An effective decrease in the supply of funds available in the market place would MOST likely lead to which of the following events?A » An increase in property values B » A decrease in property values C » An increase in the marketability of property D » A decrease in the marketability of property DWhen there are less funds available, generally the result is higher interest rates and a slowing of the economy. Therefore, the (D) answer is most correct in that it would be harder to sell or market property with higher interest rates, etc. (A) and (B) sound like possible answers but are not as good as (D) because the marketability of property is most affected.
An increase in the availability of money would lead to which effects? A » Interest rates would go up B » Interest rates would go down C » Interest rates would NOT be affected due to RESPA guidelines D » Interest rates would NOT be affected due to Truth in Lending B(B) Under the laws of supply and demand, an increase in supply (without a corresponding increase in demand) leads to a lower price for the product. Rates going up (A) usually results from a decrease in loan availability. RESPA (Real Estate Settlement Procedures Act) requires closing agents and lenders to close loans in a certain procedure. RESPA (C) does not affect interest rates. Truth in lending (D) laws require lenders to disclose the costs of borrowing money but do not affect the actual cost of the money.
Which of the following ways of advertising would be allowed under the Federal Truth-In-Lending Laws (Regulation Z)?A » $10,000 assumable loan in a working man’s neighborhood B » Shady acres – $10,000 down C » Shady acres – guaranteed to double in value in 5 years D » Shady acres – payments less than rent D(D) Generic language, such as payments less than rent, is allowed under Regulation Z. (A) $10,000 assumable loan, (B) $10,000 down and (C) guaranteed to double in 5 years are all trigger terms and would not be allowed to be advertised alone under Regulation Z.
Which of the following would be enforced by the Federal Trade Commission (FTC)?A » Federal Real Estate Settlement Procedures Act (RESPA) B » Federal Fair Housing (Title VIII) C » Federal Equal Credit Opportunity Act (FECOA) D » Federal Truth-In-Lending Law (Reg Z) D(D) The FTC enforces the Truth-In-Lending law (Reg Z). (A) RESPA is enforced by the Consumer Financial Protection Bureau (CFPB). (B) Fair housing laws are enforced by HUD. (C) The Federal Equal Credit Opportunity Act prohibits lenders from discriminating based on race, religion, marital status, age, etc.
Which of the following must be disclosed to be in compliance with Regulation Z? A » Loan costs B » Closing costs C » The tax bill D » Broker’s commission A(A) Regulation Z (Truth-In-Lending law) says that all loan costs must be disclosed upon loan application. Closing costs (B) include additional costs of closing in addition to loan costs. The tax bill (C) is not a loan cost nor is the broker`s commission (D).
Which of the following charges is NOT required to be included in a lender’s closing statement? A » Points B » Seller’s attorney’s fees C » Loan service fees D » Loan origination fee BAll “loan” costs must be disclosed. Attorney`s fees are not a loan cost. Points (A), loan service fees (C) and loan origination fees (D) are all “loan” costs and must be disclosed.
Regulation Z applies to a loan for which of the following purposes? A » Residential real estate purchases B » Vacant lot purchases C » Commercial real estate purchases D » Residential real estate leasing A(A) Regulation Z applies to residential loans on a 1-4plex. Regulation Z does NOT apply to (B) vacant lot loans, (C) commercial loans or (D) loans for leasing.
A loan company was referring loan applicants to a particular insurance company which in turn paid the loan company a referral fee. This is:A » legal as long as it is a set fee and not based on the amount of business referred B » legal as long as the loan company does not require a loan applicant to purchase insurance from a particular company C » illegal since the Real Estate Settlement Procedures Act prohibits kickbacks D » illegal due to the Truth in Lending Law (Regulation Z) C(C) RESPA (enforced by CFPB) prohibits the paying of referral fees or kickbacks. It cannot be paid regardless of how the fee is set (A). Even if the applicant can shop around, referral fees are illegal for a lender to receive (B). The truth in lending law requires lenders to disclose all loan costs to borrowers. It, in and of itself, does not deal with whether referral fees can be paid (D).
