Free Alabama Finance Practice Test — LicenseIQ

Question 1

A chronological summary of all recorded documents affecting a property's title, such as deeds, mortgages and liens, is a(n):

Accepted Answer

The abstract summarizes the recorded history; the chain of title lists successive owners; an attorney's opinion of title evaluates it.

Question 2

Which statement about FHA-insured loans is correct?

Accepted Answer

FHA loans are made by approved lenders and insured by FHA, with down payments as low as 3.5% and mortgage insurance premium (MIP) required on all FHA loans, for 1-4 family homes.

Question 3

A property has a first mortgage (recorded 2015), a judgment lien (2018), a mechanic's lien (2020) and unpaid property taxes. Which is paid FIRST from sale proceeds?

Accepted Answer

Real property tax liens take priority over all others regardless of recording date; other liens generally follow in order of recording.

Question 4

On the buyer's side of the closing statement, the earnest money deposit and the new mortgage loan are both:

Accepted Answer

Earnest money and loan proceeds are sources of funds that reduce what the buyer must bring, so they are buyer credits.

Question 5

A lender approves a $276,000 loan and the buyer wants to keep an 80% LTV. What is the maximum purchase price?

Accepted Answer

Purchase price = loan / LTV = $276,000 / 0.80 = $345,000. ($220,800 wrongly multiplies by 0.80.)

Question 6

What is the Alabama mortgage recording tax on a new $196,240 loan?

Accepted Answer

§40-22-2 imposes $0.15 per $100 or fraction. 196,240 / 100 = 1,962.4, round up to 1,963; 1,963 x $0.15 = $294.45. $294.36 forgets to round up.

Question 7

In a mortgage, the borrower who pledges the property as security is the:

Accepted Answer

The mortgagor (borrower) gives the mortgage to the mortgagee (lender) in exchange for the loan.

Question 8

Using an amortization factor of 4.77415 per $1,000 (30 years at 4%), what is the monthly principal and interest payment on a $250,000 loan?

Accepted Answer

$250,000 / $1,000 = 250; 250 x 4.77415 = $1,193.54.

Question 9

Which loan is insured by the federal government and allows a low down payment?

Accepted Answer

FHA loans are insured by the Federal Housing Administration and permit down payments as low as 3.5%. Conventional loans are not government-backed.

Question 10

Which document is recorded in the county records and makes the property collateral for a loan?

Accepted Answer

The mortgage creates the lien and is recorded. The promissory note is the borrower's personal promise to repay and is not recorded.

Question 11

A borrower pays $4,500 for 1.5 discount points. What is the loan amount?

Accepted Answer

Loan = cost of points / points as a percentage = $4,500 / 0.015 = $300,000.

Question 12

A home is worth $410,000. The owner owes $238,500 on a first mortgage and $41,200 on a home equity loan. What is the owner's equity?

Accepted Answer

Equity = value - all loan balances = $410,000 - ($238,500 + $41,200) = $410,000 - $279,700 = $130,300.

Question 13

The minimum down payment typically required on an FHA-insured loan is as low as:

Accepted Answer

FHA allows down payments as low as 3.5%. Zero down is associated with VA and USDA loans.

Question 14

An agent tells a buyer he will show homes only if the buyer uses the agent's brother as mortgage broker. This is an illegal:

Accepted Answer

Conditioning one service on the purchase of another is a tying arrangement prohibited by antitrust law.

Question 15

An Alabama house sells for $245,300 with no assumed mortgage. What is the deed tax?

Accepted Answer

The rate is $0.50 per $500 or fraction. 245,300 / 500 = 490.6, round up to 491; 491 x $0.50 = $245.50. $245.30 forgets to round the fraction up; $490.60 uses $1 per $500.

Question 16

A borrower's monthly payment does not cover the interest due, and the unpaid interest is added to the loan balance. This is:

Accepted Answer

When unpaid interest is added to principal, the balance grows - negative amortization. An interest-only loan pays all interest, so the balance stays flat.

Question 17

A borrower paid $3,150 in points on a $210,000 loan. How many points were paid?

Accepted Answer

Points = cost / loan = $3,150 / $210,000 = 0.015 = 1.5 points (1 point = 1% of the loan).

Question 18

On a $250,000 loan, how much is 2 discount points?

