CHAPTER FOUR MID QUIZ

Question 1

What is a Certificate of Eligibility?

Answer 1

A document from the VA saying a person qualifies for a VA loan based on his or her service.

Question 2

If Jeff wants to obtain a VA loan, where does he apply for it?

Answer 2

After getting a Certificate of Eligibility from the VA, he can work through any VA approved lender.

Question 3

If your buyer has a pre-approval for a VA loan, can he buy a home in need of significant repairs?

Answer 3

Potentially, but VA loans require a home inspection and must meet safety standards.

Question 4

Tim can no longer make payments on the home he’s purchasing in an installment land sales contract. Will he lose his equity?

Answer 4

Yes, if a forfeiture clause is present in the contract.

Question 5

What happens in a lease-purchase option?

Answer 5

The tenant lives in the property and pays the seller, and owns the property after a certain amount of time.

Question 6

Your new seller, Oscar, has a second mortgage on his home. How does this impact the sale?

Answer 6

It doesn’t as long as the sale price covers both mortgage values.

Question 7

What is the benefit of mortgage-backed securities to a home buyer?

Answer 7

With mortgage-backed securities, lenders sell loans in packages across the country, making it possible for borrowers in low-income areas to qualify for loans.

Question 8

Can wraparound loans help your buyer purchase a home?

Answer 8

Yes, but this is a type of owner financing that the lender must approve.

Question 9

Who benefits from owner financing?

Answer 9

Both the buyer and seller – since the buyer may not qualify for traditional loans and the seller can collect interest.

Question 10

What role does the Federal Reserve play in the real estate mortgage industry?

Answer 10

It creates rules to govern the industry.

Question 11

ake says he’s not worried about making payments on time. Why should he avoid late payments?

Answer 11

Mortgages are backed by the value of the property, allowing the lender to foreclose, take possession of the property, and force the buyer out.

Question 12

Mike wants to lower the interest rate on his mortgage. He wants to pay 1 point in interest. How much is this?

Answer 12

One point is one percent of the borrowed amount.

Question 13

John visits your office, inquiring about purchasing a home. He says he’s employed, making $60,000 a year, has good credit, and wants to own a moderately priced home. He’s even found a few on the market he’s interested in. He wants you to help him close the deal. But, he doesn’t have a loan set up. He wants you, his real estate agent, to tell him what the most important factor is when selecting a loan. What do you answer?

Answer 13

The interest rate of the loan.

Question 14

What is amortization?

Answer 14

It’s the mathematical calculation of the amount of interest the buyer will pay on the loan.

Question 15

Danielle says she is using an unsecured loan to buy a home. Is she wrong?

Answer 15

Yes, nearly all home loans are secured loans.

Question 16

Andrew wants to buy a home but avoid interest. He thinks if he gets a loan and pays it off right away, he’ll pay no interest. Is he correct?

Answer 16

No, he’ll pay closing costs and prepayment penalties.

Question 17

Lucy wants to buy a home. What’s the first step in getting her a home?

Answer 17

Ensure she has a home loan in place.

Question 18

What role does a trustee play in a title theory state?

Answer 18

The trustee holds the interest in the home, or the legal title.

Question 19

Amy wants to purchase a home, but she feels the banks are not being fair. As she sits across from you at your desk, she talks about just how good she is about paying her debts on time and that she has a solid credit score. But, she can’t get the lowest interest rate available. Amy has read that the Fed has reduced key lending rates to .25%, and she wants to know why lenders are charging her 4 to 5%. That’s thousands of dollars more over the course of the loan. Why is Amy being charged more?

Answer 19

The Fed sets a key lending rate shared only between banks, which sets the tone for, but is not the rate borrowers pay.

Question 20

Does a homeowner always maintain legal title for a home?

Answer 20

No, in title theory states, the trustee maintains it until the debt is paid in full.

Question 21

To cut costs, Morgan decides to stop paying his home insurance. Could this lead to foreclosure?

Answer 21

Yes, the lender could force the loan to be paid in full immediately or foreclose.

Question 22

Does the mortgagor do more than promise to pay the monthly payment?

Answer 22

Yes, he must meet all duties outlined in the mortgage document.

Question 23

Sally can’t sell her home and thinks she can just live in it without a threat of foreclosure. What will happen?

Answer 23

Sally defaults on the loan and the lender forecloses.

Question 24

Christopher’s home was lost in foreclose, but no one bought it. Who gets ownership?

Answer 24

The mortgagee has the right to take possession as a REO.

Question 25

Steve is struggling to remember to make real estate tax payments. How can the lender help?

Answer 25

The lender can collect taxes and insurance and hold them in escrow for payment.

Question 26

Lauren is thinking about renting her home out. Is she allowed to do so?

Answer 26

Only if there is an Assignment of Rent clause and the lender approves.

Question 27

In a lien theory state, who services as the mortgagee?

Answer 27

The lender

Question 28

What is the lender’s cost to borrow money?

Answer 28

The cost the lender pays to borrow money to fund a loan from other banks.

Question 29

Who loans conventional mortgages

Answer 29

Financial institutions and banks

Question 30

If Bob just got a job, could he qualify for a home loan?

Answer 30

In some cases, if he has a down payment and a good credit score.

Question 31

Sarah has a large down payment. Can conventional loans be a good thing?

Answer 31

Sarah should negotiate a lower interest rate because she is a very safe buyer, making the conventional loan an option.

Question 32

If Nora fails to make a payment on her loan, the private mortgage insurance pays the lender, and there’s no need for foreclosure. Is this true?

Answer 32

No, PMI pays a fee to the lender, but it does not stop foreclosure nor compensate for the entire amount lost.

Question 33

What is a federally backed loan program?

Answer 33

Programs like FHA and VA loans, which help borrowers avoid default and help them get into low-interest loans.

Question 34

How long are FHA loans?

Answer 34

They are available as 15 year or 30 year loans.

Question 35

Are FHA loans available for 100 percent financing?

Answer 35

No, most will need to have a loan to value ratio of 90 percent or less, but more if the borrower has good credit.