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Financing

Mortgages, loans, lending practices, and financing instruments

200 questions10 concepts
Financing — Study Card
Financing study card infographic showing key concepts, exam weight (12%), and memory aids
AI-generated study card for Financing. Covers 12% of the real estate exam.
Difficulty Breakdown
Easy60 (30%)
Medium88 (44%)
Hard52 (26%)
Study Tips for Financing
  • Know the key differences: FHA (3.5% down, MIP), VA (0% down, veterans), Conventional (20% to avoid PMI)
  • RESPA prohibits kickbacks; TILA requires APR disclosure; ECOA prevents lending discrimination
  • Practice LTV ratio calculations: LTV = Loan Amount ÷ Appraised Value
  • Understand the secondary market: Fannie Mae, Freddie Mac, Ginnie Mae roles

Key Concepts

Conventional Loan

A conventional loan is a mortgage that is not insured or guaranteed by a government agency such as the FHA, VA, or USDA. It is originated and funded by private lenders and may be conforming or non-conforming.

FHA Loan

An FHA loan is a mortgage insured by the Federal Housing Administration that allows lower down payments and credit scores than conventional loans. It is designed to help first-time homebuyers and borrowers with limited resources.

VA Loan

A VA loan is a mortgage guaranteed by the Department of Veterans Affairs available to eligible veterans, active-duty service members, and surviving spouses. It offers no down payment and no private mortgage insurance requirements.

Fixed-Rate Mortgage

A fixed-rate mortgage has an interest rate that remains constant for the entire term of the loan, resulting in equal monthly principal and interest payments throughout the life of the mortgage.

Adjustable-Rate Mortgage (ARM)

An adjustable-rate mortgage (ARM) has an interest rate that changes periodically based on market conditions, typically after an initial fixed-rate period. The rate adjustment is tied to a financial index plus a margin.

Loan-to-Value Ratio (LTV)

The loan-to-value ratio (LTV) is the percentage of a property's appraised value or purchase price (whichever is lower) that is being financed through a mortgage. LTV = Loan Amount / Property Value.

Debt-to-Income Ratio (DTI)

The debt-to-income ratio (DTI) compares a borrower's monthly debt obligations to their gross monthly income. It is used by lenders to determine how much mortgage a borrower can afford.

Closing Costs

Closing costs are the fees and expenses paid by the buyer and seller at the closing of a real estate transaction, beyond the purchase price. They typically range from 2-5% of the purchase price.

Discount Points

Discount points are upfront fees paid to a lender at closing to reduce (buy down) the interest rate on a mortgage loan. One point equals 1% of the loan amount and typically reduces the rate by approximately 0.25%.

Usury

Usury is the practice of charging an interest rate that exceeds the maximum rate permitted by state law. Usury laws protect borrowers from excessive interest charges on loans.

Practice Questions

Government Loans(15)

Assume the contract for the sale of real prop- erty includes the sale of certain removable items, such as paintings and furniture. Upon delivery of the deed, the seller also should deliver

MEDIUM

Crops that grow on land and require annual planting and cultivation are called

EASY

A man dies without leaving a valid will. He is said to have died

EASY

A valid agency requires a(n):

EASY

All of the following substances need to be referenced in a statement disclosing the presence of various environmental hazards, except:

HARD

Generally, things or objects of a temporary or easily movable nature are

EASY

All of the following are required in valid contracts, except:

HARD

The removal of land when a stream suddenly changes its channel is

EASY

When one broker authorizes another broker to act as their subagent on the approval of the seller, the subagent is primarily responsible to the:

HARD

An elevation sheet used in a subdivision plan shows:

EASY

Which government agency insures FHA loans?

EASY

A motivated seller in a seller’s market is least likely to accept an offer contingent on the:

EASY

Which of the following is NOT required for a valid bill of sale?

HARD

Barnard made an offer to buy a vacant residence. The offer was accepted by the seller. Prior to the close of escrow, Barnard requested permission from the broker to enter and make minor repairs to the house. Which of the following is true?

EASY

Before closing, a buyer asks their broker for permission to enter the vacant house they will be purchasing in order to paint the kitchen. The broker is to:

MEDIUM

Financing: What You Need to Know

Financing is one of the most heavily weighted exam topics, covering the entire lending process from application to closing. This topic requires understanding different loan types, lending regulations, and financial calculations that agents encounter daily in practice.

Start by mastering the major loan types: conventional loans (conforming and jumbo), FHA loans (lower down payment, MIP required), VA loans (no down payment for eligible veterans), and USDA rural development loans. Know the key requirements for each — FHA requires 3.5% down and mortgage insurance, VA loans require a Certificate of Eligibility, and conventional loans typically need 20% down to avoid PMI.

Federal lending regulations are heavily tested: RESPA (Real Estate Settlement Procedures Act) prohibits kickbacks and unearned fees; TILA (Truth in Lending Act) requires APR disclosure and provides a right of rescission; ECOA (Equal Credit Opportunity Act) prevents discrimination in lending. Understanding the secondary mortgage market is also important — know what Fannie Mae, Freddie Mac, and Ginnie Mae do and how they keep mortgage funds flowing.

Frequently Asked Questions

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