Arkansas Real Estate License FREE Arkansas Real Estate License Financing and Settlement Practices Questions and Answers 2 — Questions and Answers
Question 1: Under Arkansas law, what document provides the borrower with a detailed breakdown of all closing costs and fees?
- Closing Disclosure (Correct answer)
- Good Faith Estimate
- Title Abstract
- Deed of Trust
Correct answer: Closing Disclosure
The Closing Disclosure, required by TRID rules, itemizes all settlement charges for the borrower before closing.
Question 2: Which type of mortgage clause allows a lender to demand full repayment if the property is sold or transferred?
- Due-on-sale clause (Correct answer)
- Prepayment penalty clause
- Subordination clause
- Defeasance clause
Correct answer: Due-on-sale clause
A due-on-sale clause permits the lender to accelerate the loan balance when ownership of the property changes.
Question 3: In Arkansas, what is the primary purpose of a title search during the settlement process?
- To verify there are no outstanding liens or encumbrances on the property (Correct answer)
- To determine the property's market value
- To confirm the buyer's creditworthiness
- To calculate property tax assessments
Correct answer: To verify there are no outstanding liens or encumbrances on the property
A title search examines public records to ensure the seller can convey clear title free of undisclosed liens or claims.
Question 4: What does the loan-to-value (LTV) ratio measure in a real estate financing transaction?
- The loan amount as a percentage of the property's appraised value (Correct answer)
- The borrower's monthly debt compared to income
- The interest rate relative to the prime rate
- The down payment as a percentage of the purchase price
Correct answer: The loan amount as a percentage of the property's appraised value
LTV is calculated by dividing the mortgage amount by the appraised value or purchase price, whichever is lower.
Question 5: Which settlement expense in Arkansas is typically prorated between buyer and seller at closing?
- Property taxes (Correct answer)
- Loan origination fees
- Title insurance premiums
- Recording fees
Correct answer: Property taxes
Property taxes are prorated so each party pays for the portion of the tax period during which they owned the property.
Question 6: What type of financing involves the seller acting as the lender and the buyer making payments directly to the seller?
- Seller financing (Correct answer)
- Conventional financing
- FHA financing
- Bridge loan
Correct answer: Seller financing
In seller financing, the seller extends credit to the buyer, who repays the purchase price over time directly to the seller.
Arkansas Real Estate License FREE Arkansas Real Estate License Financing and Settlement Practices Questions and Answers 2
Under Arkansas law, what document provides the borrower with a detailed breakdown of all closing costs and fees?