National portion

Free Financing & Settlement practice questions

10 original questions with full explanations. 7 of the 80 scored national-portion questions (about 9%) come from this area.

This is national-portion content — identical whichever state you're licensing in, and scored separately from your state-law portion.

1. 1

   Which mortgage clause lets the lender demand full repayment if the property is sold?

   • A. Acceleration clause
   • B. Alienation (due-on-sale) clause
   • C. Defeasance clause
   • D. Subordination clause
   Show answer & explanation

   Answer: B

   The alienation or due-on-sale clause triggers on transfer of the property. Acceleration triggers on default; defeasance cancels the lien at payoff.

2. 2

   On a conventional loan, private mortgage insurance is typically required when the loan-to-value ratio exceeds:

   • A. 70%
   • B. 75%
   • C. 80%
   • D. 90%
   Show answer & explanation

   Answer: C

   Above 80% LTV (less than 20% down), conventional lenders typically require PMI to cover the added default risk.

3. 3

   A borrower signs a promissory note with a 20% down payment. What is the primary purpose of this note?

   • A. To secure the loan with the property as collateral
   • B. To evidence the debt and promise to repay
   • C. To transfer title to the lender
   • D. To disclose loan terms to the borrower
   Show answer & explanation

   Answer: B

   The promissory note is a promise to repay the loan and evidences the debt, while the deed of trust or mortgage secures the loan with the property as collateral.

4. 4

   A loan has an alienation clause, also known as a due-on-sale clause. What does this clause do?

   • A. Allows the borrower to sell the property without penalty
   • B. Requires the borrower to pay a penalty for early repayment
   • C. Gives the lender the right to accelerate the loan if the property is sold or transferred
   • D. Permits the borrower to assume the loan without lender approval
   Show answer & explanation

   Answer: C

   An alienation clause, or due-on-sale clause, gives the lender the right to accelerate the loan if the property is sold or transferred without the lender's consent.

5. 5

   A borrower puts down 10% on a home purchase. What is the likely consequence of this low down payment?

   • A. The borrower will pay a lower interest rate
   • B. The borrower will avoid paying private mortgage insurance (PMI)
   • C. The borrower will pay PMI due to the high loan-to-value ratio
   • D. The borrower will receive a larger loan amount
   Show answer & explanation

   Answer: C

   With a down payment of less than 20%, the borrower will likely be required to pay private mortgage insurance (PMI) due to the high loan-to-value ratio.

6. 6

   What is the purpose of the Truth-in-Lending Act (TILA) and Regulation Z?

   • A. To regulate the appraisal process
   • B. To disclose loan terms and costs to the borrower
   • C. To ensure the lender's compliance with state laws
   • D. To provide financing options for borrowers with poor credit
   Show answer & explanation

   Answer: B

   TILA and Regulation Z require lenders to disclose loan terms and costs to the borrower, including the annual percentage rate (APR) and finance charges.

7. 7

   What is the main purpose of the Closing Disclosure form?

   • A. To provide a detailed accounting of the loan's interest rate and terms
   • B. To disclose the property's condition and any known defects
   • C. To summarize the transaction's costs and terms for the borrower
   • D. To transfer title to the property
   Show answer & explanation

   Answer: C

   The Closing Disclosure form summarizes the transaction's costs and terms for the borrower, including the loan amount, interest rate, and closing costs.

8. 8

   A borrower is considering a loan with a subordination clause. What does this clause do?

   • A. Gives the lender a higher priority over other lienholders
   • B. Allows the borrower to assume the loan without lender approval
   • C. Requires the borrower to make a balloon payment at the end of the loan term
   • D. Subordinates the lender's lien to another lienholder, such as a home equity lender
   Show answer & explanation

   Answer: D

   A subordination clause subordinates the lender's lien to another lienholder, such as a home equity lender, allowing the other lienholder to have a higher priority.

9. 9

   What is the purpose of an escrow account in a mortgage transaction?

   • A. To hold the borrower's down payment until closing
   • B. To pay the lender's origination fees and points
   • C. To collect and pay property taxes and insurance premiums
   • D. To reimburse the borrower for closing costs
   Show answer & explanation

   Answer: C

   An escrow account is used to collect and pay property taxes and insurance premiums, ensuring that these expenses are paid on time.

10. 10

    A borrower signs a promissory note for a home loan. What is the primary obligation of the borrower?

    • A. To pay the lender's origination fee
    • B. To make monthly mortgage insurance payments
    • C. To repay the loan amount with interest
    • D. To maintain a minimum credit score
    Show answer & explanation

    Answer: C

    The promissory note is a promise to repay the loan amount with interest, making it the primary obligation of the borrower.