12: Mortgage Practice Test (51/76 Questions Completed)

The primary mortgage market is comprised of:

A. Lenders, brokerages, and HUD.

B. Lending institutions and borrowing consumers.

C. The Federal Reserve and lending institutions.

D. GINNIE MAE and FREDDIE MAC.

B

Rural development mortgage loans seek to promote:

A. Better farming practices.

B. Population growth and/or stability in target rural and urban neighborhoods.

C. Closing cost reductions for sellers.

D. The regulation of land division in rural areas.

B

The disclosure of the annual percentage rate (APR) on a mortgage is required under which federal regulation?

A. The Equal Credit Opportunity Act.

B. Usury Laws.

C. The Truth in Lending Act.

D. Regulation X.

C

A mortgage is best described as:

A. A loan secured with personal property as collateral.

B. An installment sales agreement between a buyer and a seller.

C. A loan secured with real property as collateral.

D. An equity agreement.

C

All of the following apply to FHA mortgage loans except:

A. They are administered by the Department of Housing and Urban Development.

B. They allow for a down payment as low as 3.5% of the purchase price.

C. They require considerations of construction standards and safety issues at appraisal.

D. They do not require private mortgage insurance (PMI).

D

In order to qualify for a VA mortgage:

A. The borrower must have served three years in active combat.

B. The borrower must apply directly to the VA for the loan.

C. The borrower must be a first-time homebuyer.

D. The borrower must first obtain a letter or certificate of eligibility from the VA.

D

Which of the following prohibits discriminatory mortgage and other lending practices?

A. RESPA

B. ECOA

C. TRID

D. TILA

B

A conventional mortgage loan:

A. Is guaranteed by the FHA.

B. Requires taxes and insurance costs be part of the monthly payment.

C. Must be fully amortized.

D. Is not federally insured or guaranteed.

D

Which of the following are governed by Regulation X?

A. Maximum loan origination fees.

B. Appraisal standards.

C. Closing practices and disclosures.

D. Zoning and safety codes.

C

TRID-RESPA Disclosure Act requires:

A. A mandatory three-day waiting period between the buyer signing the closing statement and the closing itself.

B. That the buyer and seller be present at the closing.

C. That the first year’s property taxes be paid in full.

D. That legal representation is available to the buyer at closing.

A

What feature of a comp is NOT generally considered in a comparative market analysis?

A. Age

B. Financing concessions

C. Lot size

D. Number of rooms

B

Which homes should a real estate licensee NOT consider when performing a CMA?

A. Homes currently listed for sale in the market

B. Homes that have sold recently in the market and area where the subject is located

C. Homes that are currently pending

D. Homes that were not sold at arm’s length

D

A comparative market analysis is ___________ the equivalent of an appraisal.

A. Always

B. Usually

C. Sometimes

D. Never

D

A CMA is usually performed by a ________.

A. Certified residential appraiser.

B. Lender.

C. Real estate licensee.

D. Both A and C.

D

When determining a listing price, the value of an improvement is equal to _____.

A. The amount the owner adds to the selling price of the home when the improvement is made.

B. What it actually contributes in value to that piece of real estate.

C. Only what the owner spent on the materials necessary to make the improvement.

D. What it actually cost to make the improvement in both materials and labor.

B

The primary purpose of a comparative market analysis is to determine _____.

A. An estimate of a home’s value for a secondary lender.

B. A range of probable selling prices for a homeowner.

C. The potential gross income that a rental property may be able to bring in.

D. The remaining economic life of the subject property.

B

Which statement about a comparative market analysis is FALSE?

A. A CMA assists the buyer in determining a fair price to offer for a home.

B. A CMA helps the seller decide on an appropriate list price for the home.

C. A CMA may be given to a client, prospective client, or customer.

D. A CMA should evaluate only currently listed competing properties.

D

Knowing the seller’s share is an important factor for a seller for all of the following reasons, except:

A. Determining the listing price of his property.

B. Deciding what price to accept in a final offer from a buyer.

C. Computing the estimated amount of money he will receive at closing.

D. Calculating estimated total costs, expenses, and fees to be paid at closing.

D

James is selling his home. He needs to pay off a $96,000 first mortgage and a $12,000 second mortgage, and wants $10,000 in cash for himself. If his closing costs are $3,100 and he contracts to pay a 7% commission, how much must he sell the property for? Round your answer up to the nearest dollar.

