Loans Mortgage Loan 4 — Questions and Answers
Question 1: What is a 'jumbo loan'?
- A mortgage with a very long repayment term
- A loan that exceeds the conforming loan limits set by the FHFA (Correct answer)
- A loan made to borrowers with jumbo credit scores
- A mortgage requiring a 50% down payment
Correct answer: A loan that exceeds the conforming loan limits set by the FHFA
A jumbo loan exceeds the conforming loan limits established by the Federal Housing Finance Agency (FHFA) and cannot be purchased by Fannie Mae or Freddie Mac.
Question 2: What is 'mortgage points,' and how do they work?
- Rewards earned for making on-time payments
- Upfront fees paid to the lender to reduce the interest rate (Correct answer)
- Penalties charged for early payoff
- Fees charged by the real estate agent
Correct answer: Upfront fees paid to the lender to reduce the interest rate
Each mortgage point equals 1% of the loan amount and is paid at closing to buy down (lower) the interest rate.
Question 3: A VA home loan benefit is exclusively available to which group?
- All first-time homebuyers
- Low-income families in rural areas
- Eligible veterans, active-duty service members, and surviving spouses (Correct answer)
- Federal government employees
Correct answer: Eligible veterans, active-duty service members, and surviving spouses
VA loans are a benefit administered by the U.S. Department of Veterans Affairs for eligible veterans, active-duty military, and qualifying surviving spouses.
Question 4: What is a 'home equity line of credit' (HELOC)?
- A fixed-rate second mortgage with a lump-sum disbursement
- A revolving line of credit secured by the borrower's home equity (Correct answer)
- A government program for first-time buyers
- An unsecured personal loan tied to home value
Correct answer: A revolving line of credit secured by the borrower's home equity
A HELOC is a revolving credit line secured by home equity, allowing borrowers to draw and repay funds as needed up to the credit limit.
Question 5: Which document provides a standardized, three-page summary of key loan terms that lenders must give borrowers at least three business days before closing?
- Loan Estimate
- Closing Disclosure (Correct answer)
- Good Faith Estimate
- HUD-1 Settlement Statement
Correct answer: Closing Disclosure
The Closing Disclosure must be delivered at least three business days before closing and details all final loan terms, costs, and cash-to-close.
Question 6: What does 'underwater' mean in the context of a mortgage?
- The property is located in a flood zone
- The loan balance exceeds the current market value of the home (Correct answer)
- The borrower has missed more than three payments
- The mortgage rate is above the market average
Correct answer: The loan balance exceeds the current market value of the home
A borrower is underwater (or has negative equity) when the outstanding mortgage balance is greater than the home's current market value.
Question 7: What is a 'short sale' in mortgage terms?
- A property sold below list price within 30 days of listing
- Selling the home for less than the mortgage balance, with lender approval (Correct answer)
- A quick foreclosure process lasting under 60 days
- A sale in which the seller keeps the mortgage proceeds
Correct answer: Selling the home for less than the mortgage balance, with lender approval
In a short sale, the lender agrees to accept sale proceeds that fall short of the total amount owed, typically to avoid a costlier foreclosure.