Accepted Answer

1 point = 1% of the loan. 2 points = 0.02 x $250,000 = $5,000.

Question 19

A buyer purchases a home for $425,000 with a loan of $361,250. What is the LTV?

Accepted Answer

LTV = loan / price = $361,250 / $425,000 = 0.85 = 85%. (15% is the down payment percentage.)

Question 20

A buyer purchases a $300,000 home with a $60,000 down payment. What is the loan-to-value (LTV) ratio?

Accepted Answer

Loan = $300,000 - $60,000 = $240,000; $240,000 / $300,000 = 80% LTV. (20% is the down payment percentage.)

Question 21

A seller wants the buyer to take over her low-rate mortgage, but the mortgage contains an alienation clause. This clause allows the lender to:

Accepted Answer

An alienation (due-on-sale) clause lets the lender call the loan due upon transfer, preventing assumption without lender approval.

Question 22

A financing contingency in a purchase agreement protects the:

Accepted Answer

A financing (mortgage) contingency lets the buyer cancel without penalty if unable to secure the specified loan by the deadline.

Question 23

The reasonably probable use of a property that is legally permissible, physically possible, financially feasible and maximally productive is its:

Accepted Answer

Highest and best use is the use producing the greatest value that meets the four tests.

Question 24

Under the Truth in Lending Act (Regulation Z), which phrase in an ad is a 'trigger term' requiring full credit disclosures?

Accepted Answer

Specific terms like the down payment amount, number or amount of payments, finance charge or repayment period trigger full disclosure (including APR). General statements do not.

Question 25

A buyer pays $245,300 and assumes a $100,000 mortgage on which mortgage tax was previously paid. What is the deed tax?

Accepted Answer

§40-22-1 taxes only the value in excess of a mortgage on which mortgage tax was paid. $245,300 - $100,000 = $145,300; 145,300 / 500 = 290.6, round up to 291; 291 x $0.50 = $145.50.

Alabama real estate finance practice test

1. A chronological summary of all recorded documents affecting a property's title, such as deeds, mortgages and liens, is a(n):

2. Which statement about FHA-insured loans is correct?

3. A property has a first mortgage (recorded 2015), a judgment lien (2018), a mechanic's lien (2020) and unpaid property taxes. Which is paid FIRST from sale proceeds?

4. On the buyer's side of the closing statement, the earnest money deposit and the new mortgage loan are both:

5. A lender approves a $276,000 loan and the buyer wants to keep an 80% LTV. What is the maximum purchase price?

6. What is the Alabama mortgage recording tax on a new $196,240 loan?

7. In a mortgage, the borrower who pledges the property as security is the:

8. Using an amortization factor of 4.77415 per $1,000 (30 years at 4%), what is the monthly principal and interest payment on a $250,000 loan?

9. Which loan is insured by the federal government and allows a low down payment?

10. Which document is recorded in the county records and makes the property collateral for a loan?

11. A borrower pays $4,500 for 1.5 discount points. What is the loan amount?

12. A home is worth $410,000. The owner owes $238,500 on a first mortgage and $41,200 on a home equity loan. What is the owner's equity?

13. The minimum down payment typically required on an FHA-insured loan is as low as:

14. An agent tells a buyer he will show homes only if the buyer uses the agent's brother as mortgage broker. This is an illegal:

15. An Alabama house sells for $245,300 with no assumed mortgage. What is the deed tax?

16. A borrower's monthly payment does not cover the interest due, and the unpaid interest is added to the loan balance. This is:

17. A borrower paid $3,150 in points on a $210,000 loan. How many points were paid?

18. On a $250,000 loan, how much is 2 discount points?

19. A buyer purchases a home for $425,000 with a loan of $361,250. What is the LTV?

20. A buyer purchases a $300,000 home with a $60,000 down payment. What is the loan-to-value (LTV) ratio?

21. A seller wants the buyer to take over her low-rate mortgage, but the mortgage contains an alienation clause. This clause allows the lender to:

22. A financing contingency in a purchase agreement protects the:

23. The reasonably probable use of a property that is legally permissible, physically possible, financially feasible and maximally productive is its:

24. Under the Truth in Lending Act (Regulation Z), which phrase in an ad is a 'trigger term' requiring full credit disclosures?

25. A buyer pays $245,300 and assumes a $100,000 mortgage on which mortgage tax was previously paid. What is the deed tax?

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