The paying of kickbacks by lenders is prohibited by: A » Regulation Z B » Real Estate Settlement Procedures Act C » Equal Credit Opportunity Act D » Interstate Land Sales Act B(B) RESPA prohibits lenders paying referral fees to brokers when all the broker does is provide the lead to the lender. Regulation Z (A) (truth in lending law) requires lenders to disclose all LOAN costs to borrowers. Equal Credit Opportunity Act (C) forbids lenders from discriminating in lending based on race, color, sex, national origin, religion, marital status and age. The Interstate Land Sales Act (D) requires developers who sell more than 100 lots across state lines to register with the Consumer Financial Protection Bureau (CFPB).
A buyer applying for a loan on a two family residence would be covered under RESPA in which of the following circumstances? A » If the loan was an FHA insured loan B » If it was a loan NOT typically bought by FNMA C » If it was part of a 45 acre farm D » If it was a second mortgage AA) RESPA (Real Estate Settlement Procedures Act) applies to new, first mortgages to buy a home if the lender is associated with the federal government. An FHA loan is insured by the federal government. Loans NOT of the type bought by FNMA are usually not associated with the federal government (B). Farm loans (C) are usually not covered under RESPA as farms are more of a type of business loan. Only first mortgages (D) fall under RESPA.
Broker Baird advertised a listed property as follows: “$3,200 down – call Baird Realty 476-1247.” Is this ad legal? A » Yes, because a broker may advertise the down payment B » Yes, as long as the broker uses his name and phone number C » No, because he did not list all the credit terms D » No, it is illegal to advertise a down payment C(C) Truth-in-lending requires that to tell ANY of the credit terms (such as the down payment), one must tell ALL the credit terms. A broker may advertise the down payment (A) but only along with all other terms. The name and phone number (B) being listed does not allow the broker to violate the truth-in-lending law. It is not illegal to advertise a down payment (D) unless it is advertised alone.
Why does Regulation Z require that the annual percentage rate be stated in applying for a loan?A » So businesses can know what it costs them to borrow money B » This is the easiest way for buyers to shop around and compare credit costs C » This is the total amount of the actual financing charge D » So buyers can know the interest rates B(B) Since the APR includes all the loan costs, it is easier to compare the total package between lenders (who may quote many of the individual costs separately) than it is to try to compare each of the individual costs. It does not apply to business loans (A). The APR may be different than the actual financing charge (C) since the loan may or may not be kept the total loan term (e.g. 30 years). The interest rate (D) is only a part of the annual percentage rate.
Which of the following would NOT be covered under RESPA?A » A VA loan for a $51,500 first mortgage on a single family residence worth $51,500 B » An FHA loan for a first mortgage on a single family residence C » A conventional loan for a three-family residence where the lender was insured by FDIC D » A buyer assumed a $39,000 FHA insured first mortgage on a $49,000 single family residence D(D) The Real Estate Settlement Procedures Act (RESPA) does NOT apply to assumed loans. (A) A VA loan, (B) FHA loan and (C) Conventional loan on a 1 – 4 plex would be covered under RESPA.
A loan for which of the following would NOT fall under Regulation Z? A » Residential home B » A loan involving discount points C » Shoe store in a commercial shopping strip D » A duplex CRegulation Z (truth-in-lending law) does NOT apply to commercial loans. It does apply to any residential (A) first mortgage on up to a 4-plex (D). Discount points do not affect whether or not it falls under RESPA (B).
Which of the following loans gives a borrower the lowest monthly payment? A » 8% interest, 20 year term B » 8% interest, 25 year term C » 9% interest, 20 year term D » 9% interest, 25 year term B(B) The lowest interest with the longest term will always be the lowest monthly payment.
Which of the following statements BEST describes an amortized loan with a fixed interest rate? A » Constant principal and interest payments each month B » Equal interest amounts each year C » Equal principal amounts each year D » Monthly principal and interest payments with an adjustment at the end of each year AA fixed interest rate will allow the monthly principal and interest payments to always remain the same. Also, an amortized note has payments being applied to both principal and interest (A). A straight note or term loan has equal payments being applied to interest only (B). An adjustable rate loan has adjustments to the monthly payments periodically (D).
What would be an advantage for a buyer in taking out an FHA 245 loan in purchasing a house? A » Lower interest rate B » Lower payments C » Build equity faster D » Longer term for the loan B(B) The FHA 245 is a graduated payment mortgage giving a buyer lower payments initially on a loan. The payments typically go up for 5 years and then level off for the remainder of the term. (A) An FHA 245 does not necessarily have a lower interest rate. (C) An FHA 245 does not build equity faster, rather, it builds equity slower or can have negative amortization. (D) There is not a longer term for an FHA 245 loan.
A buyer borrowed $1,500 to purchase a hot tub. If the agreement between the parties was for the total principal and interest to be repaid in a single payment, what was the interest rate on the loan if the payment was $1,695? A » 11.3% B » 11.5% C » 13.0% D » 15.0% C$1,695 principal and interest minus $1,500 principal equals interest of $195. $195 divided by $1,500 equals an annual interest rate of 13%.
In a repayment of a mortgage loan, which type of interest is used? A » Simple B » Discount C » Compound D » Floating A(A) Simple interest means that the interest is figured on the balance due after each payment. This type of interest is used for a mortgage loan. Compound interest is usually used in savings where the interest is paid out and added to the account. This then has the next interest figured on both the original amount PLUS the interest (C). Discount (B) means to sell a note for less than the face amount of the loan. Floating (D) is a type of adjustable rate mortgage.
A property was encumbered by a special assessment lien, a mortgage lien and a mechanic’s lien. On April 1st, the property owner added solar panels to the house and defaulted on the payments. If foreclosure took place, which lien would take priority? A » The mortgage lien B » The special assessment lien C » The 1st mechanic’s lien D » The solar panel lien B(B) A real estate tax lien, whether a general assessment or a special assessment, always takes priority at a foreclosure sale. (A) The mortgage lien, (C) the 1st mechanic`s lien and (D) the solar panel lien would take priority based on the effective recording date.
A person who owned a house ran into financial difficulty. Foreclosure on the house appeared to be a possibility. Which of the following actions should this person take in trying to protect the person’s credit rating in the future? A » Ask the lender for a deed in lieu of foreclosure B » Ask the lender for a deed of reconveyance C » Exercise the alienation clause in the mortgage D » Exercise the defeasance clause in the mortgage A(A) A deed in lieu of foreclosure does protect a person`s credit rating better than an actual foreclosure. (B) A deed of reconveyance is a document a lender gives to a buyer when a loan is completely paid off. (C) An alienation clause in a mortgage calls the loan balance due and payable upon selling the property. (D) The defeasance clause in a mortgage voids the security once the loan is paid off.
Which of the following parties must sign a mortgage in order for the mortgage to be valid? A » Vendor B » Vendee C » Mortgagor D » Mortgagee C(C) The mortgagor must sign as the borrower is placing property as security for a loan. (A) The vendor is a seller. (B) The vendee is a buyer – a buyer does not have to be a mortgagor, e.g., buying a property for cash. (D) The mortgagee is the lender and does NOT have to sign the mortgage.
In which way are a mortgage document and a mortgage note similar? A » Both are non-negotiable instruments B » Both are debt-reducing instruments C » Both are contracts D » Both are fully standardized instruments of conveyance C(C) A note is a contract to pay a debt. A mortgage is a contract giving the lender (mortgagee) the right to foreclose upon default. A note is a negotiable instrument (A); i.e. it can be bought and sold. A note creates (not reduces) a debt (B). The terms of both a note and a mortgage are negotiable; i.e. they are not standardized (D).
The priority of liens can be determined by all the following facts EXCEPT: A » date of recording B » amount of money involved C » type of lien D » date of performance BAmount of money is irrelevant. Date of recording (A) is the best indicator of priority. Type of lien (C) may indicate, such as a property tax lien takes priority over all other liens. Date of performance (D) may be applicable in a lien such as a mechanic`s lien.
A lien was placed on a property for electrical equipment for $2,600. There already existed a tax lien, mortgage lien and mechanic’s lien on the property. The house was foreclosed on and sold. Which of the following liens would be LAST in priority? A » Tax lien B » Mortgage lien C » Mechanic’s lien D » Electrical equipment lien D(D) Liens usually take priority based on date of recording (except for property tax liens which take priority over all other liens). Since the tax (A), mortgage (B) and mechanic`s (C) already had been recorded, the electrical equipment lien would be LAST.
