Free Illinois Finance Practice Test — LicenseIQ

Question 1

Under federal rules, a lender must automatically cancel borrower-paid PMI when the loan balance reaches what percentage of the original value (purchase price)?

Accepted Answer

PMI terminates automatically at 78% LTV based on original value. At 80% LTV the borrower may REQUEST cancellation, which is the tempting distractor.

Question 2

The mortgage clause that allows the lender to declare the entire balance due immediately upon the borrower's default is the:

Accepted Answer

The acceleration clause lets the lender call the entire debt due on default. The alienation (due-on-sale) clause is triggered by transfer of the property.

Question 3

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 4

Under a land contract (contract for deed), during the payment period the buyer holds:

Accepted Answer

In an installment/land contract the buyer has equitable title and possession; the seller keeps legal title until the final payment.

Question 5

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 6

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 7

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 8

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 9

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 10

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 11

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 12

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 13

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 14

A buyer purchases a $275,000 home with an 80% LTV loan and pays 2.5 discount points. What do the points cost?

Accepted Answer

Loan = $275,000 x 0.80 = $220,000; points = $220,000 x 0.025 = $5,500. ($6,875 wrongly applies points to the price.)

Question 15

A mortgage lender offers a salesperson $200 for every client referred. Under RESPA this is:

Accepted Answer

RESPA prohibits kickbacks and unearned referral fees between settlement service providers and real estate licensees, even if disclosed.

Question 16

A buyer purchases a $300,000 home with an 80% loan, pays 1 point on the loan, a $450 appraisal and $1,800 in title charges, and has already deposited $10,000 earnest money. How much must the buyer bring to closing?

Accepted Answer

Down payment = $60,000; 1 point = $240,000 x 0.01 = $2,400; total = $60,000 + $2,400 + $450 + $1,800 = $64,650; minus $10,000 earnest money = $54,650.

Question 17

A home sells for $389,000. The seller pays a 5% commission, a $212,600 mortgage payoff, $1,200 attorney fee, $1,950 transfer tax and $600 in other costs. What are the seller's net proceeds?

Accepted Answer

Commission = $389,000 x 0.05 = $19,450. Total costs = $19,450 + $212,600 + $1,200 + $1,950 + $600 = $235,800. Net = $389,000 - $235,800 = $153,200.

Question 18

Under TRID, the borrower must receive the Closing Disclosure at least how long before loan closing?

Accepted Answer

The Loan Estimate is due within 3 business days after application, and the Closing Disclosure at least 3 business days before closing.

Question 19

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 20

A short-term loan used to buy a new home before the borrower's current home sells is a:

Accepted Answer

A bridge loan 'bridges' the gap between buying and selling and is typically repaid within about 12 months when the old home sells.

Question 21

A loan whose payments are not large enough to pay it off by the end of the term, leaving a large final payment, is a:

Accepted Answer

Partially amortized loans require a balloon payment at maturity. Negative amortization means the balance actually increases because payments don't cover interest.

Question 22

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 23

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 24

A buyer purchases a home for $300,000 and takes title subject to the seller's existing $120,000 mortgage, which remains outstanding. What is the state transfer tax?

Accepted Answer

Section 31-10 excludes the outstanding balance of a mortgage the property is transferred subject to. Taxable value = $300,000 - $120,000 = $180,000. $180,000 / $500 = 360 units. 360 x $0.50 = $180.00.

Question 25

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%).

Illinois real estate finance practice test

1. Under federal rules, a lender must automatically cancel borrower-paid PMI when the loan balance reaches what percentage of the original value (purchase price)?

2. The mortgage clause that allows the lender to declare the entire balance due immediately upon the borrower's default is the:

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

4. Under a land contract (contract for deed), during the payment period the buyer holds:

5. 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?

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

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

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

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

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

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

12. 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:

13. 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?

14. A buyer purchases a $275,000 home with an 80% LTV loan and pays 2.5 discount points. What do the points cost?

15. A mortgage lender offers a salesperson $200 for every client referred. Under RESPA this is:

16. A buyer purchases a $300,000 home with an 80% loan, pays 1 point on the loan, a $450 appraisal and $1,800 in title charges, and has already deposited $10,000 earnest money. How much must the buyer bring to closing?

17. A home sells for $389,000. The seller pays a 5% commission, a $212,600 mortgage payoff, $1,200 attorney fee, $1,950 transfer tax and $600 in other costs. What are the seller's net proceeds?

18. Under TRID, the borrower must receive the Closing Disclosure at least how long before loan closing?

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

20. A short-term loan used to buy a new home before the borrower's current home sells is a:

21. A loan whose payments are not large enough to pay it off by the end of the term, leaving a large final payment, is a:

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

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

24. A buyer purchases a home for $300,000 and takes title subject to the seller's existing $120,000 mortgage, which remains outstanding. What is the state transfer tax?

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

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