AFC Housing and Real Estate Finance

Question 1

What does the term 'amortization' refer to in the context of a mortgage?

Accepted Answer

The gradual repayment of a loan through scheduled principal and interest payments

Answer

The process of building home equity through market appreciation

Answer

The cost of homeowners insurance over the life of the loan

Answer

The lender's fee for originating the mortgage

Question 2

A client's front-end debt-to-income (DTI) ratio is calculated using:

Accepted Answer

Monthly housing costs only divided by gross monthly income

Answer

Total monthly debt payments divided by gross monthly income

Answer

Net monthly income divided by total housing costs

Answer

Monthly housing costs divided by net monthly income

Question 3

What is Private Mortgage Insurance (PMI) and when is it typically required?

Accepted Answer

Insurance that protects the lender; typically required when the down payment is less than 20%

Answer

Insurance that protects the buyer if the home is damaged; required on all mortgages

Answer

Insurance that covers mortgage payments if the borrower loses their job; optional

Answer

Title insurance required at closing for all FHA loans

Question 4

Which federal law requires lenders to provide borrowers with a Loan Estimate within three business days of receiving a mortgage application?

Accepted Answer

TILA-RESPA Integrated Disclosure (TRID) rule

Answer

Truth in Lending Act (TILA)

Answer

Real Estate Settlement Procedures Act (RESPA)

Answer

Equal Credit Opportunity Act (ECOA)

Question 5

An adjustable-rate mortgage (ARM) with a 5/1 structure means:

Accepted Answer

The rate is fixed for 5 years, then adjusts annually

Answer

The rate adjusts every 5 months for 1 year

Answer

The loan has a 5-year term with 1 adjustment per year

Answer

The down payment is 5% with a 1% origination fee

Question 6

Home equity is calculated as:

Accepted Answer

The current market value of the home minus the outstanding mortgage balance

Answer

The original purchase price minus the remaining mortgage balance

Answer

The total payments made on the mortgage to date

Answer

The appraised value minus the original down payment