Questions From Test (Principles)

Front 1

The federal Equal Credit Opportunity Act allows lenders to discriminate against potential borrowers on the basis of

Back 1

The answer is AMOUNT OF INCOME. Lenders may reject applicants who have insufficient income for the loans they are requesting, but it would be illegal for lenders to discriminate based on any of the other answer choices.

Front 2

All of the following factors would be important when comparing properties under the sales comparison approach to value EXCEPT differences in

Back 2

The answer is ORIGINAL COST. None of the approaches to appraisal considers the original (historical) cost of a property. Original cost is used in computations of book-value depreciation. The other three factors would be relevant to the sales comparison approach (sometimes called the market data approach).

Front 3

In which type of loan is the loan amount divided into two parts, to be paid off separately by periodic interest payments followed by a payment of the principal in full at the end of the term?

Back 3

The answer is STRAIGHT. In a straight loan (sometimes called a term loan), the borrower makes periodic payments of interest only. At the end of the loan term, the entire original principal debt must be paid.

Front 4

A homeowner has a current loan balance of $118,000 on a 30-year loan at 7 percent interest with a monthly payment of $831.63 for the principal and interest. How much of the net payment will apply to principal reduction?

Back 4

The answer is $143.30. Calculate the interest on $118,000 for one month at 7 percent per year: $118,000 x 0.07 = $8,260 per year. To obtain one month's interest: $8,260 / 12 = $688.33. With a total payment of $831.63, Jim pays $688.33 interest, and the rest is principle: $831.63 — $688.33 = $143.30.

Front 5

In what way does a deed of trust differ from a mortgage?

Back 5

The answer is THE NUMBER OF PARTIES INVOLVED IN THE LOAN. A deed of trust is a three-party instrument that conveys naked title to a third party, the trustee, who holds the title on behalf of the lender, also known as the beneficiary. The borrower is the trustor. A mortgage is a two-part instrument between the mortgagor and the mortgagee.

Front 6

An appraiser would need to determine accrued depreciation when using the

Back 6

The answer is COST APPROACH. One of the five steps of the cost approach is to estimate the amount of accrued depreciation (loss in value) resulting from the property's physical deterioration, external depreciation, and functional obsolescence.

Front 7

After a foreclosure proceeding, if the mortgagor owes the mortgagee more than what was received through the foreclosure process, the mortgagee may file for a

Back 7

The answer is DEFICIENCY JUDGMENT. If the borrower/mortgagee still owes the lender/mortgagee money after the foreclosure sale, the lender may file for a deficiency judgment.

Front 8

It is illegal for a lending institution to refuse to make residential real estate loans in a particular area only because of the

Back 8

The answer is PHYSICAL LOCATION OF THE PROPERTY. Redlining refers to literally drawing a line around particular areas and refusing to make loans in that area, rather than looking at the economic qualifications of the applicant.

Front 9

The lower the loan-to-value ratio, the higher the

Back 9

The answer is OWNER'S EQUITY. A lower loan-to-value ratio has a smaller loan and a higher down payment. The down payment represents the owner's equity.

Front 10

To find the value of a property using the income approach to value when the net operating income and capitalization rate are known, the appraiser would

Back 10

The answer is DIVIDE THE NET OPERATING INCOME BY THE CAPITALIZATION RATE. With the appropriate capitalization rate and the projected annual net operating income, the appraiser can obtain an estimate of value. Net operating income / Capitalization rate = Value.

Front 11

The Real Estate Settlement Procedures Act (RESPA) states all of the following EXCEPT

Back 11

The answer is THE BORROWER MAY CANCEL THE LOAN TRANSACTION THREE DAYS AFTER SETTLEMENT. A borrower has no rights of rescission under RESPA. There are some rights of rescission afforded under Regulation Z.

Front 12

A homeowner is frantic because he cannot find his deed and wants to sell his property. What can he do?

Back 12

The answer is HE DOES NOT NEED THE ORIGINAL DEED IF IT HAS BEEN RECORDED. If the homeowner's deed was copied into the public record after he received it, that copy is all that is needed to start a title search.

Front 13

Which of the following would a title search uncover?

Back 13

The answer is DEED RESTRICTION. Deed restrictions must be recorded and would appear in a title search of the public records. Encroachments, zoning violations, and parties in possession are unrecorded and would be discovered through an inspection of the property or investigating other records such as the zoning law.

Front 14

In the cost approach to value, the appraiser makes use of the

Back 14

The answer is ESTIMATED REPLACEMENT COST OF THE BUILDING. The cost approach is used to estimate the replacement or reproduction cost of the building. Estimated replacement or reproduction cost less accrued depreciation plus estimated land value equals the estimated value by the cost approach.

Front 15

The mortgagee's policy usually shows on the closing statement as a

Back 15

The answer is DEBIT TO THE BUYER. The mortgagee's policy is required by the lender and usually is considered to be the responsibility of the buyer.

Front 16

The assumed loan sales price on a settlement sheet would be

Back 16

The answer is CREDIT BUYER AND DEBIT SELLER. Credit is good and debits are bad. The sales price is credit seller and debit buyer. An assumed loan sales price is the amount to be paid by the buyer (debit buyer) and is the amount payable to the seller (credit seller).

Front 17

What principle of value does an appraiser use to determine how much value a new deck adds to a property?

Back 17

The answer is CONTRIBUTION. The appraiser is determining how much the deck contributes to the value of the property.

Front 18

When estimating the value of a property using the cost approach, all of the following are considered by an appraiser EXCEPT

Back 18

The answer is LOSS OF VALUE DUE TO UNCOLLECTED DELINQUENT RENT. Loss of value due to uncollected delinquent rent would be used in the income approach and not in the cost approach.

Front 19

Under the federal Fair Housing Act, it is illegal to discriminate because

Back 19

The answer is A PERSON HAS AIDS. People with AIDS are protected under the disability provision of the Fair Housing Act.

Front 20

What law requires disclosure of the annual percentage rate (APR) to borrowers?

Back 20

The answer is TRUTH IN LENDING ACT. APR is the true cost of borrowing; it is required to be disclosed by the federal Truth in Lending Act.

Front 21

A seller is unsure whether she should renovate her kitchen before selling. What principle of value will help her determine whether the renovation is financially feasible?

Back 21

The answer is CONTRIBUTION. The principle of contribution will determine if the renovation is financially feasible and if it will give the seller an increasing return upon completion.

Front 22

All of the following would be revealed by a title search EXCEPT

Back 22

The answer is AN ENCROACHMENT. A title search will find items recorded in the public record. A survey would reveal the encroachment that exists only on the property.

Front 23

The difference between using a partially amortized loan or an interest-only loan is that the partially amortized loan would result in

Back 23

The answer is LARGER PAYMENTS AND A SMALLER BALLOON PAYMENT. An amortized loan pays principal and interest, so the monthly payments are higher than an interest-only loan and the balloon payment is smaller.

Front 24

Who do the funds in a loan escrow (reserve) account for taxes and insurance belong to?

Back 24

The answer is BORROWER. The lender is holding the money in a reserve, but it's still the borrower's.

Front 25

What is damage caused to a property over and above ordinary wear and tear called?

Back 25

The answer is WASTE. Property waste is damage either caused by the mortgagor or allowed to happen through the mortgagor's negligence.

Front 26

Homeowners may deduct all of the following expenses when preparing their income tax return EXCEPT

Back 26

The answer is HOMEOWNERS' ASSOCIATION DUES. Real estate taxes, mortgage interest, points for loans, and some origination fees can be deducted on income tax returns.