Practice Exam 4

A VA loan may be granted for the purchase of a one-family to four-family property if:

A: The veteran agrees to live there.
Illumination:
Although the rules and terms can fluctuate, the low down payment and below market interest features of VA loans come with the condition that the borrower live in the property.

Which of the following would usually occur in a sale-and-leaseback transaction?

A: The property is sold on the condition that the new owner lease it back to the seller at the time title passes.
Illumination:
A sale-leaseback is usually used for the purpose of creating cash flow from a commercial property. As the name implies, the own

A standardized yardstick expressing the true annual cost of borrowing is expressed as the what?

A: APR
Illumination:
APR stands for "Annual Percentage Rate" and expresses the true cost of the loan by factoring fees such as points, recording fees, appraisal fees and such into the interest rate. For example, a mortgage that showed an interest rate of

RESPA would prohibit which of the following acts?

A: paying of kickbacks
Illumination:
RESPA concerns itself only with educating consumers about the true costs of borrowing and standardizing lending practices. As such, referral "fees" are prohibited.

In most states, by paying the debt after a foreclosure sale, the mortgagor has the right to regain the property. What is this right called?

A: statutory right of redemption
Illumination:
This right of redemption is called "statutory" because it is legally mandated by law, as opposed to a custom lenders could follow or not at their option.

The lender is required, under RESPA, to provide a detailed "GOOD FAITH ESTIMATE" statement at the time of loan application or within three business days to:

A: the buyer.
Illumination:
The "good faith" part of this requirement is the key element to consumers. By standardizing the forms and disclosures used by lenders, borrowers are no longer surprised by substantial and hidden costs at the time of closing.

In which of the following markets may a lender sell a loan that a mortgage banker has previously originated?

A: secondary market
Illumination:
Many homeowners are surprised the first time they receive a letter from a lender they've never heard of informing them that they now hold the mortgage on their home and that future payments should be sent to them. This se

Which of the following is considered a conventional loan?

A: commercial bank's ARM loan
Illumination:
Once considered a form of creative financing, ARMs are now standard, conventional loans. Options A and B are part of various government programs to help low and moderate income families as well as veterans find

Under an FHA graduated payment mortgage, which of the following fluctuates over the term of the loan?

A: monthly payments
Illumination:
Graduated payment mortgages are aimed particularly at young families who expect to see their earnings rise over the next five to ten years. As such, payments for interest and principal are less than the actual costs in th

The maximum permissible "loan to value ratios" are:

A: based on sale price or appraised value, whichever is lower.
Illumination:
Although various banks, mortgage companies and programs have different LTVs, the lower, more conservative number is used.

All of the following are true of conventional loans except what?

A: The requirements to qualify are uniformly fixed by state law.
Illumination:
Not only are guidelines not uniform, qualification standards can vary enormously from lender to lender. There are no state-mandated qualifying requirements for conventional loa

A buyer wants to take out an FHA loan. The broker should refer the buyer directly to:

A: any approved lending institution such as a bank or savings and loan association.
Illumination:
Lenders must be approved by the Federal Housing Authority before they can offer FHA loans. Part of the approval process includes waiving fees customarily cha

An owner advertised "beautiful acreage; only $5,000 down; owner will personally finance down payment." Would this be in violation of the Truth in Lending Act?

A: No. Owners are not covered by Reg. Z.
Illumination:
Regulation Z requires disclosure of all financing terms and conditions if a low interest rate, downpayment or other enticement is featured in an ad. This does not apply in this case, however, because

A mortgage company makes a number of loans to be assembled into one package and sold to permanent investors. This process is an example of interim financing to the mortgage company and is called:

A: warehousing.
Illumination:
Warehousing refers to the process whereby banks and other lenders make mortgage loans to consumers for the purpose of quickly selling those loans on the secondary market. The "warehousing" occurs when individual loans are bun

The primary purpose of Truth in Lending is to:

A: Disclose the true costs of obtaining credit.
Illumination:
Truth in Lending, otherwise known as Regulation Z, is intended to do away with deceptive financing tactics, especially those involving hidden costs--for example, advertising a $250 car lease as

Why is the RESPA closing statement allowed to be examined on or before closing?

A: to check for mathematical errors
Illumination:
This is not a step that should be dismissed. With the increased volume in home mortgages, the fact is a significant amount of closing statements do contain errors and it's easer and better to correct them

If a single parent is applying for a real estate loan, when would the fact have to be revealed that part of the parent's income is from child support?

A: If the parent was relying on the income for repayment of the loan
Illumination:
Income of any type--whether alimony, child support, freelance work or a second job--only needs to be disclosed if the applicant is relying on it to qualify for the loan.

