Real Estate Sales Exam Real Estate Sales Financing and Mortgages 1

Question 1

Which type of mortgage allows the interest rate to adjust periodically based on a financial index after an initial fixed-rate period?

Accepted Answer

Adjustable-rate mortgage (ARM)

Answer

An adjustable-rate mortgage (ARM) features an initial fixed-rate period followed by periodic rate adjustments tied to a benchmark index such as SOFR or the one-year Treasury bill rate, which can cause monthly payments to rise or fall.

Question 2

What is the term for the percentage of a property's appraised value that a lender is willing to finance?

Accepted Answer

Loan-to-value ratio (LTV)

Answer

The loan-to-value (LTV) ratio expresses the loan amount as a percentage of the property's appraised value; lenders use it to assess risk, and a higher LTV typically requires private mortgage insurance (PMI).

Question 3

Under a purchase-money mortgage, who acts as the lender?

Accepted Answer

The property seller

Answer

In a purchase-money mortgage, the seller extends credit directly to the buyer instead of the buyer obtaining a third-party loan, with the property serving as collateral — a form of seller financing.

Question 4

What does 'buying down the rate' mean in mortgage financing?

Accepted Answer

Paying discount points upfront to obtain a lower interest rate

Answer

Buying down the rate means paying discount points (prepaid interest) at closing to reduce the loan's ongoing interest rate; each point equals 1% of the loan amount and typically lowers the rate by approximately 0.25%.

Question 5

Which federal law requires lenders to provide borrowers with a Closing Disclosure at least three business days before consummation of a mortgage loan?

Accepted Answer

TILA-RESPA Integrated Disclosure (TRID) rule

Answer

The TRID rule, which integrates disclosure requirements from TILA and RESPA, mandates that lenders deliver the Closing Disclosure no later than three business days before closing, giving borrowers time to review final loan terms.

Real Estate Sales Exam Practice Test

Real Estate Sales Exam Practice Test

Real Estate Sales Exam Real Estate Sales Financing and Mortgages 1