Question 1

On an adjustable-rate mortgage (ARM), the percentage points that a lender adds to the index rate to determine the rate of interest is called the:

Accepted Answer

The margin is the percentage added to the index rate to determine the interest on an ARM. Choice A (payment cap) and B (interest rate cap) refer to limits on how much the interest rate or payment can increase or decrease over time. Choice D (anchor) and E (residual value) are not terms related to ARMs.

Question 2

A type of financing made available by a builder or seller to a potential new-home buyer at well below market interest rates, often only for a short period, is termed a:

Accepted Answer

A buydown is when the builder or seller pays an amount upfront to reduce the interest rate for the buyer for a certain period of time. This is often done to incentivize buyers to purchase new homes in a slow market.

Question 3

Matt is considering the purchase of a condo on a mortgage. However, he is not sure of the amount of the mortgage he is eligible for. _____  will help him identify and correct any problems, such as credit report errors, that may arise on his application.

Accepted Answer

Prequalification is the process of determining how much a potential homebuyer can afford to borrow for a mortgage by evaluating their income, credit score, debt, and other financial factors. Through prequalification, Matt can identify any credit report errors or other issues that may prevent him from qualifying for a mortgage or impact the amount he can borrow. A contingency clause is a contract provision that makes an agreement dependent on certain conditions, such as obtaining financing, so it is not relevant to Matt's initial application process. MLS is a database of real estate listings and not related to mortgage eligibility. The seller's financial institution also doesn't play a role in Matt's application process. Finally, a buyer's agent is not specifically tasked with helping Matt identify and correct issues on his mortgage application.

Question 4

A biweekly mortgage refers to:

Accepted Answer

A biweekly mortgage is a loan on which payments equal to half the regular monthly payment are made every 2 weeks. This method of payment results in 26 payments per year (or 13 full payments) instead of the standard 12 payments per year, which ultimately leads to the loan being paid off faster and with less interest.

Question 5

With prequalification, a buyer can:

Accepted Answer

Prequalification allows a buyer to understand their creditworthiness and address any issues on their credit report before applying for a mortgage.

Question 6

You made a $900 mortgage payment. The interest of $925 on the mortgage for this month leads to an increase in the principal balance. You have:

Accepted Answer

Negative amortization occurs when the interest charged on a loan is greater than the amount of the monthly payment, leading to an increase in the principal balance. In this case, the interest of $925 is greater than the $900 monthly payment, causing the principal balance to increase.

Question 7

The _____ governs closings on owner-occupied houses, condominiums, and apartment buildings of four units or fewer.

Accepted Answer

The Real Estate Settlement Procedures Act (RESPA) governs closings on owner-occupied houses, condominiums, and apartment buildings of four units or fewer. RESPA ensures that consumers are provided with timely information on the nature and costs of the settlement process and prevents unfair practices by mortgage lenders and settlement service providers. The Equal Credit Opportunity Act (ECOA) prohibits discrimination in lending practices, the Truth-in-Lending Act (TILA) requires lenders to disclose the true cost of credit, and the Mortgage Lenders Act regulates mortgage lending activities. The Real Estate Agents Act governs the activities of real estate agents and brokers.

Question 8

Dick and Jane have just purchased a house and are calculating how much money they will need when the closing day rolls around. The purchase price is $200,000. They will make a 20% down payment, and they must pay 2 points on the loan. Closing costs should be 3% of the purchase price. What is the total dollar amount they will need at closing? (Show all work.)

Accepted Answer

The answer of Dick and Jane have just purchased a...

Question 9

A veteran might be able to buy a home with no down payment with:

Accepted Answer

A VA loan guarantee provides eligible veterans with the opportunity to purchase a home with no down payment. This is a benefit specifically for veterans and is not available through other types of mortgages such as FHA, conventional or graduated-payment. A buydown is a program where the borrower pays an initial fee to lower the interest rate for the first few years, but it still requires a down payment.

Question 10

Judy has $2,000 for a down payment on a vehicle, and she can afford monthly payments of $400. If lenders are currently offering 6% interest on 5-year loans, what is the maximum price Judy can pay for a vehicle? (Show all work.)

Accepted Answer

The answer of Judy has $2,000 for a down payment...

