Real Estate Sales Exam Financing and Mortgages 3

Question 1

A seller agrees to make monthly payments to the buyer who previously owned the property — what type of financing is this?

Accepted Answer

Purchase-money mortgage

Answer

A purchase-money mortgage is created when the seller finances part or all of the purchase price, acting as the lender.

Question 2

Which federal law requires lenders to disclose the annual percentage rate (APR) to borrowers?

Accepted Answer

Truth in Lending Act (TILA)

Answer

TILA (Regulation Z) requires lenders to disclose the APR and total cost of credit to borrowers.

Question 3

What is a 'balloon mortgage'?

Accepted Answer

A loan requiring a large lump-sum payment at the end of the term

Answer

A balloon mortgage has smaller periodic payments with a large final lump-sum payment due at the end of the term.

Question 4

Which ratio compares a borrower's total monthly debt payments to gross monthly income?

Accepted Answer

Back-end (total debt-to-income) ratio

Answer

The back-end DTI ratio includes all monthly debt obligations (housing + other debts) divided by gross monthly income.

Question 5

A home equity line of credit (HELOC) is best described as:

Accepted Answer

A revolving line of credit secured by the borrower's home equity

Answer

A HELOC is a revolving credit line secured by home equity, allowing borrowers to draw and repay as needed.

Real Estate Sales Exam Practice Test