Free Montana Finance Practice Test — LicenseIQ

Question 1

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 2

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 3

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 4

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 5

Under Montana's Small Tract Financing Act, a trust indenture may be used to secure property of not more than:

Accepted Answer

MCA 71-1-304 limits trust indentures under the act to real property not exceeding 40 acres.

Question 6

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 7

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 8

A zero-down-payment government loan program aimed at low- and moderate-income buyers in eligible rural areas is offered through the:

Accepted Answer

USDA Rural Development loans serve eligible rural buyers who meet income limits, often with no down payment.

Question 9

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 10

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 11

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 12

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 13

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 14

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 15

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 16

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 17

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 18

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 19

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 20

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 21

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 22

RESPA primarily governs:

Accepted Answer

RESPA requires disclosure of settlement (closing) costs on 1-4 family residential loans and prohibits kickbacks. Rate advertising falls under TILA.

Question 23

After a judicial foreclosure sale of a Montana mortgage, the judgment debtor may redeem within:

Accepted Answer

MCA 25-13-802 allows the judgment debtor or a redemptioner to redeem within 1 year after the sale, paying the price plus interest, taxes, and certain expenses.

Question 24

Under the Small Tract Financing Act, the trustee must mail the notice of sale by certified mail at least how many days before the sale?

Accepted Answer

MCA 71-1-315 requires certified mailing at least 120 days before the sale. Twenty days is the minimum for posting on the property and for the last publication.

Question 25

After a Montana trust indenture is foreclosed by advertisement and sale under the Small Tract Financing Act:

Accepted Answer

MCA 71-1-317 bars deficiency judgments after a trustee's sale, and MCA 71-1-228 excludes trustee's sales under the act from statutory redemption. The 1-year redemption applies to judicial and execution sales.

Montana real estate finance practice test

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

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

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

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

5. Under Montana's Small Tract Financing Act, a trust indenture may be used to secure property of not more than:

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

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

8. A zero-down-payment government loan program aimed at low- and moderate-income buyers in eligible rural areas is offered through the:

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

10. 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?

11. 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:

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

13. 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?

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

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

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

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

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

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

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

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

22. RESPA primarily governs:

23. After a judicial foreclosure sale of a Montana mortgage, the judgment debtor may redeem within:

24. Under the Small Tract Financing Act, the trustee must mail the notice of sale by certified mail at least how many days before the sale?

25. After a Montana trust indenture is foreclosed by advertisement and sale under the Small Tract Financing Act:

Sources