Unit 16: Real Estate Financing - Practice

A buyer purchased a residence for $195,000. She made a down payment of $25,000 and agreed to assume the seller’s existing mortgage, which had a current balance of $123,000. The buyer financed the remaining $47,000 of the purchase price by executing a mortgage and note to the seller. This type of loan by which the seller becomes the mortgagee is called a:

A) purchase money mortgage.

B) wraparound mortgage.

C) package mortgage.

D) balloon note.

A) purchase money mortgage.

A buyer purchased a new residence for $175,000. He made a down payment of $15,000 and obtained a $160,000 mortgage loan. The builder of the house paid the lender 3% of the loan balance for the first year and 2% for the second year. This represented a total savings for the buyer of $8,000. What type of mortgage arrangement is this?

A) Wraparound

B) Buydown

C) Package

D) Blanket

B) Buydown

Which of these is NOT a participant in the secondary market?

A) Fannie Mae

B) Ginnie Mae

C) Freddie Mac

D) Credit unions

D) Credit unions

A buyer purchased a home for cash 30 years ago. Today, the buyer receives monthly checks from a mortgage lender that supplement her income. The buyer MOST likely has obtained:

A) a shared-appreciation mortgage.

B) an adjustable-rate mortgage.

C) a reverse mortgage.

D) an overriding deed of trust.

C) a reverse mortgage.

Which characteristic of a fixed-rate home loan that is amortized according to the original payment schedule is TRUE?

A) The loan cannot be sold in the secondary market.

B) The monthly payment amount will fluctuate each month.

C) The interest rate change may be based on an index.

D) The amount of interest to be paid is predetermined.

D) The amount of interest to be paid is predetermined.

When the Fed raises its discount rate, which is likely to happen?

A) The buyer’s points will decrease.

B) Mortgage money will become plentiful.

C) Interest rates will rise.

D) The percentage of ARMs will decrease.

C) Interest rates will rise.

In a loan that requires periodic payments that do not fully amortize the loan balance by the final payment, which term BEST describes the final payment?

A) Adjustment

B) Acceleration

C) Variable

D) Balloon

D) Balloon

A developer received a loan that covers five parcels of real estate and provides for the release of the mortgage lien on each parcel when certain payments are made on the loan. This type of loan arrangement is called a:

A) purchase money loan.

B) package loan.

C) blanket loan.

D) wraparound loan.

C) blanket loan.

Funds for FHA loans are usually provided by:

A) the Federal Housing Administration.

B) the Federal Reserve System.

C) the seller.

D) qualified lenders.

D) qualified lenders.

A home is purchased using a fixed-rate, fully amortized mortgage loan. Which statement regarding this mortgage is TRUE?

A) Each mortgage payment amount is the same.

B) A balloon payment will be made at the end of the loan.

C) Each mortgage payment reduces the principal by the same amount.

D) The principal amount in each payment is greater than the interest amount.

A) Each mortgage payment amount is the same.

Which of these BEST defines the secondary market?

A) Lenders who deal exclusively in second mortgages

B) Where loans are bought and sold after they have been originated

C) The major lender of residential mortgages and deeds of trust

D) The major lender of FHA and VA loans

B) Where loans are bought and sold after they have been originated

The primary activity of Freddie Mac is to:

A) guarantee mortgages with the full faith and credit of the federal government.

B) act in tandem with Ginnie Mae to provide special assistance in times of tight money.

C) buy and pool blocks of conventional mortgages.

D) buy and sell VA and FHA mortgages.

C) buy and pool blocks of conventional mortgages.

A borrower obtains a $100,000 mortgage loan for 30 years at 7.5% interest. If the monthly payments of $902.77 are credited first to interest and then to principal, what will be the balance of the principal after the borrower makes the first payment?

A) $99,097.32

B) $99,772.00

C) $100,000.00

D) $99,722.23

D) $99,722.23

A buyer borrowed $85,000 to be repaid in monthly installments of $823.76 at 11.5% annual interest. How much of the buyer’s first-month payment was applied to reducing the principal amount of the loan?

A) $8.15

B) $91.80

C) $9.18

D) $814.58

C) $9.18

If a lender agrees to make a loan based on an 80% LTV ratio, what is the amount of the loan if the property appraises for $114,500 and the sales price is $116,900?

A) $91,600

B) $83,200

C) $91,300

D) $92,900

A) $91,600

A borrower wants to negotiate a $113,000 loan. Which of these loan terms would he need to accept to pay the least amount of interest over the life of the loan?

A) 7% amortized over 30 years

B) 8% amortized over 20 years

C) 10% amortized over 25 years

D) 9% amortized over 15 years

D) 9% amortized over 15 years

Which of these is the difference between the market value and any mortgages the borrower has on the property?

A) Equitable interest

B) Equitable title

C) Equity

D) Equitable lien

C) Equity

Which law requires that all advertising that references mortgage financing terms contain certain disclosures?

A) Equal Credit Opportunity Act

B) Truth in Lending Act

C) Community Reinvestment Act

D) Fair Housing Act

B) Truth in Lending Act

Which statement is TRUE regarding the Truth in Lending Act (TILA)?

A) If a borrower is refinancing, TILA states that the borrower has five days to rescind the transaction by merely notifying the lender.

B) Finance charges that must be disclosed include loan fees, service charges, and discount points.

C) If an advertisement discloses the interest rate, then it has met truth-in-lending requirements.

D) For the purposes of TILA, a creditor is a person who extends consumer credit more than five times each year.

B) Finance charges that must be disclosed include loan fees, service charges, and discount points.

In order to assist prospective buyers who lacked a down payment on their property, a married couple agreed to “take back paper” at the closing for a part of the purchase price. The document MOST likely used would be a:

A) reverse annuity mortgage.

B) package mortgage.

C) shared appreciation mortgage.

D) purchase money mortgage.

D) purchase money mortgage.