Real Estate Financing

Description: This quiz will test your knowledge of real estate financing.
Number of Questions: 14
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Tags: real estate financing loans mortgages
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What is the most common type of real estate loan?

  1. Conventional loan

  2. Government-insured loan

  3. Jumbo loan

  4. Hard money loan


Correct Option: A
Explanation:

Conventional loans are the most common type of real estate loan. They are not insured by the government, so they typically have stricter credit and income requirements than government-insured loans.

What is the maximum loan-to-value (LTV) ratio for a conventional loan?

  1. 80%

  2. 90%

  3. 95%

  4. 100%


Correct Option: A
Explanation:

The maximum LTV ratio for a conventional loan is 80%. This means that the borrower must make a down payment of at least 20% of the purchase price.

What is the difference between a fixed-rate mortgage and an adjustable-rate mortgage (ARM)?

  1. Fixed-rate mortgages have a fixed interest rate for the life of the loan, while ARMs have an interest rate that can change over time.

  2. Fixed-rate mortgages have a higher interest rate than ARMs.

  3. ARMs have a lower interest rate than fixed-rate mortgages.

  4. Fixed-rate mortgages are more risky than ARMs.


Correct Option: A
Explanation:

Fixed-rate mortgages have a fixed interest rate for the life of the loan, while ARMs have an interest rate that can change over time. ARMs typically have a lower initial interest rate than fixed-rate mortgages, but the interest rate can increase over time.

What is the most common type of ARM?

  1. 5/1 ARM

  2. 7/1 ARM

  3. 10/1 ARM

  4. 15/1 ARM


Correct Option: A
Explanation:

The most common type of ARM is the 5/1 ARM. This means that the interest rate is fixed for the first five years of the loan, and then it can adjust once per year after that.

What is the maximum debt-to-income (DTI) ratio for a conventional loan?

  1. 36%

  2. 43%

  3. 50%

  4. 57%


Correct Option: B
Explanation:

The maximum DTI ratio for a conventional loan is 43%. This means that the borrower's total monthly debt payments, including the mortgage payment, cannot exceed 43% of their gross monthly income.

What is the purpose of a mortgage insurance premium (MIP)?

  1. To protect the lender in case the borrower defaults on the loan.

  2. To reduce the borrower's interest rate.

  3. To help the borrower make a down payment.

  4. To pay for the closing costs of the loan.


Correct Option: A
Explanation:

The purpose of a MIP is to protect the lender in case the borrower defaults on the loan. The MIP is paid by the borrower and is typically added to the monthly mortgage payment.

What is the difference between a first mortgage and a second mortgage?

  1. A first mortgage is secured by the property, while a second mortgage is not.

  2. A first mortgage has a higher interest rate than a second mortgage.

  3. A second mortgage has a lower interest rate than a first mortgage.

  4. A second mortgage is more risky than a first mortgage.


Correct Option: A
Explanation:

A first mortgage is secured by the property, while a second mortgage is not. This means that if the borrower defaults on the loan, the lender can foreclose on the property and sell it to satisfy the debt. A second mortgage is more risky than a first mortgage because the lender is not secured by the property.

What is the maximum loan amount for a conventional loan?

  1. $417,000

  2. $548,250

  3. $625,500

  4. $726,200


Correct Option: C
Explanation:

The maximum loan amount for a conventional loan is $625,500. This limit is set by the Federal Housing Finance Agency (FHFA).

What is the difference between a pre-approval and a pre-qualification for a mortgage?

  1. A pre-approval is a more formal commitment from the lender than a pre-qualification.

  2. A pre-qualification is a more formal commitment from the lender than a pre-approval.

  3. A pre-approval is typically based on a more thorough review of the borrower's financial information than a pre-qualification.

  4. A pre-qualification is typically based on a more thorough review of the borrower's financial information than a pre-approval.


Correct Option: A
Explanation:

A pre-approval is a more formal commitment from the lender than a pre-qualification. A pre-approval is typically based on a more thorough review of the borrower's financial information than a pre-qualification. A pre-approval also typically includes a specific loan amount and interest rate.

What is the purpose of a home inspection?

  1. To identify any major defects or problems with the property.

  2. To determine the value of the property.

  3. To help the buyer negotiate a lower purchase price.

  4. To all of the above.


Correct Option: D
Explanation:

The purpose of a home inspection is to identify any major defects or problems with the property, to determine the value of the property, and to help the buyer negotiate a lower purchase price.

What is the difference between a title insurance policy and a homeowner's insurance policy?

  1. A title insurance policy protects the lender in case there is a problem with the title to the property.

  2. A homeowner's insurance policy protects the borrower in case the property is damaged or destroyed.

  3. A title insurance policy is typically more expensive than a homeowner's insurance policy.

  4. A homeowner's insurance policy is typically more expensive than a title insurance policy.


Correct Option: A
Explanation:

A title insurance policy protects the lender in case there is a problem with the title to the property. A homeowner's insurance policy protects the borrower in case the property is damaged or destroyed. A title insurance policy is typically more expensive than a homeowner's insurance policy.

What is the purpose of a closing statement?

  1. To summarize the terms of the loan and the costs associated with the purchase of the property.

  2. To transfer the title of the property from the seller to the buyer.

  3. To record the mortgage with the county recorder.

  4. To all of the above.


Correct Option: D
Explanation:

The purpose of a closing statement is to summarize the terms of the loan and the costs associated with the purchase of the property, to transfer the title of the property from the seller to the buyer, and to record the mortgage with the county recorder.

What is the difference between a deed and a mortgage?

  1. A deed transfers the title of the property from the seller to the buyer.

  2. A mortgage secures the loan that the buyer used to purchase the property.

  3. A deed is typically recorded with the county recorder.

  4. A mortgage is typically recorded with the county recorder.


Correct Option:
Explanation:

A deed transfers the title of the property from the seller to the buyer. A mortgage secures the loan that the buyer used to purchase the property. A deed is typically recorded with the county recorder. A mortgage is typically recorded with the county recorder.

What is the purpose of a real estate agent?

  1. To help the buyer find a property that meets their needs.

  2. To negotiate the purchase price of the property on behalf of the buyer.

  3. To help the seller prepare the property for sale.

  4. To all of the above.


Correct Option:
Explanation:

The purpose of a real estate agent is to help the buyer find a property that meets their needs, to negotiate the purchase price of the property on behalf of the buyer, and to help the seller prepare the property for sale.

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