A buyer put 20% down on the purchase of a house. The lender required the buyer to pay two discount points in order to obtain a loan. The buyer paid $1,000 for the discount points. What was the purchase price of the house? A » $50,000 B » $62,500 C » $75,000 D » $87,000 B$1,000 divided by 2% equals the loan amount of $50,000. The buyer putting 20% down means the loan must have been 80% of the purchase price. $50,000 divided by 80% equals the purchase price of $62,500.
Which of the following is the BEST definition of a buydown loan? A » When the buyer obtains a second mortgage, in order to lower the amount of the first mortgage on the new home B » The buyer submits a large earnest deposit to encourage the seller to accept a lower offer C » It lowers the interest rate between the 6th and 10th years D » The buyer pays a front-end payment to lower the interest rate on the loan in order to qualify D(D) A buydown is similar to discount points in that the buyer pays money up front to lower the interest rate, typically for the first few years only. This lower initial rate can help the buyer qualify for a loan. (A) A buydown is NOT a second mortgage. (B) The earnest money and buydown are separate issues. (C) The interest is lower normally for the first few years, not between the 6th and 10th years.
A lender packaged a number of loans to sell to investors. This is referred to as a type of interim financing called: A » blanket financing B » package financing C » warehouse financing D » discount financing C(C) Warehousing is the practice of holding loans for a period, then bundling them together and selling them in the secondary market. Blanket is a type of mortgage that covers more than one piece of property (usually used by developers (A). Package (B) is a mortgage covering real AND personal property. Discount (D) is to sell a note for less than its face value.
What is the basic purpose of commercial banks? A » To make short-term business loans B » To make home loans only when savings and loans refuse C » To buy loans from institutional lenders D » To make construction lenders effective A(A) Banks were originally set up to make short-term loans to business. However, today many also make long term home loans. It is not necessary to have savings and loans refuse before a bank can make a loan (B). Although banks can buy loans (C), banks are a type of institutional lender. Banks usually are the construction lender (D).
Which non-governmental organization has its greatest investment in first mortgages on single family residences? A » Insurance companies B » Commercial banks C » Savings and loans D » Federal Housing Administration C(C) Savings and loans primarily make investments in home loans. Insurance companies (A) usually make large commercial and investment loans. Commercial banks (B) make home loans but banks usually have large investments also in business loans. The Federal Housing Administration (D) is a governmental organization and only INSURES (not invests) in home loans.
A seller sold their house to a buyer and allowed the buyer to assume the seller’s loan. Which of the following would give the seller the best protection regarding this situation? A » Deed of reconveyance B » Estoppel certificate C » Mortgage release D » Novation D(D) is correct as a novation is where the seller is released from liability on the loan and the buyer becomes solely liable. (A) and (C) are documents issued when a loan is paid off by the homeowner. (B) is a certificate which states the current loan balance on loan when the loan is being sold to the secondary mortgage market.
A buyer purchased a property from a seller and assumed the seller’s loan. The seller wanted to be released from liability on the loan. Which of the following would accomplish this for the seller? A » The seller would have to sign a release of liability B » The lender would have to sign a release of liability C » The seller would need to note the release of liability in the sales contract D » The buyer would have to sign a release of liability B(B) The lender is the one who has to give a release of liability on an assumption of a loan – called a novation. (A) The seller signing a release, (C) the seller noting the release in a contract and (D) the buyer signing a release are all false as only the lender can give a release of liability on the loan.
A son and daughter-in-law wanted to buy their parents house and assume the mortgage. The son and daughter-in-law had just gone through bankruptcy. Which of the following clauses in a mortgage would prevent this sale and assumption from taking place? A » Acceleration clause B » Alienation clause C » Subordination clause D » Defeasance clause B(B) The alienation (due-on-sale) clause calls the loan balance due and payable upon the transferring of property, thereby making the loan non-assumable. (A) The acceleration clause in a mortgage calls the loan balance due and payable upon non-payment. (C) The subordination clause changes the priority of a mortgage that is different than the recording date – it`s where a lender waives their right in favor of someone else. (D) The defeasance clause is where a lender voids the security when the loan is paid off.
Seller Grant entered into a sales contract with buyer Howe. Under the terms of the agreement, Howe assumed the loan of Grant. Howe ran into financial difficulties the following year and defaulted on the loan. Under the standard assumption guidelines, who would be liable to the lender on the assumed loan? A » Howe only B » Grant only C » Both Grant and Howe D » Neither Grant nor Howe as the lender is on their own in trying to recover the money C(C) Under an assumption of a loan, the buyer is primarily liable and the seller is secondarily liable. (A) Howe only, the buyer, is not solely liable. (B) Grant only, the seller, is not solely liable. (D) Both Grant and Hower are actually liable to the lender.
A clause in a mortgage releasing the indebtedness once the loan is paid off is: A » defeasance B » subrogation C » exculpatory D » non-disturbance A(A) Defeasance is a null and void clause which states that the mortgage is void after the note has been paid. The lender usually then issues a mortgage release which is recorded. Subrogation (B) is to sign over rights to an insurance company after receiving payment for a claim. (C) The exculpatory clause is not testable. (D) A non-disturbance clause is placed in a mortgage when the lender agrees not to disturb existing leases if forced to foreclose on the landlord.
An agreement to waive prior rights in favor of another is: A » subordination B » subrogation C » subornation D » subjugation A(A) Subordination occurs when a lender who is 1st in priority agrees to be paid off only after a 2nd mortgage holder upon foreclosure. This occurs often in construction financing. Subrogation (B) is signing over rights in a claim to an insurance company after payment of a claim. Subornation (C) is not a real estate term. Subjugation (D) usually refers to a type of slavery.
Which mortgage clause allows a lender to regain their investment if a borrower does NOT pay their payment? A » Alienation B » Due on sale C » Acceleration D » Defeasance C(C) A loan accelerates and the entire loan balance becomes due upon default by the borrower. An alienation (A) is also called a due-on-sale clause (B) which makes the loan non-assumable. (D) Defeasance is a null and void clause which makes the mortgage void upon the note being paid (usually the lender issues a mortgage release).
A seller sold a house to a buyer allowing the buyer to take over the loan on a subject to basis. After two years the buyer defaulted on the loan. Who would be liable to the lender for the note? A » Seller only B » Seller’s mortgagee C » Buyer only D » Seller and buyer A(A) When buying subject to, the buyer takes over the seller`s payments but the seller is still liable to the lender for the loan. The seller would have to pay the lender and then sue the buyer for defaulting on their agreement. The seller’s mortgagee (B) is the lender and is not liable for the note. Although the buyer (C) is liable to the original seller for defaulting on the agreement, the buyer is not personally liable to the lender unless the lender allowed a formal assumption of the loan. (D) The seller only is liable, not both.
Which of the following does NOT make loans? A » The secondary mortgage market B » The federal reserve C » Savings and loans D » Commercial banks A(A) The secondary mortgage market does NOT makes loans. Rather, the secondary mortage market purchases loans that have already been made in the primary mortgage market. (B) The federal reserve makes loans to member banks, and (C) Savings and Loans and (D) Commercial Banks also make various types of loans.
The largest purchaser of home loans in the secondary mortgage market is : A » FNMA B » GNMA C » Freddie Mac D » FHA AThe Federal National Mortgage Association is the largest purchaser of home loans in the secondary market (A). The Government National Mortgage Association is a government corporation under HUD that buys mainly FHA and VA loans (B). The Federal Home Loan Mortgage Corporation primarily buys conventional loans from Savings and Loans (C). The Federal Housing Administration insures loans to lenders (D).
Which of the following organizations is the largest purchaser of mortgages in the secondary mortgage market? A » Federal National Mortgage Association (FNMA) B » Government National Mortgage Association (GNMA) C » Federal Home Loan Mortgage Corporation (FHLMC) D » Federal Housing Administration (FHA) A(A) The Federal National Mortgage Association (FNMA) is the largest purchaser of mortgages in the secondary market. (B) The Government National Mortgage Association (GNMA) and (C) The Federal Home Loan Mortage Corporation (FHLMC) are in the secondary market but are not the largest purchasers of mortages. (D) The Federal Housing Administration insures loans made by lenders.
In times of a tight money market where the money supply is short, the secondary mortgage market helps first time home buyers by: A » lowering interest rates B » providing liquidity to primary lenders C » raising required ratios on qualifying D » insisting on larger mortgage insurance premiums B(B) The secondary mortgage markets primary purpose is to buy notes from primary lenders, thus providing liquidity for the lenders. This results in lenders being willing to make loans in a time of tight money as the lender knows the loans can be sold to the secondary mortgage market, thus keeping the lender supplies with loan money – hence the answer is (B). (A) is incorrect as the federal reserve involves itself with lowering interest rates if necessary, not the secondary mortgage market. (C) and (D) would hinder borrowers.
Which of the following is NOT a purpose of the secondary mortgage market? A » To help banks determine how much money to keep on hand B » To free up money so lenders can make loans C » To provide liquidation for investment loans D » To help lenders in times of a tight money market AThe “secondary” market is the place where existing notes are bought and sold. It does not have anything to do with how much cash a lender keeps on hand. It does free up money as the secondary lender gives the primary lender (bank) cash in return for the loan (B). It does turn investments into liquid assets as it allows for loans to be sold (C). In tight money times, it allows lenders to get cash in return for paper (notes).
Which of the following statements is true about the Federal National Mortgage Association (FNMA)? A » It sells bonds to raise money to buy notes B » It makes loans to low income borrowers C » It is a government corporation D » It is an agency of HUD A(A) Fannie Mae sells government guaranteed securities in order to raise money to buy notes from lenders. FNMA does not make loans directly to borrowers (B). FNMA is a private government sponsored enterprise (not government agency) (C) & (D).
Under which of the following circumstances would one MOST likely see an estoppel certificate? A » A lender sells a loan and the new mortgagee wants to know the existing balance B » A lender attempts to prevent a loan assumption to an unqualified party C » A developer attempts to have a parcel released from under a blanket mortgage D » A lender calls for full payment of a note A(A) Estoppel certificates are loan statements signed by a borrower that indicate that the lender and borrower both agree as to the terms and balance owed on a loan. It is usually done when the original mortgage holder (bank) sells the note to another lender. The new lender wants to make sure that the borrower is in agreement about the loan with the lender. Due-on-sale clauses prevent a loan assumption (B). A partial release clause allows parcels to be released from a blanket mortgage if sold (C). Acceleration (D) allows a note to be called due.
A couple bought a property for $100,000 obtaining an 80% loan. The land value was $15,000. What would the mortgagee require for hazard insurance? A » $ 80,000 B » $ 85,000 C » $ 95,000 D » $100,000 A(A) The mortgagee is the lender. As such, the lender wants to make sure there is enough hazard insurance to cover the loan balance. Therefore, $100,000 price times 80% equals $80,000 for the loan to be covered by insurance.
What type of loan is quickest for the buyer? A » Conventional B » FHA C » VA D » Assumption D(D) Since no new mortgage must be originated, assuming the seller`s existing loan is very quick. Conventional (A), FHA (B) and VA (C) all would require making a new mortgage.
When an FHA 203B loan is obtained, which generally happens? A » An FHA appraiser appraises the property B » There is a maximum of 20 years allowed for the loan term C » FHA will guarantee a maximum of $27,500 in case of default D » FHA loans will normally allow the buyer to obtain a 2nd mortgage to cover the down payment A(A) On FHA loans, an FHA approved appraiser must estimate the value for loan purposes. FHA allows different loan terms, such as 20 or 30 year loans (B). FHA insures rather than guarantees (C). Normally the borrower must have the down payment in cash, not a second mortgage (D).
Which of the following statements BEST describes the purpose of FHA? A » To loan money for first mortgages B » To loan money for second mortgages C » To act as an insurance company on first mortgages D » To loan money in areas of high risk C(C) FHA only INSURES (not loans) money. FHA insures loans for borrowers with low down payments. (A), (B) and (D) all state that the FHA actually loans money.
What can the VA require a veteran do when applying for a loan? A » Make the down payment directly to the VA B » Make a down payment in cash C » Make the veteran immediately assume liability for the VA guaranty amount D » NOT allow the veteran to make prepayments on the principal amount C(C) If a veteran obtains a VA loan, the veteran must be liable. The veteran cannot just walk away and assign liability to another. There is no down payment required (A) & (B). If the veteran makes a down payment, it would be applied against the sale price, not paid to the VA. A veteran is allowed to pre-pay the loan (D),
A borrower applied for a VA guaranteed first time mortgage for $50,000. However, the property appraised for $46,000. If the buyer still wished to buy the property, which could happen? A » The broker could write up a different contract for a different sale price to take to the lender that is different from the actual contract B » The VA could allow the borrower to make up the difference in cash C » The VA could make the seller carry a second mortgage for the difference D » The veteran could not get a VA loan because it appraised for over $35,000 B(B) VA borrowers can pay more than the appraised value. However, the borrower must pay the difference in cash. Writing false contracts (A) is illegal bank fraud. The seller can NOT be made by the VA to carry a second mortgage (C). Most VA loans are for far more than $35,000 (D).
