AFC Housing and Real Estate Finance 5

Question 1

Which of the following BEST describes a home equity line of credit (HELOC)?

Accepted Answer

A revolving credit line secured by home equity with a variable interest rate

Answer

A HELOC is a revolving line of credit secured by the home's equity, typically with a variable rate and a draw period followed by a repayment period.

Question 2

The process by which a lender takes legal action to reclaim a property due to the borrower's failure to make mortgage payments is called:

Accepted Answer

Foreclosure

Answer

Foreclosure is the legal process by which a lender terminates a borrower's ownership rights to recover the outstanding loan balance.

Question 3

When a lender requires private mortgage insurance (PMI), it is PRIMARILY to protect against:

Accepted Answer

The lender's loss if the borrower defaults and the home sale doesn't cover the loan

Answer

PMI protects the lender—not the borrower—against financial loss if the borrower defaults and the foreclosure sale proceeds are insufficient to cover the loan balance.

Question 4

A client purchased a home for $300,000 with 5% down. At what loan-to-value (LTV) ratio can they typically request cancellation of PMI under the Homeowners Protection Act?

Accepted Answer

80% LTV (20% equity)

Answer

The Homeowners Protection Act requires lenders to cancel PMI when the loan balance reaches 80% LTV based on the original purchase price and payment schedule.

Question 5

A seller agrees to accept less than the full mortgage balance owed, with the lender's approval, to avoid foreclosure. This arrangement is known as a:

Accepted Answer

Short sale

Answer

A short sale occurs when the lender agrees to accept less than the full payoff amount from a home sale, allowing the homeowner to avoid formal foreclosure.

AFC - Accredited Financial Counselor Practice Test

AFC - Accredited Financial Counselor Practice Test

AFC Housing and Real Estate Finance 5