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Florida Residential Mortgages — Printable Practice Pack

Florida state portion · Chapter 475 F.S., Rule 61J2 and Florida's transaction-broker relationships · 20 questions · Answer key on the last page · agentexamcoach.com

Name: ______________________Date: ______________Score: _____ / 20
  1. 1.A buyer is considering a conventional loan with a 10% down payment. The lender offers two options: paying 2 points upfront or paying a higher interest rate over the life of the loan. Which option is likely to result in the lowest total cost of financing?
    (A)Paying 2 points upfront
    (B)Paying a higher interest rate over the life of the loan
    (C)Applying for an FHA loan instead
    (D)Making a larger down payment
  2. 2.What is the purpose of the Closing Disclosure form required by RESPA?
    (A)To provide a detailed breakdown of loan costs and terms
    (B)To disclose the property's condition and defects
    (C)To verify the borrower's creditworthiness
    (D)To confirm the loan approval
  3. 3.A borrower is required to pay points on a loan. What are points?
    (A)A type of mortgage insurance
    (B)A type of loan origination fee
    (C)A fee paid to the borrower to increase the loan amount
    (D)A fee paid to the lender to reduce the interest rate
  4. 4.A buyer obtains a mortgage with a loan-to-value ratio of 85%. What is the primary purpose of the private mortgage insurance required for this loan?
    (A)To protect the buyer from default
    (B)To increase the loan's term
    (C)To reduce the loan's interest rate
    (D)To protect the lender from default
  5. 5.A buyer purchases a home with a 10% down payment. What type of insurance will they likely be required to pay?
    (A)Title insurance
    (B)Homeowners insurance
    (C)Flood insurance
    (D)Private mortgage insurance
  6. 6.What is the purpose of the Real Estate Settlement Procedures Act (RESPA)?
    (A)To regulate the appraisal process for residential properties
    (B)To require lenders to provide borrowers with a detailed breakdown of loan costs and terms
    (C)To establish a national database of real estate transactions
    (D)To prohibit kickbacks and referral fees in residential real estate transactions
  7. 7.A property is valued at $490,000 and the buyer makes a 20% down payment, financing the rest. What is the loan-to-value (LTV) ratio?
    (A)20%
    (B)75%
    (C)85%
    (D)80%
  8. 8.A borrower is charged points on a loan. What are points?
    (A)A type of loan origination fee.
    (B)A type of credit score.
    (C)A type of appraisal fee.
    (D)A type of title insurance premium.
  9. 9.A lender is charging the borrower points on a loan. What are points, and what is their purpose?
    (A)Points are a type of fee charged by the lender to originate the loan, and their purpose is to reduce the interest rate on the loan
    (B)Points are a type of insurance premium paid by the borrower to protect the lender from default
    (C)Points are a type of appraisal fee paid by the borrower to determine the property value
    (D)Points are a type of credit report fee paid by the borrower to check their credit score
  10. 10.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%
  11. 11.A property is valued at $540,000 and the buyer makes a 10% down payment, financing the rest. What is the loan-to-value (LTV) ratio?
    (A)90%
    (B)10%
    (C)85%
    (D)95%
  12. 12.A borrower is applying for a conventional loan with a loan-to-value ratio of 85%. What can the borrower expect to pay in addition to their monthly mortgage payment?
    (A)Points to reduce the interest rate
    (B)Homeowners insurance to cover the property
    (C)Property taxes to be paid in advance
    (D)PMI to protect the lender against default
  13. 13.A property is valued at $500,000 and the buyer makes a 10% down payment, financing the rest. What is the loan-to-value (LTV) ratio?
    (A)90%
    (B)85%
    (C)10%
    (D)95%
  14. 14.What is the purpose of the Closing Disclosure form, as required by RESPA?
    (A)To provide the borrower with a detailed breakdown of the loan's terms and costs
    (B)To disclose the lender's fees and charges
    (C)To notify the borrower of the loan's approval status
    (D)To provide the borrower with a copy of the deed
  15. 15.A borrower signs a deed of trust to secure a loan. What is the primary difference between a deed of trust and a mortgage?
    (A)A deed of trust is a type of mortgage.
    (B)A deed of trust is used for residential properties only.
    (C)A deed of trust is used for commercial properties only.
    (D)A deed of trust involves three parties, while a mortgage involves two.
  16. 16.A buyer is obtaining a mortgage with a loan-to-value ratio of 82%. What will the lender likely require to mitigate the risk of the higher LTV?
    (A)A higher interest rate
    (B)A shorter loan term
    (C)A larger down payment
    (D)Private Mortgage Insurance (PMI)
  17. 17.A lender requires a borrower to establish an escrow account to pay property taxes and insurance. What is the primary purpose of this account?
    (A)To pay off the loan balance
    (B)To pay for home maintenance and repairs
    (C)To pay property taxes and insurance
    (D)To earn interest on the borrower's payments
  18. 18.What is the primary purpose of the Truth-in-Lending Act (TILA)?
    (A)To regulate the appraisal process for residential properties
    (B)To provide borrowers with a three-day right of rescission
    (C)To prohibit lenders from charging excessive interest rates
    (D)To require lenders to disclose the terms and conditions of a loan to the borrower
  19. 19.A buyer obtains a mortgage with a loan-to-value ratio of 82%. What is the likely result regarding private mortgage insurance?
    (A)The lender will not require PMI
    (B)The buyer will pay a higher interest rate
    (C)The buyer will be required to pay PMI
    (D)The seller will pay PMI
  20. 20.A borrower is taking out a conventional loan with a 20% down payment. Which of the following is TRUE about the loan?
    (A)The loan will require private mortgage insurance (PMI)
    (B)The loan will have a higher interest rate than a loan with a 10% down payment
    (C)The loan will have a lower debt-to-income ratio requirement
    (D)The loan will not require private mortgage insurance (PMI)

Answer key & explanations

  1. 1. A — Paying 2 points upfront would result in a lower interest rate over the life of the loan, which would likely lead to the lowest total cost of financing.
  2. 2. A — The Closing Disclosure form provides a detailed breakdown of loan costs and terms, including the annual percentage rate, total finance charge, and monthly payment amount.
  3. 3. D — Points are a fee paid to the lender to reduce the interest rate on the loan, and are typically a percentage of the loan amount.
  4. 4. D — Private mortgage insurance protects the lender from default when the loan-to-value ratio exceeds 80%.
  5. 5. D — Private mortgage insurance is typically required when the loan-to-value ratio is greater than 80%, which is the case with a 10% down payment.
  6. 6. D — The Real Estate Settlement Procedures Act prohibits kickbacks and referral fees in residential real estate transactions and requires lenders to provide borrowers with a detailed breakdown of settlement costs.
  7. 7. D — Loan = $392,000. LTV = loan ÷ value = $392,000 ÷ $490,000 = 80% (equivalently 100% − 20% down).
  8. 8. A — Points are a type of loan origination fee, which is a percentage of the loan amount charged by the lender as a fee for making the loan.
  9. 9. A — Points are a type of fee charged by the lender to originate the loan, and their purpose is to reduce the interest rate on the loan or to pay for other loan costs.
  10. 10. C — Above 80% LTV (less than 20% down), conventional lenders typically require PMI to cover the added default risk.
  11. 11. A — Loan = $486,000. LTV = loan ÷ value = $486,000 ÷ $540,000 = 90% (equivalently 100% − 10% down).
  12. 12. D — Since the loan-to-value ratio is greater than 80%, the borrower will be required to pay private mortgage insurance (PMI) to protect the lender against default.
  13. 13. A — Loan = $450,000. LTV = loan ÷ value = $450,000 ÷ $500,000 = 90% (equivalently 100% − 10% down).
  14. 14. A — The Closing Disclosure form provides the borrower with a detailed breakdown of the loan's terms and costs, including the loan amount, interest rate, and closing costs.
  15. 15. D — A deed of trust involves three parties: the borrower, the lender, and a trustee, whereas a mortgage typically involves two parties: the borrower and the lender.
  16. 16. D — Lenders typically require PMI for mortgages with an LTV ratio above 80% to protect against potential losses in case of default.
  17. 17. C — The primary purpose of an escrow account is to pay property taxes and insurance, as required by the lender.
  18. 18. D — TILA requires lenders to disclose the terms and conditions of a loan to the borrower, including the annual percentage rate (APR) and the total amount paid over the life of the loan.
  19. 19. C — When the loan-to-value ratio exceeds 80%, the lender typically requires the buyer to pay private mortgage insurance to protect the lender's interest in the property.
  20. 20. D — Since the borrower is making a 20% down payment, the loan will not require private mortgage insurance (PMI), which is typically required for conventional loans with a loan-to-value ratio exceeding 80%.

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