Free Massachusetts Finance Practice Test — LicenseIQ

Question 1

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 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

The document issued by a VA-approved appraiser for a VA loan is the:

Accepted Answer

The VA appraiser issues a CRV. The Certificate of Eligibility establishes the veteran's entitlement before applying.

Question 4

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 5

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 6

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 7

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 8

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 9

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 10

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 11

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 12

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 13

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 14

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 15

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 16

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 17

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 18

Adding a new financing contingency to an existing sales contract is done by a(n) ____, while changing the existing closing date is done by a(n) ____.

Accepted Answer

An addendum ADDs new terms; an amendment changes existing terms. Both require agreement of both parties.

Question 19

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 20

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 21

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 22

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 23

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 24

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 25

A condominium association's lien for unpaid common expenses has priority over a first mortgage for up to

Accepted Answer

Section 6(c) grants priority over a first mortgage for up to six months of budgeted common expenses, plus enforcement costs and fees; special assessments, fines and late charges are excluded from the priority amount.

Massachusetts real estate finance practice test

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

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

3. The document issued by a VA-approved appraiser for a VA loan is the:

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

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

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

7. 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:

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

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

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

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

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

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

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

15. 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?

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

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

18. Adding a new financing contingency to an existing sales contract is done by a(n) , while changing the existing closing date is done by a(n) .

19. 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?

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

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

22. 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?

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

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

25. A condominium association's lien for unpaid common expenses has priority over a first mortgage for up to

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