When the lender under a deed of trust requires title insurance, who would be the most likely person to pay for it?

A: the trustor
Illumination:
"Trustor" is another name for the borrower and "trustee" is a "supposedly" neutral third party who holds naked legal title, the right to foreclose at the instructions of the beneficiary for non-payment of a promissory note. Th

The Pickets are purchasing a home for $78,000 and the lender is giving them a 90% loan at 10% interest, plus a 2% loan origination fee. How much is the loan origination fee?

A: $1,404
Illumination:
A loan for 90% of the $78,000 purchase price results in a $70,200 mortgage. Since the origination fee is based on the amount of the mortgage, not the price of the home, the fee is 2% of $70,200 or $1,404.

Discrimination is prohibited in lending practices under:

A: ECOA
Illumination:
Passed in 1992, the Equal Credit Opportunity Act prohibits a broad spectrum of discriminatory lending practices, including the granting or denial of credit or the costs associated with borrowing based on race, gender, marital status,

A buyer assumes the mortgage. How is the owner relieved of the liability?

A: novation
Illumination:
Essentially, novation means to substitute a new contract for an old one; thus the holder of the original is relieved of his or her responsibilities.

Which type of loan will result in the largest reduction of the principal balance most quickly?

A: 13% over 15 years
Illumination:
The shorter the term of a loan, the more quickly principal is paid down and the faster equity builds. A 15-year loan at 13% interest rate would provide the LARGEST and FASTEST reduction in the principal. Interestingly, t

Who is the largest purchaser in the secondary market?

A: Fannie Mae
Illumination:
Fannie Mae stands for the Federal National Mortgage Association (FNMA). It was established by the National Housing Act specifically to start the secondary mortgage market, thus attracting more investors and funds to help suppor

Which transaction requires a securities license?

A: selling shares in Fannie Mae
Illumination:
Even though Fannie Mae is a mortgage-based business, its shares sell just like any other stock and only people with a securities license may offer them for sale.

Who is NOT an originator of primary loans?

A: FHA
Illumination:
The FHA encourages lenders to make these low-interest, low-down payment loans by insuring them against default. It does not actually lend money itself.

A buyer wanted to use a promissory note for consideration on the purchase of a property. Can he do this?

A: Yes. This is acceptable as long as the seller agrees.
Illumination:
This is a form of owner financing and is perfectly acceptable, so long as both parties agree to the terms and conditions.

If advertised alone, which would be in violation of TRUTH IN LENDING?

A: "No down payment required."
Illumination:
"No down payment required" triggers the Truth in Lending disclosures because it is a specific statement about only one aspect of the financing. "Easy terms" does not trigger the regulation because it's non-spec

Why would a mortgagee (beneficiary) have an appraisal on the property?

A: to assure the property value is sufficient to cover the loan
Illumination:
Appraisals are third-party valuations of a property based on a wide range of variables. Lenders generally insist on this independent assessment to make sure the value of the pro

In a repayment of a mortgage loan, which type of interest is used?

A: simple
Illumination:
Compound interest is associated with savings accounts and reflects the fact that money left on deposit earns interest on the interest it has already earned. "Floating" and "discount" are terms associated with the bank-to-bank trans

An owner was selling his own home. Can he advertise the down payment?

A: Yes, because it was his own home.
Illumination:
Broadly speaking, an individual homeowner is free to sell his/her own home as he/she chooses and is not subject to Truth in Lending or real estate practice restrictions.

Which is true about restrictive covenants?

A: They are placed by private parties in a deed.
Illumination:
Restrictive covenants are most commonly associated with subdivisions and community management associations and are intended to maintain consistency within the neighborhood. While viewed as a b

Looking at shopping centers in the appraisal process, the social fiber of the community and distances from schools is called:

A: neighborhood analysis
Illumination:
This involves more than just driving around. It is a formal process of identifying, measuring and analyzing the influences that help determine a neighborhood's vitality and desirability.

Which best describes why a buyer purchases a home using the market data approach?

A: Buyers buy after they compare the house with others.
Illumination:
While emotion and impulse are certainly strong motivators, a home is also a considered purchase. What most people seek, within their affordability range, is value more than price. The o

A scale drawing shows a room to be 3 inches by 4 � inches. Carpet, which is $15 per square yard, is to be installed in the room. If the scale is 1 inch to 4 feet, how much would it cost to install the carpet?

A: $360
Illumination:
At a scale of 4' to the inch, the room measures 12' x 18' or 216 square feet. Since there are nine square feet to one square yard, the room will require twenty-four square yards of carpet at $15 per yard.

