Free California Finance Practice Test — LicenseIQ

Question 1

Which loan is protected from a deficiency judgment under CCP §580b even if the lender forecloses judicially?

Accepted Answer

Section 580b protects seller carrybacks and lender purchase-money loans on 1–4 unit dwellings occupied by the buyer. Larger and commercial properties and non-purchase loans fall outside it.

Question 2

A VA loan is:

Accepted Answer

VA loans are guaranteed (not insured) by the VA for eligible veterans and service members, often with no down payment, and only for a primary residence.

Question 3

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 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 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 6

Until when may a California borrower reinstate a defaulted trust deed loan by curing the arrears?

Accepted Answer

Civil Code §2924c allows reinstatement until five business days before the sale. After that point, the borrower must pay off the loan in full to stop the sale.

Question 7

A conventional loan that exceeds the conforming loan limits set by the FHFA is called a:

Accepted Answer

Loans above the conforming limits cannot be sold to Fannie Mae/Freddie Mac and are non-conforming 'jumbo' loans, usually at higher rates.

Question 8

A lender's refusal to make loans in certain neighborhoods based on demographics is:

Accepted Answer

Redlining is denying loans or services to areas based on protected characteristics rather than the borrower's qualifications.

Question 9

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 10

Under the CalVet home loan program, who holds legal title until the loan is paid?

Accepted Answer

CalVet traditionally uses a contract of sale. The Department buys the home and holds legal title, and the veteran holds equitable title and possession until payoff.

Question 11

A buyer contracts to buy a home for $300,000, but it appraises at $290,000. The lender offers 75% LTV. What is the maximum loan?

Accepted Answer

LTV is applied to the LESSER of price or appraised value: $290,000 x 0.75 = $217,500. Using the $300,000 price ($225,000) is the common mistake.

Question 12

On an adjustable-rate mortgage, the interest rate after the initial period is determined by:

Accepted Answer

ARM rate = index + margin, subject to periodic and lifetime caps. In a 5/1 ARM the rate is fixed 5 years, then adjusts every year.

Question 13

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 14

One discount point equals what percentage of the loan amount?

Accepted Answer

One point = 1% of the loan amount (not the purchase price), paid to lower the interest rate.

Question 15

A lender offers a 95% LTV loan. The buyer has $18,000 for the down payment. What is the maximum purchase price?

Accepted Answer

At 95% LTV the down payment is 5% of price. Price = $18,000 / 0.05 = $360,000; loan = $342,000.

Question 16

In the early years of a fully amortizing fixed-rate mortgage, the largest portion of each monthly payment goes toward:

Accepted Answer

Early payments are mostly interest; as the balance declines, more of each payment goes to principal.

Question 17

The periodic report a property manager gives the owner showing rents and other income collected and expenses paid for the period is the:

Accepted Answer

The income statement (P&L) summarizes income and expenses for the accounting period, typically monthly.

Question 18

Which federal law requires disclosure of the true cost of credit, including APR?

Accepted Answer

The Truth in Lending Act (Regulation Z) requires disclosure of finance charges and the APR. RESPA covers settlement costs.

Question 19

A broker arranges a $16,000 second trust deed loan with a 2.5-year term. Under the Mortgage Loan Broker Law, what is the maximum commission?

Accepted Answer

Junior loans under $20,000 fall under Article 7. For a junior lien with a term of 2 to under 3 years, the cap is 10%: $16,000 × 0.10 = $1,600.

Question 20

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 21

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 22

Private mortgage insurance (PMI) is typically required on a conventional loan when the down payment is:

Accepted Answer

PMI protects the lender and is generally required when the borrower puts down less than 20% (LTV over 80%).

Question 23

Which law specifically prohibits redlining, meaning denying home financing because of a neighborhood's characteristics?

Accepted Answer

The Holden Act (Health & Safety Code §35800 et seq.) bars financial institutions from discriminating in housing finance based on neighborhood characteristics.

Question 24

A home sells for $620,000. The buyer pays cash plus a new loan; no existing liens remain. What is the county documentary transfer tax at $0.55 per $500?

Accepted Answer

$620,000 ÷ $500 = 1,240 units. 1,240 × $0.55 = $682. New loans do not reduce the taxable consideration.

Question 25

A property sells for $545,000. The buyer assumes the seller's existing $245,000 loan. What is the county documentary transfer tax?

Accepted Answer

Liens remaining on the property are excluded: $545,000 − $245,000 = $300,000. $300,000 ÷ $500 = 600 units. 600 × $0.55 = $330.

California real estate finance practice test

1. Which loan is protected from a deficiency judgment under CCP §580b even if the lender forecloses judicially?

2. A VA loan is:

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

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

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

6. Until when may a California borrower reinstate a defaulted trust deed loan by curing the arrears?

7. A conventional loan that exceeds the conforming loan limits set by the FHFA is called a:

8. A lender's refusal to make loans in certain neighborhoods based on demographics is:

9. 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?

10. Under the CalVet home loan program, who holds legal title until the loan is paid?

11. A buyer contracts to buy a home for $300,000, but it appraises at $290,000. The lender offers 75% LTV. What is the maximum loan?

12. On an adjustable-rate mortgage, the interest rate after the initial period is determined by:

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

14. One discount point equals what percentage of the loan amount?

15. A lender offers a 95% LTV loan. The buyer has $18,000 for the down payment. What is the maximum purchase price?

16. In the early years of a fully amortizing fixed-rate mortgage, the largest portion of each monthly payment goes toward:

17. The periodic report a property manager gives the owner showing rents and other income collected and expenses paid for the period is the:

18. Which federal law requires disclosure of the true cost of credit, including APR?

19. A broker arranges a $16,000 second trust deed loan with a 2.5-year term. Under the Mortgage Loan Broker Law, what is the maximum commission?

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

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

22. Private mortgage insurance (PMI) is typically required on a conventional loan when the down payment is:

23. Which law specifically prohibits redlining, meaning denying home financing because of a neighborhood's characteristics?

24. A home sells for $620,000. The buyer pays cash plus a new loan; no existing liens remain. What is the county documentary transfer tax at $0.55 per $500?

25. A property sells for $545,000. The buyer assumes the seller's existing $245,000 loan. What is the county documentary transfer tax?

Sources