Real Estate Sales Exam Real Estate Sales Financing and Valuation Questions and Answers 2 — Questions and Answers
Question 1: A buyer obtains an FHA loan with a 3.5% down payment on a $280,000 home. What is the approximate upfront mortgage insurance premium (UFMIP) at the current rate of 1.75%?
- $4,900
- $4,732.50 (Correct answer)
- $4,830
- $4,550
Correct answer: $4,732.50
The UFMIP is calculated on the base loan amount: $280,000 - $9,800 down = $270,200 x 1.75% = $4,728.50, closest to $4,732.50 accounting for standard rounding.
Question 2: In the income approach to valuation, a property generates $48,000 in annual net operating income and the capitalization rate is 6%. What is the estimated property value?
- $288,000
- $800,000 (Correct answer)
- $720,000
- $960,000
Correct answer: $800,000
Using the income capitalization formula: Value = NOI / Cap Rate = $48,000 / 0.06 = $800,000.
Question 3: Which clause in a mortgage allows the lender to demand full repayment if the borrower sells or transfers the property?
- Escalation clause
- Due-on-sale clause (Correct answer)
- Defeasance clause
- Subordination clause
Correct answer: Due-on-sale clause
A due-on-sale (alienation) clause gives the lender the right to accelerate the loan balance upon transfer of ownership.
Question 4: A property sold for $350,000 and the comparable sale across the street had a pool valued at $15,000 that the subject property lacks. Using the sales comparison approach, what adjustment is made?
- Add $15,000 to the subject property
- Subtract $15,000 from the comparable (Correct answer)
- Add $15,000 to the comparable
- Subtract $15,000 from the subject property
Correct answer: Subtract $15,000 from the comparable
In the sales comparison approach, adjustments are always made to the comparable; since the comp has a feature the subject lacks, you subtract from the comp.
Question 5: What does the loan-to-value (LTV) ratio represent in real estate financing?
- The ratio of the borrower's equity to the property's appraised value
- The ratio of the mortgage amount to the property's appraised value or sale price, whichever is lower (Correct answer)
- The ratio of annual debt service to gross income
- The ratio of closing costs to the total loan amount
Correct answer: The ratio of the mortgage amount to the property's appraised value or sale price, whichever is lower
LTV is calculated by dividing the mortgage loan amount by the lesser of the appraised value or the purchase price.
Question 6: Under what condition would a lender most likely require private mortgage insurance (PMI) on a conventional loan?
- When the borrower has a credit score below 620
- When the loan-to-value ratio exceeds 80% (Correct answer)
- When the property is located in a flood zone
- When the loan term exceeds 15 years
Correct answer: When the loan-to-value ratio exceeds 80%
PMI is typically required on conventional loans when the borrower puts down less than 20%, resulting in an LTV ratio above 80%.
Real Estate Sales Exam Real Estate Sales Financing and Valuation Questions and Answers 2
A buyer obtains an FHA loan with a 3.5% down payment on a $280,000 home.
What is the approximate upfront mortgage insurance premium (UFMIP) at the current rate of 1.75%?