Real Estate Sales Exam Financing and Mortgages 4 — Questions and Answers
Question 1: What is a 'due-on-sale' clause in a mortgage?
- A clause requiring the seller to pay off the loan before listing
- A clause that makes the full loan balance due if the property is sold or transferred (Correct answer)
- A clause allowing the buyer to assume the existing mortgage
- A clause setting the maximum interest rate on an ARM
Correct answer: A clause that makes the full loan balance due if the property is sold or transferred
A due-on-sale (alienation) clause requires the mortgage to be paid in full if the property is sold or title is transferred.
Question 2: The Equal Credit Opportunity Act (ECOA) prohibits lenders from discriminating based on all of the following EXCEPT:
- Race
- Religion
- Credit score (Correct answer)
- National origin
Correct answer: Credit score
ECOA prohibits discrimination based on race, color, religion, national origin, sex, marital status, age, or receipt of public assistance — not credit score.
Question 3: A buyer assumes the seller's existing mortgage. Which statement is TRUE?
- The original borrower is immediately released from liability
- The buyer takes over the loan with its existing terms and rate (Correct answer)
- The lender must approve new terms for the assumption
- The buyer must qualify for a new loan at current rates
Correct answer: The buyer takes over the loan with its existing terms and rate
In a mortgage assumption, the buyer takes over the existing loan's terms, rate, and balance — subject to lender approval.
Question 4: What does 'subordination' mean in real estate financing?
- Paying off a junior lien before a senior lien
- A junior lien agreeing to remain in a lower priority position (Correct answer)
- The lender reducing the interest rate for a borrower
- Converting a construction loan to a permanent mortgage
Correct answer: A junior lien agreeing to remain in a lower priority position
Subordination means a lienholder agrees their lien will remain junior (lower priority) to another lien on the property.
Question 5: Which of the following best describes a 'construction-to-permanent' loan?
- A loan that finances only the land purchase
- A short-term construction loan that automatically converts to a long-term mortgage (Correct answer)
- A government loan for renovating historic properties
- A second mortgage used to fund home improvements
Correct answer: A short-term construction loan that automatically converts to a long-term mortgage
A construction-to-permanent loan funds the building phase and then converts to a standard mortgage once construction is complete.
Question 6: What is a 'buydown' in mortgage financing?
- Reducing the loan balance by making a larger down payment
- Paying upfront points to lower the interest rate temporarily or permanently (Correct answer)
- The lender buying the loan from the original creditor
- Refinancing to a shorter loan term
Correct answer: Paying upfront points to lower the interest rate temporarily or permanently
A buydown involves paying discount points at closing to reduce the mortgage interest rate, either temporarily (e.g., 2-1 buydown) or permanently.
Question 7: Under the TILA-RESPA Integrated Disclosure (TRID) rules, how many business days before closing must the borrower receive the Closing Disclosure?
- 1 business day
- 2 business days
- 3 business days (Correct answer)
- 5 business days
Correct answer: 3 business days
TRID requires the Closing Disclosure to be delivered to the borrower at least 3 business days before consummation of the loan.
Real Estate Sales Exam Financing and Mortgages 4
What is a 'due-on-sale' clause in a mortgage?