Real Estate Sales Exam Financing and Valuation 3

Question 1

What is the primary purpose of private mortgage insurance (PMI)?

Accepted Answer

To protect the lender if the borrower defaults

Answer

PMI protects the lender against loss if the borrower defaults when the LTV exceeds 80%.

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) mandates disclosure of the APR so borrowers can compare the true cost of credit.

Question 3

A property sells for $250,000 with a GRM of 100. What is the monthly gross rent?

Accepted Answer

$2,500

Answer

GRM = sale price ÷ monthly rent, so monthly rent = $250,000 ÷ 100 = $2,500.

Question 4

Which type of loan requires the borrower to make interest-only payments during a set period, then pay the remaining balance in full?

Accepted Answer

Balloon mortgage

Answer

A balloon mortgage features lower initial payments but requires a large lump-sum payoff at the end of the term.

Question 5

An appraiser uses three comparable sales and makes a +$5,000 adjustment for a garage absent in comp #2. This adjustment is made because:

Accepted Answer

Comp #2 is inferior to the subject

Answer

When a comparable lacks a feature the subject has, a positive adjustment is added to bring the comp up to the subject's level.

Real Estate Sales Exam Practice Test