CE SHOP REAL ESTATE EXAM
QUESTIONS AND ANSWERS
Loan points - Answer-aka loan origination fees - compensation for processing (1-3%)
typically can't be more than 3%.
Discount point - Answer-permanently reduce interest rate
Buydown - Answer-interest prepayment at closing to temporarily reduce interest rate
(usually for 1-3 years). EG 3-2-1 buydown
LTV (loan to value) - Answer-value = lower of sale price or appraised price
APR - Answer-interest AND fees
PMI - Answer-loans with LTV > 80 (so they no longer conform to Fannie Mae/mac. Must
be terminated at 78%. Borrower can request removal at < 80%
PITI - Answer-Principal, interest, tax accrual, insurance accrual
Financing instruments (signed when you get a mortgage) - Answer-Promissory Note
Security Instrument
Promissory Note - Answer-promise to pay
negotiable instrument - can be transferred to another holder (bank, etc)
Security Instrument - Answer-Pledges the house as collateral (can be deed of trust or
mortgage/lien)
deed of Trust (aka Trust Deed) - Answer-3 parties: Trustor(borrower),
Beneficiary(lender), Trustee(independent 3rd party).
Equitable Title - Answer-in Deed of trust, borrower has equitable title -- possessory
rights and right to legal title when loan paid off
Title theory states - Answer-Use Deed of Trust
Power of Sale clause - Answer-in title theory states (Deed of Trust) giving bank
nonjudicial foreclosure right.
When mortgage paid off (Title theory - Answer-Title theory states
"release of deed of trust"
,issues a reconveyance deed
mark the promissory note "Paid" and return it to the borrower.
Reconveyance Deed - Answer-Title theory (deed of trust) when loan is paid off bank
issues Release of Deed of Trust and issues a Reconveyance Deed, and mark the
promissory not "Paid" and return it to the borrower.
lien theory state - what happens when paid off - Answer-Satisfaction of Release of
mortgage
Mark promissory note paid and return to the borrower.
Security Instrument Clauses - Answer-Defeasance Clause - must release title on payoff
Acceleration clause-all due upon default
Due on Sale -
pre-payment penalty clause
Defeasance Clause - Answer-Security Instrument Clause that requires lender or trustee
to release title on payoff
"Defeats" the original agreement.
Defeasance - act that renders something null and void
Acceleration clause - Answer-Security Instrument Clause that makes whole loan due
upon default
Conventional loans - Answer-very secure. Typically 20% down min
Can be conforming or non-conforming
Jumbo - exceeds conforming limits but meets all other conforming specs.
FHA Insured Loans - Answer-Min 3.4% down
MIP
size limit
VA guaranteed loans - Answer-no down payment, no PMI, no prepayment penalties
eligibility depends on length and type of service
Usually adheres to conventional conforming loan limits
VA guarantees up to 25% of the loan
USDA/rural loan program - Answer-USDA/FSA - longer duration, 0% down, 95%
guarantee
For family farms and rural
Amortized loan - Answer-principal is paid down over the life of the loan
, Fully amortized -- at end, is paid off
Partially amortized -- at end is balloon payment
Negative amortization - Answer-(can happen with ARMS) payment fails to cover the
interest due
Land Contract (contract for deed) - Answer-seller holds title. buyer uses and makes
installment payments
Purchase Money Mortgage - Answer-Seller financing.
A mortgage given by the seller to the buyer to cover all or part of the sale price.
Wrap-around mortgage - Answer-seller continues to make payments to his mortgage
and buyer makes payments to the seller.
Pre-qualification vs pre-approved - Answer-Qual is the lesser. Based on unverified
Pre-approved - based on lender verified info
Alienation Clause - Answer-Mortgage due on sale
due upon "alienation" from the property
TILA (Truth in lending act) 1968 - Answer-Requires disclosure of credit terms if
triggered:
Triggers:
Down payment
Payment amount
# payments
Interest rate (other than APR)
Reg Z - requires mortgage lenders to follow TILA
RESPA (Real Estate Settlement Procedures Act) 1974 - Answer-protects homebuyers
from bad lenders
Dodd-Frank gave respa responsibility to the CPFB (Consumer Protection Finance
Bureau).
ECOA (Equal Credit Opportunity Act) 1974 - Answer-Race
color
QUESTIONS AND ANSWERS
Loan points - Answer-aka loan origination fees - compensation for processing (1-3%)
typically can't be more than 3%.
Discount point - Answer-permanently reduce interest rate
Buydown - Answer-interest prepayment at closing to temporarily reduce interest rate
(usually for 1-3 years). EG 3-2-1 buydown
LTV (loan to value) - Answer-value = lower of sale price or appraised price
APR - Answer-interest AND fees
PMI - Answer-loans with LTV > 80 (so they no longer conform to Fannie Mae/mac. Must
be terminated at 78%. Borrower can request removal at < 80%
PITI - Answer-Principal, interest, tax accrual, insurance accrual
Financing instruments (signed when you get a mortgage) - Answer-Promissory Note
Security Instrument
Promissory Note - Answer-promise to pay
negotiable instrument - can be transferred to another holder (bank, etc)
Security Instrument - Answer-Pledges the house as collateral (can be deed of trust or
mortgage/lien)
deed of Trust (aka Trust Deed) - Answer-3 parties: Trustor(borrower),
Beneficiary(lender), Trustee(independent 3rd party).
Equitable Title - Answer-in Deed of trust, borrower has equitable title -- possessory
rights and right to legal title when loan paid off
Title theory states - Answer-Use Deed of Trust
Power of Sale clause - Answer-in title theory states (Deed of Trust) giving bank
nonjudicial foreclosure right.
When mortgage paid off (Title theory - Answer-Title theory states
"release of deed of trust"
,issues a reconveyance deed
mark the promissory note "Paid" and return it to the borrower.
Reconveyance Deed - Answer-Title theory (deed of trust) when loan is paid off bank
issues Release of Deed of Trust and issues a Reconveyance Deed, and mark the
promissory not "Paid" and return it to the borrower.
lien theory state - what happens when paid off - Answer-Satisfaction of Release of
mortgage
Mark promissory note paid and return to the borrower.
Security Instrument Clauses - Answer-Defeasance Clause - must release title on payoff
Acceleration clause-all due upon default
Due on Sale -
pre-payment penalty clause
Defeasance Clause - Answer-Security Instrument Clause that requires lender or trustee
to release title on payoff
"Defeats" the original agreement.
Defeasance - act that renders something null and void
Acceleration clause - Answer-Security Instrument Clause that makes whole loan due
upon default
Conventional loans - Answer-very secure. Typically 20% down min
Can be conforming or non-conforming
Jumbo - exceeds conforming limits but meets all other conforming specs.
FHA Insured Loans - Answer-Min 3.4% down
MIP
size limit
VA guaranteed loans - Answer-no down payment, no PMI, no prepayment penalties
eligibility depends on length and type of service
Usually adheres to conventional conforming loan limits
VA guarantees up to 25% of the loan
USDA/rural loan program - Answer-USDA/FSA - longer duration, 0% down, 95%
guarantee
For family farms and rural
Amortized loan - Answer-principal is paid down over the life of the loan
, Fully amortized -- at end, is paid off
Partially amortized -- at end is balloon payment
Negative amortization - Answer-(can happen with ARMS) payment fails to cover the
interest due
Land Contract (contract for deed) - Answer-seller holds title. buyer uses and makes
installment payments
Purchase Money Mortgage - Answer-Seller financing.
A mortgage given by the seller to the buyer to cover all or part of the sale price.
Wrap-around mortgage - Answer-seller continues to make payments to his mortgage
and buyer makes payments to the seller.
Pre-qualification vs pre-approved - Answer-Qual is the lesser. Based on unverified
Pre-approved - based on lender verified info
Alienation Clause - Answer-Mortgage due on sale
due upon "alienation" from the property
TILA (Truth in lending act) 1968 - Answer-Requires disclosure of credit terms if
triggered:
Triggers:
Down payment
Payment amount
# payments
Interest rate (other than APR)
Reg Z - requires mortgage lenders to follow TILA
RESPA (Real Estate Settlement Procedures Act) 1974 - Answer-protects homebuyers
from bad lenders
Dodd-Frank gave respa responsibility to the CPFB (Consumer Protection Finance
Bureau).
ECOA (Equal Credit Opportunity Act) 1974 - Answer-Race
color