A single parent who receives child support payments is applying for a loan to purchase a house. The parent MUST disclose the child support to the lender if:A » applying for an FHA or VA loan B » gross income is less than $25,000 per year C » the child support exceeds 50% of income D » the child support will be considered as a basis for the payments D(D) The only time ANY income must be revealed to a lender is if the borrower wants the lender to consider that income in determining whether the loan can be repaid. FHA and VA (A) have no special disclosure requirements regarding child support. Income (B) is not relevant nor is the amount of child support (C).
A buyer bought a house for $40,000. In order to get the buyer a larger loan, the broker wrote up a false contract for $48,000. Would this be legal? A » Yes, as long as the buyer and seller both agreed B » Yes, since the lender would base the loan on the appraisal, not the contract C » No, because the seller would NOT be a party to the false contract D » No, because the loan must be based upon the actual contract sale price D(D) Writing a false contract in order to borrow money is bank fraud. Anything other than the actual sale price is fraudulent. Even if the buyer and seller agreed (A) & (C), it is still fraud. Although the lender will consider the appraisal, the sales contract price is an important factor in considering whether or not to grant the loan (B).
A lender, in qualifying a buyer for a loan, would use a: A » debt to liability ratio B » debt to equity ratio C » debt to income ratio D » cash on cash ratio C(C) A debt to income rate is used in qualifying a buyer for a loan. The other ratios do NOT involve qualifying a buyer. (D) A cash on cash rate of return is used on commercial properties; this is the cash received divided by the cash invested.
A person increased the monthly mortgage payments to a lender with all the increases in payments being applied to the principal loan balance. Which of the following terms best describes this type of payment plan? A » Partially amortized with a balloon B » Growing equity mortgage C » Straight note D » Term loan B(B) A growing equity mortgage is where a borrower makes extra payments to principal each month, thereby increasing or growing the equity. (A) A partially amortized with a balloon is where payments are applied to both principal and interest but leaves a balance at the end of the loan term which is then paid off with a balloon payments. (C) & (D) A straight note and a term loan are the same thing; interest only payments are made each month.
A borrower who had repaid a portion of the original loan could borrow those funds again without rewriting the original terms of the note under which of the following types of mortgages? A » Package B » Blanket C » Wraparound D » Open end D(D) An open end is much like a secured line of credit that allows the borrower to reborrow funds that have already been repaid on the original note. Package (A) mortgages use BOTH real and personal property as security. A blanket mortgage (B) covers more than one piece of real estate. A wraparound (C) mortgage occurs when a lender assumes a first mortgage, advances additional funds to the borrower, writes a second mortgage which includes the first and the additional funds, collects on the second and then pays on the first.
How would a construction loan differ from a VA or FHA loan on an existing home? A » A construction loan cannot be amortized B » A construction loan is generally a higher risk than a residential loan C » A construction loan can NOT have discount points D » A construction loan usually does have discount points B(B) Construction loans are high risk since the security (i.e. the building) is not actually built yet. Many are short term straight (interest only) notes, but can be amortized (principal AND interest paid in payments) (A). Although most do not have discount points, they certainly can (C) & (D).
From a lender’s point of view, which is the riskiest type of loan? A » Conventional B » Purchase money C » Construction D » Wraparound C(C) Since the property is not completely built, a construction loan is very high risk. Upon foreclosure, the lender would have to finish building the property before it could be sold. (A) A conventional mortgage is low risk since it has a high down payment. A purchase money mortgage (B) is where the seller finances it to the buyer (so a lender is not involved). (D) A wraparound mortgage is a second mortgage (therefore fairly secure) that includes a first mortgage amount plus additional funds. The lender then pays on the first mortgage.

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