CHAPTER FOUR QUIZ

Question 1

A new home buyer requests help finding a loan and wants the lowest rate. They’ve heard that interest rates are increasing. Who sets the base or prime rate?

Answer 1

Federal Reserve

Question 2

Why do you need to sit down with Sara and explain to her how the mortgage market works? After all, she just wants to buy a home, not enter into a financial degree program.

Answer 2

Understanding the mortgage finance market can help Sara to actually find the best loan with the lowest costs. This not only helps her buy the home she wants, but helps you to sell a home that’s more valuable.

Question 3

Does a real estate agent help negotiate the terms of a promissory note?

Answer 3

No, the agent isn’t responsible for the financial aspects, but can offer explanations as needed.

Question 4

What’s a usury law?

Answer 4

A law that limits how much interest banks can charge.

Question 5

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

Answer 5

One point is one percent of the borrowed amount.

Question 6

What is the average amount of loan origination fees?

Answer 6

Between 0.5 and 1 percent of the borrowed funds.

Question 7

Bob wants to buy a home, but plans to pay it off early. Can he do so without risk?

Answer 7

Sometimes, but some loans have prepayment clauses that can create a fee.

Question 8

What is amortization?

Answer 8

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

Question 9

Max is selling his home to avoid the acceleration clause from impacting him. What’s that?

Answer 9

The lender is requiring payment in full due to a breach in the contract.

Question 10

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 10

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

Question 11

What is a lien theory state?

Answer 11

The homeowner holds the deed for the property throughout the entire loan.

Question 12

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

Answer 12

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

Question 13

Dory thinks she can skip a payment this month as long as she makes it up next month. Is that okay?

Answer 13

No, though lenders can offer a grace period for catching up, they don’t have to.

Question 14

What’s the most common cause of default by homeowners?

Answer 14

Not making on-time payments.

Question 15

What is the alienation clause in a mortgage?

Answer 15

It gives the lender the right to payment in full when the property is sold.

Question 16

Pat receives an Acceleration Clause document. What does it mean?

Answer 16

The lender is requiring the owed principal to be paid in full by the date listed.

Question 17

Sally wants to buy a home and has a job, but the lender says she’s too risky. What does that mean?

Answer 17

Sally’s financial history indicates she’s a high-risk borrower.

Question 18

How can you explain to Dave why his lender is charging him more for a home loan than his friend?

Answer 18

Like with the stock market, lenders assign risk to each investment. High risks have to yield a high return. Higher interest rates are charged to high-risk borrowers.

Question 19

Ellen has a good income, but has missed payments on her credit report. What impacts her credit score more?

Answer 19

Missed payments will hurt the borrower more than any other factor.

Question 20

Can Glenn negotiate with the mortgage banker about a lower interest rate?

Answer 20

To some point, but often this is set by the lending company, not the broker on the phone.

Question 21

James wants to choose the least affordable loan term. What should he look for?

Answer 21

The shortest term loan.

The shorter the loan term, the more expensive the monthly payment; however, the borrower will pay less in mortgage interest over the life of the loan.

Question 22

Aside from interest rate fees, how do lenders in the primary mortgage market profit from the home buying process?

Answer 22

The loans they create are packaged and sold in bundles as securities.

Question 23

If Jessica wants a stable monthly payment, what should she look for in a loan?

Answer 23

A fixed interest rate loan.

Question 24

Angela wants a conventional loan to buy a home. What is it?

Answer 24

A basic type of loan, one that is not backed by federal loan programs.

Question 25

Sam heard that buying a home was least expensive if he bought through Fannie Mae. Sam wants to invest in a loan that’s least expensive to him, and this government-backed program seems to be a good option. Can Sam borrow from Fannie Mae?

Answer 25

No, Fannie Mae is a publicly traded organization. It does not lend directly.

Question 26

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

Answer 26

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

Question 27

Pat doesn’t have a 20 percent down payment. Can an FHA loan help?

Answer 27

Yes, these loans often have a much lower down payment requirement, sometimes at low as 3.5 percent.

Question 28

If Cindy owned a home in 2010, can she apply for an FHA loan?

Answer 28

Yes, because it has been at least three years.