California · state portion

Free California Financing practice questions

10 original questions with full explanations. 14 of the 150 scored exam questions (about 9%) come from this area.

1. 1

   Which party in a deed of trust is the lender?

   • A. The beneficiary
   • B. The grantor
   • C. The trustee
   • D. The trustor
   Show answer & explanation

   Answer: A

   Trustor = borrower, beneficiary = lender, trustee = neutral third party.

2. 2

   A borrower pays $6,000 in points to reduce a $400,000 30-year loan's rate from 7% to 6.5%, lowering the payment by about $133/month. If the borrower sells in year 3, did the buydown pay off?

   • A. Yes — points are always recovered at sale through higher equity
   • B. No — points never pay off on any loan held under 10 years
   • C. No — breakeven is about 45 months, longer than the 36-month hold
   • D. Yes — the savings exceeded the cost by the end of year 2
   Show answer & explanation

   Answer: C

   6,000 / 133 = 45 months; selling at 36 months means the points were not fully recovered.

3. 3

   A borrower's loan has a prepayment penalty of 6 months' interest on amounts prepaid over 20% of the balance in a year. The balance is $300,000 at 6%. The borrower pays off $120,000 in year 2. What is the penalty?

   • A. $1,800 — 6 months' interest on the $60,000 prepaid above the 20% allowance
   • B. $9,000 — 6 months' interest on the entire balance
   • C. $3,600 — 6 months' interest on the full $120,000
   • D. $0 — no penalty applies because the loan is being paid down
   Show answer & explanation

   Answer: A

   Excess over 20% of 300,000 (60,000) is 60,000; 60,000 x 0.06 / 2 = 1,800.

4. 4

   Which law requires a good faith estimate of settlement costs and prohibits kickbacks for referrals?

   • A. ECOA
   • B. The Unruh Act
   • C. The Holden Act
   • D. RESPA
   Show answer & explanation

   Answer: D

   The Real Estate Settlement Procedures Act governs settlement cost disclosure and prohibits kickbacks or unearned fees for referrals.

5. 5

   What is the 'secondary mortgage market'?

   • A. Where existing loans are bought and sold by investors
   • B. Where borrowers apply for second mortgages
   • C. Where mortgage brokers are licensed
   • D. Where foreclosures are auctioned
   Show answer & explanation

   Answer: A

   The secondary market provides liquidity by purchasing originated loans.

6. 6

   One loan covers several parcels and allows individual lots to be released as they sell. What is it?

   • A. A blanket loan
   • B. A wraparound loan
   • C. A package loan
   • D. A participation loan
   Show answer & explanation

   Answer: A

   A blanket loan covers more than one parcel and typically contains a release clause so individual parcels can be freed as sold.

7. 7

   A $300,000 loan at 6% interest-only. What is the annual interest?

   • A. $36,000
   • B. $3,000
   • C. $18,000
   • D. $1,500
   Show answer & explanation

   Answer: C

   300,000 × 0.06 = 18,000 per year.

8. 8

   A lender chooses judicial foreclosure instead of a trustee's sale. What does the borrower gain?

   • A. An automatic reduction of the loan balance
   • B. Immunity from any deficiency judgment
   • C. A statutory right of redemption after the sale
   • D. A guaranteed extension of the payment term
   Show answer & explanation

   Answer: C

   Judicial foreclosure preserves a post-sale redemption right for the borrower, which a trustee's sale does not.

9. 9

   Which practice does RESPA specifically prohibit between settlement service providers?

   • A. Kickbacks for referrals
   • B. Advertising jointly with disclosure
   • C. Charging for actual services
   • D. Offering discounts openly
   Show answer & explanation

   Answer: A

   RESPA bars unearned fees and kickbacks for referrals, while payment for services actually performed remains lawful.

10. 10

    A borrower locks a rate for 30 days; closing is delayed to day 35. What typically happens?

    • A. The lock expires; a fee or new rate may apply
    • B. The lender must close at the locked rate
    • C. The rate is guaranteed forever
    • D. The loan is cancelled
    Show answer & explanation

    Answer: A

    Locks are time-limited; extensions usually cost money.