Free Pennsylvania Finance Practice Test — LicenseIQ

Question 1

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 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

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 4

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 5

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 6

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 7

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 8

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 9

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 10

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 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

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 13

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 14

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 15

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 16

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 17

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 18

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 19

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 20

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 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

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 23

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 24

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 25

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.)

Pennsylvania real estate finance practice test

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

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

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

4. 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?

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

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

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

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

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

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

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

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

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

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

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

17. 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?

18. A VA loan is:

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

20. 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?

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. 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:

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

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

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

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