A tenant leased 3000 square feet at $10 per square foot and 8% of gross income. The total annual rent she paid was $60,000. What was the gross income on which she paid percentage rent?

A: $375,000
Illumination:
At $10 per square foot, the tenant's base rent is $30,000. Since the total rent was $60,000, that means the remaining $30,000 was due to the gross sales percentage. Since that figure is 8%, simply divide $30,000 by .08 to arrive

The Rose family owns a home in a semi-rural area, which is about five years old. Recently announced plans for a new regional airport will place their home directly in line with a main runway ending 1 mile before their home. If the airport is constructed,

A: Yes, because of economic obsolescence
Illumination:
Economic obsolescence occurs when factors unrelated to the property itself and outside of the owner's control diminish its value. A quick way to judge whether or not a property has become economically

Mrs. Jones, an appraiser, is appraising a single family residence for which she has located six closely comparable properties, all sold within the past six months. The subject property is rented for $500 per month. It is a custom-built home, approximately

A: market data approach
Illumination:
Market data would be used because it is the most reliable indicator of a home's true value. Since it is a single family residence rather than a multi-unit investment property, the fact that it is rented, as well as th

Which is the best example of functional obsolescence?

A: steep, narrow stairway in a 1 3/4 story home
Illumination:
"Functional obsolescence" typically shows itself in one of two forms: first, in poor initial design, as in this case; second, when the features and design of the home have become outdated compa

A real estate agent should tell the buyer, his customer, which of the following?

A: a pending or recent zoning change
Illumination:
A zoning change is a "material fact"--something that can have a direct impact on the property's value or desirability. For example, if the zoning in a middle class neighborhood on the edge of a growing ci

A square is 1/8 of a mile by 1/8 of a mile. How many acres is this?

A: 10 acres.
Illumination:
One-eighth of a mile square is the same as 10 acres. Multiply 1/8 X 1/8 = 1/64 divided into 640 acres = 10 acres

What is the penalty for engaging in real estate activities without an active real estate license?

A: Civil penalty for as much has $1,000 per violation and any other penalties provided by law
Illumination:
The law calls for a maximum penalty of $1,000 per violation plus any other penalties provided by law.

Fred, an affiliate broker, receives his first real estate license. How many hours of continuing education must he take to renew his license?

A: Sixteen hours
Illumination:
For renewal of an affiliate broker's license originally issued on or after July 1, 1980, the affiliate broker must satisfactorily complete sixteen classroom hours in real estate courses at any school, college, or university

Affiliate broker Ted renewed his license two years ago. What must he do to renew it a second time?

A: Complete 16 hours of continuing education over the current two-year license period to renew for the next two-year period
Illumination:
Affiliate brokers who are renewing are required to take 16 hours of continuing education during the two-year license

A licensee that allows their license to expire has how long to reinstate it with penalty?

A: 60 days
Illumination:
''Any broker, affiliate broker, time-share salesperson or acquisition agent who fails timely to pay a renewal or retirement fee may be reinstated without examination upon payment of the appropriate fee, plus a penalty fee of twent

In addition to the 60-hour prelicense education requirement for an affiliate's license, what other education is mandatory before issuance of a license?

A: A 30-hour course course for new affiliates.
Illumination:
Beginning January 1, 2005, an individual must complete a commission-approved 30-hour course for new affiliates prior to licensure.

Which of the following can the commission NOT do with respect to a nonresident license?

A: Require the nonresident licensee to move to Tennessee
Illumination:
The commission cannot require a nonresident licensee to move to Tennessee, however it can refuse to issue, renew or reinstate a license.

What is the educational requirement for a broker's license?

A: 120 hours including 30 hours in brokerage management
Illumination:
Applicants for a broker's license must provide proof of satisfactory completion of one hundred twenty (120) classroom hours in real estate (before or after receipt of an affiliate broke

Under Tennessee license law, which of the following is considered a ministerial act?

A: Answering general questions about the price and location of a particular property
Illumination:
Usually, giving out published information like the price and location of a property is considered ministerial, which can be done by a nonlicensed person as

Routine services that are outside of an agency or broker relationship are called:

A: ministerial acts.
Illumination:
Routine services are considered ministerial and do not require a real estate license. Transactional acts, routine brokerage and customer service activities require a license.

An unlicensed real estate assistant in Tennessee may do all of the following EXCEPT:

A: explain simple contract documents to potential buyers.
Illumination:
An individual must have a license to explain even simple contract documents. Preparing or distributing flyers, computing commission checks and assembling documents are more clerical t