Real Estate Financing Concepts Quiz

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Questions and Answers

What is the fee called when a buyer assumes an FHA loan and pays the seller’s equity?

An assumption fee (correct)

Discount points

An origination fee

A lock-in fee

Which of the following is not considered a cost of owning a home?

Property tax (correct)

Depreciation

Deferred maintenance

Amortization

Which consideration would be least important to a lender of real estate mortgage loans?

Attractiveness of investments in other sectors of the economy (correct)

Borrower's need for financial assistance

Borrower’s net worth

Present value of the subject property

In a fully amortized, long-term mortgage loan, what aspect of payments changes over time?

Interest payments decrease as principal payments increase Signup and view all the answers

What document is necessary for a broker arranging a loan secured by a home?

Real property security statement Signup and view all the answers

What must a federal notice regarding the right of rescission include?

Notification of consumer rights Signup and view all the answers

What happens to the amount applied to principal in an amortized loan over successive months?

Increases with each payment Signup and view all the answers

Under which condition does the Truth in Lending Act right of rescission not apply?

When a purchase money loan is involved Signup and view all the answers

What must a buyer do to assume an FHA loan?

Pay a fee for assumption Signup and view all the answers

What type of loan involves an interest rate that is periodically adjusted based on changes in the cost of money?

Adjustable-rate mortgage Signup and view all the answers

Which item is not required to be disclosed as finance charges under the Truth in Lending Act?

Home inspection fees Signup and view all the answers

What is a common misconception about the costs associated with home ownership?

Loss of income from investment of capital is not a concern. Signup and view all the answers

Which option is often confused with the assumption fee when a buyer assumes an FHA loan?

Discount points Signup and view all the answers

What is a frequent misunderstanding regarding the right of rescission in real estate transactions?

Only the borrower has the right of rescission. Signup and view all the answers

What is the common error regarding the documents needed for securing a home loan?

A real estate appraisal is not needed for loan approval. Signup and view all the answers

Study Notes

Chapter 10 Quiz - Key Concepts

Veteran Home Purchases: California Veterans Farm and Home Purchase Plan uses land contracts, not deeds of trust or mortgages.
FHA Loan Assumptions: A $300 fee, called an assumption fee, accompanies FHA loan assumptions when the seller's equity is paid in cash.
Home Ownership Costs: Amortization is not a cost of homeownership; depreciation, deferred maintenance, and loss of income are.
Loan Risk Assessment: A lender is primarily concerned with a borrower's total liabilities, wife's credit history and part-time income. Husband's overtime is less important to a lender.
VA-Guaranteed Loans: A distinguishing feature is that down payments are not typically required, and interest rates are not determined by the Department of Veterans Affairs.
Rescission Rights (Van Burens/Harrisons): The Van Burens, using a purchase money loan, do not have rescission rights under the Truth in Lending Act. The Harrisons, using a commercial bank loan for a business venture, have no rescission rights.
Mortgage Payments: Fully amortized mortgages have principal payments increasing and interest payments decreasing over the loan duration.
Federal Loan Notice: A federal notice of rescission rights must be provided to a borrower when the loan secures a borrower's existing residence or is a loan of over $58,300 (or is for things other than the borrower's home).
Down Payment Loans: Conventional loans are less likely to waive downpayments compared to VA loans.

Applying for a Residential Loan - Key Concepts

Graduated Payment Mortgages: A loan in which interest rates change periodically to reflect market fluctuations in costs of money.
Finance Charge Disclosure: Appraisal fees, origination fees, and points paid by the borrower are considered finance charges. Finder's fees are not.
VA Loan Appraisals: A VA loan is capped at the appraised value of the property. Any gap between sales price and appraisal amounts must be paid in cash by the buyer. (Often for closing costs, not necessarily the entire loan amount)
Real Estate Loan Considerations: Attractiveness of investment options in other financial sectors is the least important factor for lenders in assessing real estate loans.
Loan Secured by Home: A real estate broker would need a Real Property Security Statement for a home-secured loan.
Conventional Loan Comparisons: Conventional loans generally offer lower interest rates compared to FHA loans and shorter loan terms. Compared to FHA loans, conventional loans typically have less stringent qualifying standards for the borrower.
Additional Notes: Some details are more important to lenders to determine if the borrower would be a worthwhile investment. Specific financial and investment situations may determine a borrower's viability for a loan.

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Description

Test your knowledge on key concepts of real estate financing in Chapter 10. This quiz covers various topics such as veteran home purchases, FHA loan assumptions, assessment of loan risks, and VA-guaranteed loans. Evaluate your understanding of these critical elements in home ownership and financing.

Real Estate Financing Concepts Quiz - Chapter 10

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