Arizona Real Estate License Financing and Valuation Principles 2

Question 1

A borrower obtains a loan where the interest rate can adjust periodically based on an index. What type of mortgage is this?

Accepted Answer

Adjustable-rate mortgage (ARM)

Answer

An ARM has an interest rate tied to an index that adjusts at set intervals.

Question 2

In an appraisal, the principle that a property's value tends to equal the cost of acquiring an equally desirable substitute is called:

Accepted Answer

Principle of substitution

Answer

The principle of substitution holds that a buyer will pay no more than the cost of an equally desirable alternative.

Question 3

Which loan program is insured by the Federal Housing Administration?

Accepted Answer

FHA loan

Answer

FHA loans are insured by the Federal Housing Administration, allowing lower down payments.

Question 4

A property generates $24,000 in annual net operating income and sold for $300,000. What is the capitalization rate?

Accepted Answer

8%

Answer

Cap rate = NOI / value = $24,000 / $300,000 = 8%.

Question 5

Which clause allows a lender to demand full repayment if the borrower sells the property?

Accepted Answer

Due-on-sale clause

Answer

A due-on-sale (alienation) clause lets the lender call the loan due upon transfer of title.

Arizona Real Estate License Practice Test