Free Arizona Real Estate License Financing and Valuation Principles Questions and Answers 1 — Questions and Answers
Question 1: A first-time homebuyer in Tucson has a good credit score but limited funds for a down payment. Which loan type would most likely require them to pay for both an upfront and an annual Mortgage Insurance Premium (MIP)?
- VA loan
- FHA loan (Correct answer)
- Conventional loan with 20% down
- Seller-financed loan
Correct answer: FHA loan
FHA loans are insured by the Federal Housing Administration and require both an upfront mortgage insurance premium (UPMIP) and an annual MIP, which is paid monthly. This insurance protects the lender against default and is required for all FHA borrowers, regardless of their down payment amount.
Question 2: An appraiser is tasked with valuing a newly constructed, custom-built luxury home in a subdivision where there are no recent comparable sales. Which approach to valuation would be most heavily weighted in their final analysis?
- Sales Comparison Approach
- Income Approach
- Gross Rent Multiplier
- Cost Approach (Correct answer)
Correct answer: Cost Approach
The Cost Approach is most reliable for unique properties, such as new construction or special-purpose buildings like schools, where comparable sales are unavailable. This method calculates value by estimating the cost to build a replacement structure, subtracting any depreciation, and adding the value of the land.
Question 3: In Arizona, most residential loans are secured by a Deed of Trust. If the borrower defaults, what is the most common procedure for the lender to reclaim the property?
- Judicial foreclosure
- Strict foreclosure
- Trustee's Sale (Correct answer)
- Deed in lieu of foreclosure
Correct answer: Trustee's Sale
A Deed of Trust is the most common security instrument in Arizona and typically includes a "power of sale" clause. This allows the trustee to sell the property in a non-judicial foreclosure process, known as a Trustee's Sale, if the borrower defaults. This method is faster and more common than a judicial foreclosure, which requires court involvement.
Question 4: A buyer obtains a $400,000 loan to purchase a $500,000 home. The lender charges the buyer 2 discount points. How much will the buyer have to pay for these points at closing?
- $10,000
- $8,000 (Correct answer)
- $5,000
- $4,000
Correct answer: $8,000
One discount point is equal to 1% of the loan amount, not the purchase price. In this scenario, the loan amount is $400,000. Therefore, 2 points would be 2% of $400,000, which calculates to $8,000 (0.02 x 400,000 = 8,000).
Question 5: Which of the following is a primary requirement of the federal Truth in Lending Act (TILA), as implemented by Regulation Z?
- Requiring disclosure of the Annual Percentage Rate (APR) (Correct answer)
- Prohibiting kickbacks for settlement service referrals
- Providing the borrower with a Loan Estimate within three business days of application
- Mandating a home inspection for all government-backed loans
Correct answer: Requiring disclosure of the Annual Percentage Rate (APR)
The main purpose of the Truth in Lending Act (TILA) is to promote the informed use of consumer credit by requiring disclosures about its terms and cost. A key disclosure required by TILA's Regulation Z is the Annual Percentage Rate (APR), which represents the total cost of borrowing money expressed as a yearly rate.
Question 6: In Arizona, property taxes are levied on an *ad valorem* basis. A property has a full cash value (FCV) of $500,000 and a limited property value (LPV) of $450,000. For the purpose of calculating primary property taxes, which value is used?
- The Full Cash Value (FCV)
- The Assessed Value, which is derived from the LPV (Correct answer)
- The average of the FCV and LPV
- The market value determined by a recent appraisal
Correct answer: The Assessed Value, which is derived from the LPV
In Arizona, primary property taxes (funding the general operations of government) are calculated using the Limited Property Value (LPV). The LPV is then multiplied by the legal assessment ratio (e.g., 10% for residential property) to determine the assessed value, which the tax rate is then applied to. The LPV is designed to limit large annual increases in property taxes.
Free Arizona Real Estate License Financing and Valuation Principles Questions and Answers 1
A first-time homebuyer in Tucson has a good credit score but limited funds for a down payment.
Which loan type would most likely require them to pay for both an upfront and an annual Mortgage Insurance Premium (MIP)?