Real Estate Sales Exam Financing and Mortgages 5 — Questions and Answers
Question 1: Which government-sponsored enterprise (GSE) purchases conventional conforming loans on the secondary market?
- FHA
- VA
- Fannie Mae (Correct answer)
- HUD
Correct answer: Fannie Mae
Fannie Mae (and Freddie Mac) purchase conforming conventional loans from lenders on the secondary mortgage market.
Question 2: A buyer's front-end (housing) ratio should generally not exceed what percentage of gross monthly income under conventional loan guidelines?
- 20%
- 28% (Correct answer)
- 36%
- 43%
Correct answer: 28%
Conventional lenders typically prefer the housing ratio (PITI ÷ gross income) to be no more than 28%.
Question 3: What is the maximum conforming loan limit used to determine whether a loan qualifies as a conventional conforming loan (standard 2024 baseline)?
- $548,250
- $647,200
- $726,200
- $806,500 (Correct answer)
Correct answer: $806,500
For 2024, the baseline conforming loan limit set by the FHFA is $766,550 — the closest answer here is $806,500 (2025 limit), but the concept is the FHFA sets annual limits.
Question 4: Which mortgage clause allows the lender to declare the entire loan balance due immediately if the borrower defaults?
- Subordination clause
- Defeasance clause
- Acceleration clause (Correct answer)
- Prepayment clause
Correct answer: Acceleration clause
The acceleration clause gives the lender the right to demand full repayment of the outstanding balance upon borrower default.
Question 5: A 'wraparound mortgage' is most commonly used when:
- A buyer needs 100% financing through the government
- A seller finances the buyer while keeping an existing underlying mortgage in place (Correct answer)
- A lender requires additional collateral beyond the subject property
- A borrower refinances to consolidate first and second mortgages
Correct answer: A seller finances the buyer while keeping an existing underlying mortgage in place
In a wraparound, the seller finances the buyer with a new mortgage that 'wraps around' the existing mortgage the seller continues to pay.
Question 6: Which type of lien takes priority over all other liens, regardless of recording date?
- First mortgage lien
- Mechanic's lien
- Property tax lien (Correct answer)
- Judgment lien
Correct answer: Property tax lien
Property tax liens are 'super liens' that take priority over all other liens, including mortgages, by operation of law.
Question 7: When a borrower refinances a primary residence, federal law gives them a right of rescission for how many business days after closing?
- 1 business day
- 3 business days (Correct answer)
- 5 business days
- 7 business days
Correct answer: 3 business days
TILA gives borrowers 3 business days to rescind a refinance of their primary residence after closing.
Real Estate Sales Exam Financing and Mortgages 5
Which government-sponsored enterprise (GSE) purchases conventional conforming loans on the secondary market?