A. $118,877

B. $129,577

C. $130,216

D. $233,723

C

Matt wants to sell his home. He must pay off his existing $93,800 mortgage and pay $5,500 in closing costs. If he pays a 6% commission, what is the minimum offer he can accept? Round your answer up to the nearest dollar.

A. $99,217

B. $100,209

C. $102,803

D. $105,639

D

Juan is borrowing $205,000 to finance the purchase of a new home. He needs to buy 4 points to lower his interest rate to an acceptable level. How much did those 4 points cost Juan?

A. $8,200

B. $5,050

C. $2,050

D. None of the above

A

The purchase price of Tangy’s new home is $350,000. She is financing 80% of the total cost. She is also buying 3 points to lower her interest rate. How much do the 3 points cost Tangy?

A. $10,500

B. $8,400

C. $8,750

D. $6,750

B

DUST stands for?

A. Demand, understanding, service, and title

B. Demand, utility, supply, and title

C. Demand, utility, supply, and transferability

D. None of the above

C

What a willing buyer will pay a willing seller, without any unusual circumstances, is an example of:

A. Contract pricing

B. Cash conveyance

C. Procuring cause

D. Market value

D

Which of the following would be an example of external obsolescence?

A. Peeling paint on a home’s exterior

B. Small bedrooms

C. Proximity to an industrial site

D. A lien

C

The economic principle that the sum value of a property may be worth more than its individual parts is called:

A. Accrual

B. Appreciation

C. Accelerated value

D. Plottage

D

Loss in value due to operation inadequacies, poor taste, or outdated design is called:

A. Depreciation

B. Functional obsolescence

C. Expiration

D. Physical deterioration

B

The total estimated time that an improvement can be profitably useful is called:

A. Economic life

B. Appreciated valuation

C. Effective age

D. Maturation

A

Sam paid points to lower his interest on his mortgage before closing. Which of the following is true?

A. Sam must add the cost of the points to his adjusted basis

B. Sam may deduct the cost of the points from his income tax in the year paid

C. The cost of the points is reflected in the APR

D. The bank will refund Sam the cost of the points after closing

B

When calculating capital gain, what is subtracted from the selling price?

A. Interest payments and cost of points

B. The purchase price of the property

C. The adjusted basis

D. The buyer’s closing costs

C

Which of the following statements best describes the relationship between price and value in the market system?

A. Value is based on the interaction of underlying economic factors; price is a quantification of value in a transaction.

B. Value and price are identical at any given moment.

C. Value by definition is the price one paid for an item, adjusted for time and costs paid in addition to the price.

D. Value is an estimate of the cost of an item; price is an estimate of what one will pay for the item.

A

If the price of an item is increasing, one can usually assume that _____.

A. Demand for the item is decreasing in relation to the supply of the item.

B. Demand for the item is increasing in relation to the supply of the item.

C. Supply of the item is increasing.

D. Demand for the item and supply of the item are increasing.

B

Which of the following conditions would be true if the market for an item has achieved "market equilibrium"

A. New suppliers will enter the market and drive the price down.

B. Demand will slowly taper off, driving the price down.

C. Unmet demand for the item is directed toward demand for some other item.

D. Supply and demand are equal, and price and value are equal.

D

One of the economic characteristics that distinguish real estate is _____.

A. Its homogeneity.

B. Its variety.

C. The uniqueness of every parcel.

D. Its ability to appreciate in value.

C

If demand is increasing, what would be the likely effect on real estate prices in an area where the municipality has declared a moratorium on new construction?

A. Prices would level off.

B. Prices would continue to follow the trend that preceded the moratorium.

C. Prices would fall.

D. Prices would rise.

D

What is a lien-theory state?

A. A state in which a lienor holds legal title to a secured property.

B. A state in which a mortgage is considered to be a lien against a secured property.

C. A state that allows a real estate owner's creditors to record liens against the owner's property.

D. A state in which a lien is considered as a conveyance.

B

What is the function of a note in a mortgage or trust deed financing arrangement?

