Real Estate Sales Exam Financing and Valuation 2 — Questions and Answers
Question 1: A borrower has a $300,000 loan at 6% annual interest. What is the monthly interest charge for the first month?
- $1,800
- $1,500 (Correct answer)
- $1,200
- $2,100
Correct answer: $1,500
$300,000 × 6% ÷ 12 = $1,500 monthly interest.
Question 2: Which appraisal approach is most commonly used to value a single-family residential home?
- Income capitalization approach
- Cost approach
- Sales comparison approach (Correct answer)
- Gross rent multiplier approach
Correct answer: Sales comparison approach
The sales comparison approach is preferred for residential properties because comparable sales data is readily available.
Question 3: A deed of trust differs from a mortgage primarily because it involves:
- Two parties instead of three
- A trustee who holds title until the loan is repaid (Correct answer)
- A higher interest rate by law
- Government insurance on the loan
Correct answer: A trustee who holds title until the loan is repaid
A deed of trust uses a neutral third-party trustee to hold title, while a mortgage involves only the borrower and lender.
Question 4: What does a loan-to-value (LTV) ratio of 80% mean?
- The borrower is financing 80% of the property's value (Correct answer)
- The lender keeps 80% of the interest
- The property taxes are 80% of the loan amount
- The borrower must pay 80% down
Correct answer: The borrower is financing 80% of the property's value
An 80% LTV means the mortgage amount equals 80% of the appraised property value, with a 20% down payment.
Question 5: Which type of mortgage allows the interest rate to change periodically based on an index?
- Fixed-rate mortgage
- Balloon mortgage
- Adjustable-rate mortgage (ARM) (Correct answer)
- Reverse mortgage
Correct answer: Adjustable-rate mortgage (ARM)
An ARM has an interest rate that adjusts at set intervals based on a market index such as SOFR or the Treasury index.
Question 6: Under the cost approach to appraisal, which of the following is subtracted from the replacement cost of improvements?
- Capitalization rate
- Net operating income
- Accrued depreciation (Correct answer)
- Gross rent multiplier
Correct answer: Accrued depreciation
The cost approach formula is: land value + replacement cost – accrued depreciation = property value.
Question 7: A property generates $24,000 in annual net operating income and is valued at $300,000. What is the capitalization rate?
- 6%
- 8% (Correct answer)
- 10%
- 12%
Correct answer: 8%
$24,000 ÷ $300,000 = 0.08 or 8% capitalization rate.
Real Estate Sales Exam Financing and Valuation 2
A borrower has a $300,000 loan at 6% annual interest.
What is the monthly interest charge for the first month?