Free Texas Finance Practice Test — LicenseIQ

Question 1

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 2

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 3

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 4

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 5

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 6

Under the Third Party Financing Addendum, what does 'Buyer Approval' address?

Accepted Answer

Paragraph 2A Buyer Approval addresses the buyer's credit, income, and assets. Appraisal and insurability fall under 2B Property Approval.

Question 7

The closing date is October 20. The lender's appraisal comes in low and the lender will not approve the property. Under Paragraph 2B of TREC 40-11, what is the latest date the buyer may terminate and get the earnest money back?

Accepted Answer

Property Approval termination must be on or before the 3rd day before the Closing Date: October 20 - 3 = October 17. The buyer must give notice plus the lender's written statement of reasons.

Question 8

A buyer purchases a home for $425,000 with a loan of $361,250. What is the LTV?

Accepted Answer

LTV = loan / price = $361,250 / $425,000 = 0.85 = 85%. (15% is the down payment percentage.)

Question 9

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 10

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 11

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 12

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 13

Under the Truth in Lending Act (Regulation Z), which phrase in an ad is a 'trigger term' requiring full credit disclosures?

Accepted Answer

Specific terms like the down payment amount, number or amount of payments, finance charge or repayment period trigger full disclosure (including APR). General statements do not.

Question 14

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 15

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 16

A homeowner's house is worth $400,000 with a $200,000 existing mortgage. Under the Texas 80% rule, what is the maximum home equity loan amount (ignoring fees)?

Accepted Answer

Total secured debt may not exceed 80% of fair market value: 0.80 x $400,000 = $320,000. Subtract the existing $200,000: $320,000 - $200,000 = $120,000. $320,000 is the total cap, not the new loan amount.

Question 17

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 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

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 20

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 21

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 22

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 23

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 24

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 25

A buyer's Buyer Approval period has expired without termination, and the lender then denies the loan for credit reasons. What is the most likely consequence?

Accepted Answer

If the buyer does not terminate within the Buyer Approval period, the contract is no longer subject to Buyer Approval. A later credit denial does not give a refund right under 2A.

Texas real estate finance practice test

1. 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:

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

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

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

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

6. Under the Third Party Financing Addendum, what does 'Buyer Approval' address?

7. The closing date is October 20. The lender's appraisal comes in low and the lender will not approve the property. Under Paragraph 2B of TREC 40-11, what is the latest date the buyer may terminate and get the earnest money back?

8. A buyer purchases a home for $425,000 with a loan of $361,250. What is the LTV?

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

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

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

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

13. Under the Truth in Lending Act (Regulation Z), which phrase in an ad is a 'trigger term' requiring full credit disclosures?

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

15. 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?

16. A homeowner's house is worth $400,000 with a $200,000 existing mortgage. Under the Texas 80% rule, what is the maximum home equity loan amount (ignoring fees)?

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

18. A VA loan is:

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

20. 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?

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

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

23. 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?

24. 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?

25. A buyer's Buyer Approval period has expired without termination, and the lender then denies the loan for credit reasons. What is the most likely consequence?

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