PSI Real Estate Financing 4 — Questions and Answers
Question 1: An elderly homeowner receives monthly payments from a lender based on the equity in their paid-off home. This arrangement is a:
- Home equity line of credit
- Bridge loan
- Reverse mortgage (Correct answer)
- Sale-leaseback
Correct answer: Reverse mortgage
A reverse mortgage allows senior homeowners (typically 62+) to convert home equity into cash payments without selling the property.
Question 2: Which type of mortgage requires the borrower to pay interest only during the initial period, with no principal reduction?
- Fully amortizing mortgage
- Interest-only mortgage (Correct answer)
- Graduated payment mortgage
- Biweekly mortgage
Correct answer: Interest-only mortgage
An interest-only mortgage requires payments that cover only interest during the initial term, meaning the principal balance does not decrease.
Question 3: RESPA requires that buyers receive a Loan Estimate within how many business days of submitting a loan application?
- 1 business day
- 3 business days (Correct answer)
- 5 business days
- 7 business days
Correct answer: 3 business days
Under RESPA and TILA (TRID rules), lenders must provide the Loan Estimate within 3 business days of receiving a completed loan application.
Question 4: A borrower's existing loan is replaced with a new loan at a lower interest rate. This process is called:
- Assumption
- Subordination
- Novation
- Refinancing (Correct answer)
Correct answer: Refinancing
Refinancing replaces an existing mortgage with a new loan, often to secure a lower interest rate or different loan terms.
Question 5: Which FHA mortgage insurance premium is collected at loan closing?
- Monthly MIP
- Annual MIP
- Upfront MIP (UFMIP) (Correct answer)
- Hazard insurance premium
Correct answer: Upfront MIP (UFMIP)
FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), currently 1.75% of the base loan amount, paid at closing.
Question 6: A construction loan that automatically converts to a permanent mortgage upon project completion is called a:
- Bridge loan
- Construction-to-permanent loan (Correct answer)
- Interim loan
- Hard money loan
Correct answer: Construction-to-permanent loan
A construction-to-permanent loan funds the building phase and then converts automatically to a long-term mortgage when construction is complete.
Question 7: What term describes the process by which a mortgage lender sells loans to investors in the secondary market?
- Origination
- Underwriting
- Securitization (Correct answer)
- Escrow
Correct answer: Securitization
Securitization bundles individual mortgages into mortgage-backed securities (MBS) that are sold to investors in the secondary market.
PSI Real Estate Financing 4
An elderly homeowner receives monthly payments from a lender based on the equity in their paid-off home.
This arrangement is a: