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Finance & Mortgages Flashcards

6 cards from real Real Estate practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 6 Finance & Mortgages flashcards as text

  1. Loan-to-value (LTV) ratio is calculated as:

    Answer: Loan amount divided by the appraised property value

    LTV = loan amount ÷ appraised value, expressed as a percentage; a higher LTV represents more risk to the lender.

  2. Private Mortgage Insurance (PMI) is typically required when the borrower's down payment is:

    Answer: Less than 20% of the purchase price

    PMI protects the lender when the borrower puts down less than 20%, compensating for the higher default risk associated with a high LTV loan.

  3. In an adjustable-rate mortgage (ARM), the interest rate is tied to:

    Answer: A market index plus a margin

    ARM rates are calculated by adding a fixed margin to a benchmark index (such as SOFR or Treasury rates), causing the rate to fluctuate over time.

  4. Amortization in a mortgage refers to:

    Answer: The gradual payoff of the loan through scheduled principal and interest payments

    Amortization is the repayment schedule that systematically reduces the loan principal over its term through regular equal payments.

  5. Mortgage pre-approval differs from pre-qualification because pre-approval involves:

    Answer: A formal review of verified financial documents by the lender

    Pre-approval requires verification of income, assets, and credit, giving the buyer a conditional commitment for a specific loan amount.

  6. FHA loans are attractive to first-time buyers primarily because they allow:

    Answer: Down payments as low as 3.5% with lower credit score requirements

    FHA loans, insured by the Federal Housing Administration, allow down payments as low as 3.5% and accept lower credit scores than conventional loans.