Arizona Real Estate License Real Estate Financing Concepts 3 — Questions and Answers
Question 1: Which entity purchases mortgages on the secondary market to provide lenders with liquidity?
- Fannie Mae (Correct answer)
- The FHA
- The local county recorder
- The Federal Reserve directly
Correct answer: Fannie Mae
Fannie Mae buys loans on the secondary mortgage market, freeing up lender capital to make new loans.
Question 2: The FHA's primary role in real estate financing is to:
- Directly lend money to buyers
- Insure loans made by approved lenders (Correct answer)
- Set national interest rates
- Appraise all financed properties
Correct answer: Insure loans made by approved lenders
The FHA insures loans, protecting lenders against loss, rather than lending money directly to borrowers.
Question 3: A key benefit of a VA loan for eligible veterans is:
- No property taxes
- Often no down payment required (Correct answer)
- Guaranteed lowest interest rate by law
- Free homeowners insurance
Correct answer: Often no down payment required
VA loans allow eligible veterans to finance up to 100% of the value, often requiring no down payment.
Question 4: What is a 'discount point' on a mortgage loan?
- A fee equal to 1% of the loan paid to lower the interest rate (Correct answer)
- A penalty for late payment
- The lender's profit margin
- A one-time property tax
Correct answer: A fee equal to 1% of the loan paid to lower the interest rate
One discount point equals 1% of the loan amount and is paid upfront to buy down the interest rate.
Question 5: In an adjustable-rate mortgage (ARM), the interest rate is calculated by adding a margin to what?
- The index (Correct answer)
- The down payment
- The appraised value
- The property tax rate
Correct answer: The index
An ARM's rate equals the index plus the lender's margin, so the rate moves as the index changes.
Question 6: What is the function of an 'acceleration clause' in a mortgage or note?
- It speeds up the amortization schedule
- It allows the lender to demand the full balance upon default (Correct answer)
- It lowers the rate over time
- It waives late fees
Correct answer: It allows the lender to demand the full balance upon default
An acceleration clause lets the lender call the entire loan balance due if the borrower defaults on the terms.
Question 7: A 'due-on-sale' clause in a loan protects the lender by:
- Requiring full repayment if the property is sold or transferred (Correct answer)
- Guaranteeing a fixed rate forever
- Waiving the appraisal
- Allowing free assumption by any buyer
Correct answer: Requiring full repayment if the property is sold or transferred
A due-on-sale clause lets the lender demand payoff of the loan when the property is sold, preventing unauthorized assumptions.
Arizona Real Estate License Real Estate Financing Concepts 3
Which entity purchases mortgages on the secondary market to provide lenders with liquidity?