A. It is evidence of the lender's interest in the collateral property.

B. It is evidence of ownership of the mortgage or trust deed.

C. It contains the borrower's promise to maintain the value of the property given as collateral for a loan.

D. It is evidence of the borrower's debt to the lender.

D

The document that provides evidence that a certain property is pledged as collateral for a loan is the _____.

A. Trust deed or mortgage.

B. Promissory note.

C. Loan commitment.

D. Collateral acknowledgment.

A

The borrower in a mortgage loan transaction is known as the _____.

A. Mortgagee.

B. Mortgagor.

C. Lienor.

D. Trustee.

B

How much is a discount point?

A. .1% of the loan amount.

B. 1% of the loan amount.

C. 10% of the loan amount.

D. It depends on the interest rate and the loan amount.

B

Which of the following is true of an amortizing loan?

A. The amount of annual interest paid is the same for every year of the loan term.

B. Part of each periodic payment is applied to repayment of the loan balance in advance and part is applied to payment of interest in arrears.

C. Except for any points that may be paid, the interest on the loan balance is usually paid in advance.

D. The interest rate is reduced each year to maintain equal payments even though the outstanding loan balance is smaller.

B

For a loan that is not backed by the Federal Housing Administration or Veterans Administration, and for which the borrower is making a down payment of less than 20%, the lender is likely to require the borrower to obtain _____.

A. A subrogation agreement.

B. Private mortgage insurance.

C. A letter of credit.

D. A co-signer on the note.

B

What is a loan-to-value ratio?

A. The percentage of a lender's portfolio that is composed of mortgage loans.

B. The ratio of borrowed principal plus total interest to the appraised value of the collateral property.

C. The ratio of a lender's return on a mortgage loan to the value of the collateral property.

D. The fraction of the appraised value of the property offered as collateral which the lender is willing to lend.

D

The Equal Credit Opportunity Act prohibits a lender from _____.

A. Refusing a loan because the property is located in a certain area.

B. Including income from self-employment in the borrower's qualifying income.

C. Requiring both spouses to sign the loan application form.

D. Refusing a loan because a borrower has a defective credit report.

A

The Federal Reserve's Regulation Z applies to which loans?

A. All loans.

B. All loans secured by tangible assets.

C. All loans secured by a residence.

D. All loans over $25,000.

C

If a particular loan falls under Regulation Z's right of rescission provision, _____.

A. The lender has the right to change the terms of the loan within a certain period.

B. The lender has the right to accelerate repayment of the loan because of a change in the borrower's credit status.

C. The borrower has the right to pay off the loan ahead of schedule with no penalty.

D. The borrower has a limited right to cancel the transaction within a certain period.

D

After three years of owner-occupancy, a young homeowner sells his principal residence for a gain of $150,000, and the next month buys another principal residence that costs more than the adjusted sale price of the old home. Which of the following is true of the treatment of the tax on gain?

A. There is no taxable gain.

B. It must be paid in the year of the sale.

C. The homeowner may choose to pay it or defer it.

D. Tax is due on the difference between the cost of the new home and adjusted basis of the old one.

A

Which of the following are requirements for the capital gain exemption on the sale of a house?

A. The seller is 55 years old, the property is used as a principal residence, and the seller's previously claimed exclusions do not exceed $125,000.

B. The property is owner-occupied and the seller has never claimed an exclusion previously.

C. The seller must have owned it for two years of the previous five, used it as a principal residence for two years during that period, and not claimed an exclusion in the previous two years.

D. The seller must have owned and occupied it for five years and not claimed an exclusion in the previous year.

C

Which of the following can legally levy real property taxes?

A. The Internal Revenue Service.

B. A utility company.

C. A tax district.

D. A court of law.

C

What is the purpose of an equalization factor in ad valorem taxation?

A. It modifies a local tax rate to bring it into conformity with statutory tax rates.

B. It changes the assessed value of individual property to make it reflect the assessed values of other properties in the same neighborhood.

C. It adjusts assessments in a locality to make them more consistent with an average level for the state or other higher-level jurisdiction.

D. It adjusts the amount of the homestead exemption in a certain area to make it proportionally equivalent to the average homestead exemption in other areas.

C

To qualify for a homestead exemption, a property owner generally must _____.

A. Reside at the property.

B. Have a house on the property.

C. Be 55 years old.

D. Have children.

A