rep ch 10

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rep ch 10
2011-12-12 23:05:49
rep 10

rep ch 10
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  1. 1. Which of the following documents would be used when a veteran purchases a home through the California Veterans Farm and Home Purchase Plan?
    A. Deed of trust
    B. Mortgage
    C. Special warranty deed
    D. Land contract of sale
    • Question #1
    • Answer: D
    • Explanation: When a home is purchased through the California Veterans Farm and Home Purchase Plan (generally known as Cal-Vet), the state purchases and holds legal title to the property, and sells the property to the veteran through a land contract.
  2. 2. A buyer assumes an FHA loan with the lender's approval, by paying the seller's equity in cash and a $300 fee. What is this fee called?
    A. An origination fee
    B. Discount points
    C. An assumption fee
    D. A lock-in fee
    • Question #2
    • Answer: C
    • Explanation: In order to assume any loan, FHA or conventional, the borrower will typically have to pay an assumption fee. A buyer assuming an FHA loan will also have to meet FHA underwriting standards and intend to make the home their primary residence.
  3. 3. Which of the following is not a cost of owning a home?
    A. Amortization
    B. Deferred maintenance
    C. Depreciation
    D. Loss of income from investment of capital
    • Question #3
    • Answer: A
    • Explanation: Amortization is a method of structuring mortgage payments, not a cost of owning a home. Depreciation and deferred maintenance are costs of owning a home, as is the loss of income that could be earned if the equity in the house could be invested elsewhere.
  4. 4. Which of the following topics would a lender be least concerned with in assessing the risk posed by potential borrowers?
    A. Wife's part-time income
    B. Couple's total liabilities
    C. Husband's overtime earnings
    D. Wife's credit history
    • Question #4
    • Answer: C
    • Explanation: Overtime or temporary income is not considered stable monthly income, because there is no guarantee what it will be in the future. It will have no bearing on a prospective borrower's income ratios.
  5. 5. Which of the following is a unique feature of VA-guaranteed loans?
    A. The downpayment is determined by the Certificate of Reasonable Value (Notice off Value)
    B. The downpayment does not have to be more than 3% of the sale price
    C. Interest rates on VA-guaranteed loans are set by the Department of Veterans Affairs
    D. VA-guaranteed loans do not require a downpayment
    • Question #5
    • Answer: D
    • Explanation: One principal advantage of VA-guaranteed loans is that they do not require a downpayment. For a large loan that exceeds the maximum guaranty amount, a lender may still charge a downpayment.
  6. 6. The Van Burens purchased a house with a first deed of trust obtained from a savings and loan. The Harrisons refinanced their house, owned free and clear, with a first deed of trust obtained from a commercial bank, in order to finance a new business venture. Which of the following is correct?
    A. Both have the right of rescission
    B. The Van Burens have the right of rescission
    C. The Harrisons have the right of rescission
    D. Neither has the right of rescission
    • Question #6
    • Answer: D
    • Explanation: The Van Burens do not have the right of rescission under the Truth in Lending Act because their loan was a purchase money loan. And the Truth in Lending Act does not apply to the Harrisons' loan at all, since it was a business loan, even though it used a residence as collateral.
  7. 7. If a fully amortized, long-term home mortgage loan provides for equal monthly payments, the:
    A. principal payment will decrease as the interest payment increases
    B. interest payment will decrease as the principal payment increases
    C. principal and interest payments will both increase
    D. principal and interest payments will both decrease
    • Question #7
    • Answer: B
    • Explanation: With each successive month of an amortized loan, the amount of each payment applied toward the principal balance will increase, while the amount applied to interest will decrease.
  8. 8. A federal notice of the right of rescission must be given to a borrower if:
    A. the loan is secured by the borrower's existing residence
    B. the loan is secured by commercial property
    C. the loan is an unsecured loan of more than $25,000
    D. the loan is to purchase business inventory
    • Question #8
    • Answer: A
    • Explanation: Under the Truth in Lending Act, the right to rescission applies to home equity loans, where a borrower secures a loan with a property he already owns. TILA does not apply to agricultural, business, or commercial loans, or loans of more than $25,000 that aren't secured by real property.
  9. 9. Which of the following types of loans is least likely to require a downpayment from a borrower?
    A. Conventional loan
    B. FHA-insured loan
    C. VA-guaranteed loan
    D. Cal-Vet loan
    • Question #9
    • Answer: C
    • Explanation: A VA loan does not require a downpayment from the borrower. If a loan amount is larger than the maximum guaranty amount, a lender may still demand a downpayment, but that is the only time a VA borrower will need a downpayment.
  10. 10. The owner of a home plans to sell the property, but has not yet located a buyer. The owner meets with a lender to arrange financing once a buyer is found. This arrangement is known as:
    A. a firm commitment
    B. a conditional commitment
    C. a standby commitment
    D. a financing option
    • Question #10
    • Answer: B
    • Explanation: If a lender commits to making a loan before a buyer is obtained, it is known as a conditional commitment.
  11. 11. All of the following items are required to be disclosed as finance charges under the Truth in Lending Act, except:
    A. appraisal fees
    B. origination fee
    C. discount points paid by borrower
    D. finder's fee
    • Question #11
    • Answer: A
    • Explanation: The fees for an appraisal are not considered as part of the total finance charge that must be disclosed under the requirements of the Truth in Lending Act.
  12. 12. If a home sells for $290,000 and has been appraised at $286,000, what is the minimum amount of cash that a buyer under a VA loan will need to pay at closing?
    A. $0
    B. $50
    C. $1,500
    D. $4,000
    • Question #12
    • Answer: D
    • Explanation: A VA loan will not be guaranteed for more than the appraised value of the property as set forth in the Certificate of Reasonable Value. Therefore, if a property is appraised for $4,000 less than the sale price, a VA borrower will need to pay at least $4,000 in cash to complete the sale. (The borrower will probably need to pay more, though, in order to pay for closing costs.)
  13. 13. Which of the following considerations would be least important to a lender of real estate mortgage loans?
    A. Present value of the subject property
    B. Borrower's need for financial assistance
    C. Borrower's net worth
    D. Attractiveness of investments in other sectors of the economy
    • Question #13
    • Answer: B
    • Explanation: A lender is not concerned with the size or scope of the borrower's need. A lender is only concerned with whether or not the loan will be a safe and worthwhile investment.
  14. 14. A man owns a house and has a first deed of trust executed against the home. He has a substantial amount of equity in the home. He needs a loan of $9,600 for college tuition for his son. A real estate broker arranges the loan, which is secured by the home. What document does the broker need for this transaction?
    A. Real property security statement
    B. Broker's loan disclosure statement
    C. Real property securities license
    D. None of the above
    • Question #14
    • Answer: B
    • Explanation: If a real estate broker provides loan services, he must provide a disclosure statement to the borrower. The disclosure statement must list all costs involved in obtaining the loan.
  15. 15. When compared with an FHA loan, a conventional loan will offer the borrower:
    A. lower interest rates
    B. a lower loan-to-value ratio
    C. a longer repayment period
    D. less stringent qualifying standards
    • Question #15
    • Answer: B
    • Explanation: A conventional loan will usually require a lower loan-to-value ratio than an FHA loan, because the conventional loan does not come with governmental insurance in case of default. The greater risk means the lender is less likely to accept an LTV of 95% or greater.