Question 11

A(n) _____ is provided to both buyer and seller at or before the actual closing and accounts for monies that change hands during the transaction.

Accepted Answer

A closing statement is a document that lists all the fees, charges, and credits that both the buyer and seller will incur during the real estate transaction, including the purchase price, any prorated property taxes or HOA fees, and closing costs. It provides an itemized breakdown of the amount due at closing, and ensures that all parties are on the same page regarding the financial aspects of the deal.

Question 12

The monthly interest on your adjustable-rate mortgage (ARM) was $690. You paid $650 as your monthly payment on the loan, leading to an increase in the principal balance. This is an example of:

Accepted Answer

The fact that the monthly interest exceeds the monthly payment means that the payment is not sufficient to cover the interest due, resulting in negative amortization. This means that the principal balance increases instead of decreasing as it would with a fully-amortizing loan.

Question 13

Earnest money is the sum of money the home buyer pledges with the:

Accepted Answer

Earnest money is a sum of money given by the buyer to the seller to indicate their intent to purchase the home. This money is held in an escrow account and will be put towards the down payment or closing costs at the time of closing.

Question 14

Which of the following will help a buyer know ahead of time the specific mortgage amount that he or she will be eligible for (subject to changes in rates and terms)?

Accepted Answer

Prequalification is a process in which a lender will review a buyer's financial situation and creditworthiness to provide an estimated mortgage amount they will be eligible for. This is a good way for buyers to know their purchasing power before they start house hunting.

Question 15

_____ are loans offering low payments for the first few years, gradually increasing until year 3 or 5, and then remaining fixed.

Accepted Answer

Graduated-payment mortgages offer low payments for the first few years, which gradually increase until year 3 or 5, and then remain fixed.

Question 16

Leslie has been offered the choice of either a $1,000 rebate or a 5.5%, 48-month loan for the new car she is purchasing. If Leslie will be financing $15,000 and can get a 7.5%, 48-month loan at her credit union, should she take the $1,000 rebate or the 5.5% loan? (Show all work.)

Accepted Answer

The answer of Leslie has been offered the choice of...

Question 17

Jane and Smith are considering the purchase of a home in downtown Minneapolis. They approached Larson's Mortgagers Inc. to arrange for the financing needed for their home. This process of arranging with a mortgage lender in advance of buying a home is called:

Accepted Answer

Prequalification is the process of arranging for financing with a mortgage lender in advance of purchasing a home. This allows buyers to know how much they can afford and have a better idea of their budget before looking at homes. A foreclosure is when a homeowner defaults on their mortgage and the bank takes possession of the property. A contingency auction is an auction where the winning bid is subject to certain conditions being met. A real estate short sale is when a homeowner sells their property for less than what they owe on their mortgage. Diversification is a strategy for reducing investment risk by spreading investments across different asset classes or sectors.

Question 18

Fredrick purchased a property worth $150,000 on mortgage. He paid $30,000 as a down payment on this property. However, a recent slump in real estate prices forced Fredrick to sell the property for $115,000 only 2 months later. This sale is termed a(n):

Accepted Answer

A real estate short sale is when the property is sold for less than the outstanding mortgage balance. In this case, Fredrick sold the property for $115,000, which is less than the mortgage he took out for $120,000 ($150,000 - $30,000 down payment = $120,000 mortgage balance). Therefore, this is a real estate short sale. The other options listed do not accurately reflect the situation described.

Question 19

If the interest rate and monthly mortgage payment do not change over the life of your mortgage, you have a(n):

Accepted Answer

If the interest rate and monthly mortgage payment do not change over the life of your mortgage, you have a fixed-rate mortgage. This means that both the interest rate and monthly payment remain the same, providing stability and predictability for the borrower.

Question 20

Greg has negotiated a $20,000 price on a new pickup truck. The manufacturer is offering a $1,500 rebate or 3.9%, 3-year financing. Greg is also able to get 7%, 3-year financing from his credit union. If Greg plans to finance $18,000 over 3 years, should he take the 3.9% financing or the 7% financing? (Show all work and round to two decimal places.)

Accepted Answer

The answer of Greg has negotiated a $20,000 price on...

Quiz 5: Making Automobile and Housing Decisions

On an adjustable-rate mortgage (ARM) , the percentage points that a lender adds to the index rate to determine the rate of interest is called the: