Financing Prep Exam Questions &
Answers (Grade A+)
The payment on principal _________ and interest _________ on a
fully amortized loan.
a) Increases, increases
b) Decreases, increases
c) Decreases, decreases
d) Increases, decreases -
correct answer ✅(d) With an amortized loan, although the
payment remains constant over the entire life of the loan, the
amount applied to interest decreases monthly - as the interest is
computed on the dwindling unpaid balance each month. With less
of the payment going towards interest, that leaves more money to
be applied to the principal each month.
Arlene and Alex have a monthly gross income of $5,000; their
monthly mortgage payments are $1,171; and their total monthly
long-term debts are $325 making their front-end ratio:
a) 23%
b) 28%
c) 30%
,Financing Prep Exam Questions &
Answers (Grade A+)
d) 36% -
correct answer ✅(a) Lenders use the monthly payment on a
property in determining a borrower's qualifications. The "front-
end"his ratio is the relationship between the total mortgage
payment (includes Principal and Interest, property Taxes, and
Insurance/PITI) and the monthly gross income. The formula is:
mortgage payment ÷ gross income = front-end ratio. $1,171 ÷
$5,000 = 23%.
Which party in a land contract makes or signs an assignment?
a) Vendee
b) Vendor
c) Trustor
d) Beneficiary -
correct answer ✅(b) If the seller (vendor) under a land Contract
wishes to sell his/her interest to a third party through assignment,
he/she must also convey title. The vendor's (seller's) signature
would be required. The new contract holder must notify the buyer
that title has been conveyed so they don't keep paying the original
contract holder and pay the new owner instead.
,Financing Prep Exam Questions &
Answers (Grade A+)
n the secondary market, the primary activities responsibility of
FNMA is what?
a) FHA loans only
b) All types of real estate loans
c) Government insured and guaranteed loans
d) Second mortgages and trust deeds up to $20,000 -
correct answer ✅(c) The Federal National Mortgage Association
(Fannie Mae) was originally organized to create a secondary market
in mortgage loans. The primary activities of the agency involve FHA
Title II loans (insured) and VA loans (guaranteed).
Ginnie Mae provides all the following services EXCEPT:
a) Guarantee for mortgage-backed securities
b) Special programs for low-interest home loans
c) Liquidation of government owned mortgages
d) Insuring home loans -
correct answer ✅(d) The Government National Mortgage
Association (Ginnie Mae) is an agency under HUD that guarantees
securities sold and issued by Fannie Mae. Ginnie Mae does not
insure loans.
, Financing Prep Exam Questions &
Answers (Grade A+)
Which party holds naked legal title?
a) Trustor
b) Trustee
c) Beneficiary
d) Lender -
correct answer ✅(b) A trustee in a deed of trust holds naked legal
title to a secured property which is the bare legal title. This title
effectively gives the third party, also known as the trustee, control
of the property. The trustee holds the naked title for the property
during the time that the loan or mortgage is being paid off. Naked
legal title is the only such title needed to carry out the terms of the
lien document. It lacks the usual rights and privileges of ownership.
Mr. and Mrs. Smith borrowed money to buy a home several years
ago. Mr. Smith is now disabled and Mrs. Smith can only find part-
time work. Money is tight, and they are in default and face losing
their home due to non-payment on their loan. Which of the
following provides Mr. and Mrs. the most protection in this
situation?
Answers (Grade A+)
The payment on principal _________ and interest _________ on a
fully amortized loan.
a) Increases, increases
b) Decreases, increases
c) Decreases, decreases
d) Increases, decreases -
correct answer ✅(d) With an amortized loan, although the
payment remains constant over the entire life of the loan, the
amount applied to interest decreases monthly - as the interest is
computed on the dwindling unpaid balance each month. With less
of the payment going towards interest, that leaves more money to
be applied to the principal each month.
Arlene and Alex have a monthly gross income of $5,000; their
monthly mortgage payments are $1,171; and their total monthly
long-term debts are $325 making their front-end ratio:
a) 23%
b) 28%
c) 30%
,Financing Prep Exam Questions &
Answers (Grade A+)
d) 36% -
correct answer ✅(a) Lenders use the monthly payment on a
property in determining a borrower's qualifications. The "front-
end"his ratio is the relationship between the total mortgage
payment (includes Principal and Interest, property Taxes, and
Insurance/PITI) and the monthly gross income. The formula is:
mortgage payment ÷ gross income = front-end ratio. $1,171 ÷
$5,000 = 23%.
Which party in a land contract makes or signs an assignment?
a) Vendee
b) Vendor
c) Trustor
d) Beneficiary -
correct answer ✅(b) If the seller (vendor) under a land Contract
wishes to sell his/her interest to a third party through assignment,
he/she must also convey title. The vendor's (seller's) signature
would be required. The new contract holder must notify the buyer
that title has been conveyed so they don't keep paying the original
contract holder and pay the new owner instead.
,Financing Prep Exam Questions &
Answers (Grade A+)
n the secondary market, the primary activities responsibility of
FNMA is what?
a) FHA loans only
b) All types of real estate loans
c) Government insured and guaranteed loans
d) Second mortgages and trust deeds up to $20,000 -
correct answer ✅(c) The Federal National Mortgage Association
(Fannie Mae) was originally organized to create a secondary market
in mortgage loans. The primary activities of the agency involve FHA
Title II loans (insured) and VA loans (guaranteed).
Ginnie Mae provides all the following services EXCEPT:
a) Guarantee for mortgage-backed securities
b) Special programs for low-interest home loans
c) Liquidation of government owned mortgages
d) Insuring home loans -
correct answer ✅(d) The Government National Mortgage
Association (Ginnie Mae) is an agency under HUD that guarantees
securities sold and issued by Fannie Mae. Ginnie Mae does not
insure loans.
, Financing Prep Exam Questions &
Answers (Grade A+)
Which party holds naked legal title?
a) Trustor
b) Trustee
c) Beneficiary
d) Lender -
correct answer ✅(b) A trustee in a deed of trust holds naked legal
title to a secured property which is the bare legal title. This title
effectively gives the third party, also known as the trustee, control
of the property. The trustee holds the naked title for the property
during the time that the loan or mortgage is being paid off. Naked
legal title is the only such title needed to carry out the terms of the
lien document. It lacks the usual rights and privileges of ownership.
Mr. and Mrs. Smith borrowed money to buy a home several years
ago. Mr. Smith is now disabled and Mrs. Smith can only find part-
time work. Money is tight, and they are in default and face losing
their home due to non-payment on their loan. Which of the
following provides Mr. and Mrs. the most protection in this
situation?
