Texas Real Estate Sales Agent — All Questions

A buyer purchases a $315,000 home using a loan with an 80% loan-to-value ratio. How large is the required down payment?

• a.$25,200
• b.$252,000
• c.$47,250
• d.$63,000✓

An 80 percent LTV means the loan is $315,000 x 0.80 = $252,000, so the down payment is the remaining 20 percent: $315,000 x 0.20 = $63,000.

On a fully amortizing loan, why does the interest portion of each monthly payment DECREASE over time while the principal portion increases?

• a.Interest is charged on the declining outstanding balance, which shrinks as principal is repaid✓
• b.The borrower's payment amount rises each year, adding more to principal
• c.Property taxes escrowed in the payment are gradually shifted over to principal
• d.The lender voluntarily lowers the interest rate a little bit each and every month

Each payment's interest is calculated on the remaining balance, so as principal is paid down, less interest accrues and more of the level payment goes to principal. The total payment stays constant on a fixed-rate loan.

A '2-1 buydown' on a mortgage means that:

• a.The borrower must make two payments in the first month and one in the second
• b.The lender doubles the rate in the first year and halves it in the second
• c.The loan term is shortened by two years in exchange for a one-time fee
• d.The interest rate is reduced by 2% in year one and 1% in year two, then rises to the note rate✓

A 2-1 buydown temporarily lowers the rate by 2 percentage points in the first year and 1 point in the second, after which the loan returns to the full note rate. It is typically funded by an upfront payment from the seller, builder, or buyer.

A 'wraparound' mortgage is a financing arrangement in which:

• a.The lender advances funds in stages as a new home is being constructed
• b.The borrower pays only interest for a set period, then a large balloon payment
• c.A single loan is secured by several different parcels of property at the same time
• d.A new loan is made that includes and 'wraps around' the existing underlying loan✓

A wraparound mortgage is a new, larger loan that includes the balance of an existing loan, which the seller continues to pay. It is a form of seller financing that must be structured carefully, especially where a due-on-sale clause exists.

A 'blanket' mortgage is one that:

• a.Charges no interest as long as the borrower keeps the property insured
• b.Requires the borrower to carry additional flood and hazard coverage
• c.Covers more than one parcel of real estate under a single loan✓
• d.Automatically converts to a fixed rate after a set number of years

A blanket mortgage covers multiple parcels or lots under one loan, and it is often used by developers. A partial release clause typically allows individual lots to be freed from the lien as they are sold.

A 'construction loan' typically:

• a.Requires no repayment until the borrower sells the finished home years later
• b.Is available only to buyers purchasing existing, previously owned homes
• c.Provides permanent 30-year financing at a fixed rate from the very first day
• d.Advances funds in stages (draws) as building progresses and is usually short-term✓

A construction loan disburses money in draws as work is completed and is generally a short-term loan replaced by permanent financing when the project is done. It carries higher risk to the lender, so terms differ from a standard purchase loan.

A 'bridge' (swing) loan is generally used to:

• a.Permanently finance a rental property held for long-term investment income
• b.Refinance an existing mortgage into a lower fixed interest rate for 30 years
• c.Provide short-term funds so a buyer can purchase a new home before selling the current one✓
• d.Pay a builder in installments as each phase of construction is completed

A bridge loan provides temporary financing that 'bridges' the gap when a buyer needs to purchase a new home before the sale of the existing one closes. It is short-term and typically repaid when the old property sells.

Which statement correctly distinguishes the roles of these secondary-market entities?

• a.All three of them lend money directly to homebuyers at the closing table
• b.Freddie Mac sets nationwide property tax rates, while Fannie Mae licenses agents
• c.Ginnie Mae is a private company, while Fannie Mae is a federal government agency
• d.Fannie Mae and Freddie Mac buy loans to provide liquidity, while Ginnie Mae guarantees securities backed by government loans✓

Fannie Mae and Freddie Mac purchase loans from lenders to provide liquidity in the secondary market, while Ginnie Mae guarantees mortgage-backed securities backed by government-insured loans such as FHA and VA. None of them lend directly to consumers.

