Financing and Valuation Principles Flashcards
7 cards from real Arizona Real Estate License practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financing and Valuation Principles flashcards as text
Which document is the promise to repay a debt, separate from the instrument that pledges the property as security?
Answer: Promissory note
The promissory note is the borrower's written promise to repay; the mortgage or deed of trust secures it.
In an appraisal, physical, functional, and external are the three types of:
Answer: Depreciation
Depreciation in appraisal is categorized as physical deterioration, functional obsolescence, and external obsolescence.
A loan where the payments do not fully repay the principal, leaving a large final payment, is a:
Answer: Balloon loan
A balloon loan requires a large lump-sum payment of remaining principal at the end of the term.
Which financing arrangement has the seller carry back a loan for the buyer instead of a bank?
Answer: Seller financing
In seller (owner) financing, the seller extends credit to the buyer, who repays the seller directly.
A home appraised at $250,000 with a loan of $200,000 has what loan-to-value ratio?
Answer: 80%
LTV = loan / value = $200,000 / $250,000 = 80%.
The appraisal principle stating that value is maximized when land is used in its most profitable legal way is:
Answer: Highest and best use
Highest and best use is the legally permissible, physically possible, financially feasible use that yields the greatest value.
Private mortgage insurance (PMI) is typically required on a conventional loan when the down payment is:
Answer: Less than 20%
PMI protects the lender and is generally required when the down payment is under 20% (LTV above 80%).