PSI Real Estate Financing MCQ 5

Question 1

An FHA loan requires a minimum down payment of 3.5% when the borrower's credit score is:

Accepted Answer

At least 580

Answer

FHA requires a minimum 580 credit score for the 3.5% down payment; borrowers with scores between 500–579 must put down at least 10%.

Question 2

What is 'negative amortization' in a mortgage loan?

Accepted Answer

When monthly payments are insufficient to cover interest, causing the loan balance to increase

Answer

Negative amortization occurs when a borrower's payment does not cover all accrued interest, causing unpaid interest to be added to the loan principal.

Question 3

A lender requires an impound (escrow) account. What funds does the borrower deposit into this account monthly?

Accepted Answer

Property taxes and hazard insurance premiums

Answer

An impound/escrow account collects monthly portions of property taxes and hazard (homeowner's) insurance so the lender can pay these obligations on the borrower's behalf.

Question 4

Which of the following loan types does NOT require mortgage insurance regardless of the down payment amount?

Accepted Answer

VA loan

Answer

VA loans do not require monthly mortgage insurance premiums regardless of the down payment or LTV ratio, a significant benefit for eligible veterans.

Question 5

What is the primary function of the secondary mortgage market?

Accepted Answer

To allow lenders to sell existing loans, replenishing capital to issue new loans

Answer

The secondary mortgage market enables lenders to sell originated loans to investors, recovering capital so they can fund additional mortgages for new borrowers.

PSI - Exams Practice Test

PSI - Exams Practice Test

PSI Real Estate Financing MCQ 5