'Predatory lending' practices that consumer-protection laws target include:

• a.Verifying the borrower's income and ability to repay before making the loan
• b.Clearly disclosing all loan costs and offering a competitive market interest rate
• c.Providing the borrower the required Loan Estimate within three business days
• d.Steering borrowers into needlessly costly loans and charging excessive, hidden fees✓

Predatory lending includes abusive practices such as excessive fees, deceptive terms, and pushing borrowers into unaffordable or unnecessarily costly loans. Laws such as HOEPA and the ability-to-repay rule aim to curb these abuses.

A buyer purchases a $360,000 home with a $54,000 down payment. Because the loan-to-value exceeds 80%, the lender will most likely require:

• a.The seller to pay all of the buyer's closing costs at settlement
• b.A second full appraisal from a different appraiser before closing
• c.No mortgage insurance at all, because the loan is clearly well secured
• d.Private mortgage insurance (PMI), since the down payment is only 15%✓

The down payment is $54,000 / $360,000 = 15%, so the LTV is 85%, above the 80% threshold. Conventional loans with LTV above 80 percent typically require PMI to protect the lender.

In a 'term' (straight) loan, as opposed to an amortizing loan:

• a.No interest is ever charged, and the borrower repays only the original principal
• b.The interest rate adjusts every year based on a published financial index
• c.The borrower pays only interest during the term and the full principal at maturity✓
• d.Each level payment includes both principal and interest until the balance reaches zero

A term or straight loan requires interest-only payments during the term, with the entire principal due in a lump sum at maturity. An amortizing loan instead spreads principal and interest across level payments that retire the debt.

A 'balloon' payment in a mortgage is:

• a.The very first payment, which is larger than all of the payments that follow it
• b.The extra amount a borrower pays each month to be held in an escrow account
• c.A large final payment due at maturity because the loan was not fully amortized✓
• d.A payment that automatically increases by a fixed percentage every single year

A balloon payment is a large lump sum due at the end of a loan that was not fully amortized over its term. Borrowers often plan to refinance or sell before the balloon comes due.

The difference between buying 'subject to' an existing loan and 'assuming' the loan is that, in a subject-to purchase, the buyer:

• a.Must pay the entire loan balance in cash immediately at the closing table
• b.Is always formally released by the lender from any responsibility for the debt
• c.Takes title and makes payments but does not become personally liable on the note✓
• d.Automatically receives a brand-new loan from the seller's lender at a lower rate

In a subject-to purchase the buyer takes title and makes payments but does not become personally liable on the note, so the seller remains liable. In an assumption, the buyer formally takes on personal liability, typically with lender approval.

A 'payoff statement' (or estoppel/payoff letter) from a lender tells the closing agent:

• a.The interest rate the buyer will receive on a brand-new purchase loan
• b.The exact amount required to fully satisfy and release the existing loan as of a given date✓
• c.The commission the listing broker will earn at the closing
• d.The appraised market value the lender assigns to the property

A payoff statement states the exact amount, including principal, interest, and fees, needed to satisfy the existing loan and release the lien as of a specified date. The closing agent uses it to pay off the seller's loan at closing.

An adjustable-rate mortgage is tied to an index currently at 4.0% with a margin of 2.5%. Ignoring any caps, what is the fully indexed interest rate?

• a.6.5%✓
• b.10.0%
• c.1.5%
• d.4.0%

The fully indexed rate equals the index plus the margin: 4.0% + 2.5% = 6.5%. Any periodic or lifetime caps could limit the rate actually charged at an adjustment.

Section 8 of RESPA specifically prohibits:

• a.Charging any interest at all on a federally related mortgage loan
• b.Providing the borrower with a Loan Estimate within three business days
• c.Kickbacks and unearned referral fees among settlement service providers✓
• d.Requiring the borrower to purchase a lender's title insurance policy

RESPA Section 8 prohibits kickbacks, fee-splitting, and unearned referral fees for the referral of settlement service business. It is intended to keep settlement costs from being inflated by improper payments.