Real Estate Finance & Mortgages 2

Question 1

A conventional loan is characterized by:

Accepted Answer

No government backing, conforming to Fannie Mae/Freddie Mac guidelines

Answer

Conventional loans are not insured by a government agency and must typically meet conforming limits and standards set by Fannie Mae and Freddie Mac.

Question 2

VA home loans are exclusively available to:

Accepted Answer

Eligible veterans, active-duty service members, and qualifying surviving spouses

Answer

VA loans are guaranteed by the Department of Veterans Affairs and available only to eligible military borrowers, offering no down payment and no PMI.

Question 3

Paying 'points' at loan closing means the borrower is:

Accepted Answer

Paying upfront fees to permanently reduce the mortgage interest rate

Answer

Each discount point equals 1% of the loan amount and reduces the interest rate, lowering monthly payments in exchange for a higher upfront cost.

Question 4

The debt-to-income (DTI) ratio most commonly used by lenders for conventional loans should not exceed:

Accepted Answer

43%

Answer

Most conventional lenders require a back-end DTI of 43% or less, meaning total monthly debt payments should not exceed 43% of gross monthly income.

Question 5

In a deed of trust, who holds legal title to the property during the loan term?

Accepted Answer

A neutral third-party trustee

Answer

In a deed of trust, legal title is conveyed to a trustee who holds it on behalf of the lender until the loan is repaid, then reconveyed to the borrower.

Real Estate Practice Test

Real Estate Practice Test

Real Estate Finance & Mortgages 2