold

Answer

A clause permitting the lender to increase the loan amount at sale