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WorksheetsUnit 5 Real Estate Financing and Appraisal Review
Total questions: 42
Worksheet time: 21mins
A lender reviews a borrower’s credit history before approving a mortgage. Which factor most strongly influences the lender’s risk assessment?
The borrower’s pattern of on-time and delinquent payments, reflecting financial reliability.
The borrower’s state of residence.
The borrower’s savings habits.
When evaluating 'capacity' in the 4 C’s, a lender is primarily determining:
Whether income and debts allow sustainable mortgage repayment.
Whether the borrower has rented or owned previously.
Whether the borrower has long-term employment.
A borrower with multiple collections accounts receives a higher APR offer. This is MOST likely because:
Lenders must offset higher default risk.
Borrowers with collections cannot get fixed loans.
APR must match total debt amount.
Which scenario best demonstrates the role of 'character' in lending decisions?
A borrower consistently maintains responsible credit usage across multiple accounts.
A borrower invests heavily in rental properties.
A borrower frequently changes jobs despite high income.
When underwriters examine 'collateral,' they focus primarily on:
Whether the property value is sufficient to cover potential loss if default occurs.
Whether the neighborhood has high appreciation rates.
Whether the home includes upgraded mechanical systems.
A borrower notices that their APR is significantly higher than the advertised interest rate. This is MOST likely because:
The APR includes lender fees and finance charges in addition to interest.
The APR includes property taxes.
The interest rate includes PMI premiums.
A buyer who makes a 5% down payment must pay PMI primarily because:
Lenders require protection if the borrower defaults and the foreclosure sale doesn't cover the loan.
PMI removes the need for income verification.
PMI replaces homeowner’s insurance requirements.
Comparing a 15-year and a 30-year mortgage, which statement is accurate?
The 15-year loan has higher monthly payments but significantly less total interest.
The 15-year loan requires no credit review.
The 30-year loan prohibits extra principal payments.
A borrower with a DTI exceeding lender limits is likely to:
Be denied due to inability to safely absorb new debt payments.
Automatically qualify with a larger down payment.
Be unaffected if credit history is long enough.
LTV ratio matters to lenders because it:
Shows how large the loan is relative to the collateral’s market value.
Reveals borrower’s credit history length.
Predicts interest rate changes.
What does PITI represent?
Principal, interest, taxes and insurance — the main components of a mortgage payment.
Principal, interest, title and insurance.
Payment, income, taxes and insurance.
Which part of PITI reduces the remaining loan balance?
Principal.
Taxes.
Insurance.
Many borrowers select a 30-year mortgage because:
Lower monthly payments improve affordability.
It always results in less total interest.
It increases long-term equity automatically.
What is the purpose of an appraisal?
To estimate property value for lender collateral decisions.
To guarantee the buyer receives a fair price.
To determine zoning category.
The sales comparison approach is most appropriate for:
Residential homes with recent comparable sales.
Vacant rural acreage.
Commercial strip malls.
The cost approach is typically used for:
New or unique properties where comparable sales are limited.
Income-producing apartments.
Foreclosed properties.
The income approach is most useful when valuing:
Rental properties that generate income.
Vacant suburban lots.
Recreational land.
A CMA differs from an appraisal mainly because:
A CMA estimates listing price; an appraisal determines value for lending purposes.
An appraisal sets tax assessment.
A CMA determines insurance needs.
Employment verification is required because:
Lenders must confirm stable income to support long‑term repayment.
It qualifies borrowers for insurance.
It determines PMI eligibility.
Which fee is a standard closing cost required by lenders?
Appraisal fee.
HOA late fees.
Interior cleaning fee.
Why do lenders evaluate a borrower’s liquid assets?
To ensure funds are available for reserves and unexpected expenses.
To determine homeowner’s insurance requirements.
To estimate the future value of the property.
Why might a borrower choose an ARM despite potential rate increases?
Lower introductory rates make early payments more affordable.
ARMs eliminate PMI.
ARMs guarantee rates will fall.
What is the primary risk associated with an ARM?
Payments may rise significantly if market rates increase.
The borrower must pay the loan off early.
The loan converts to interest-only.
Why must down‑payment funds be verified?
To confirm funds are not borrowed, which could raise repayment risk.
To calculate property tax rates.
To determine lender profit margins.
How does high LTV affect lender decisions?
It indicates high risk, possibly requiring PMI or higher rates.
It eliminates closing costs.
It shows the borrower has high income.
A borrower receives a rate lock. This means:
The lender guarantees a specific interest rate for a defined period.
The lender guarantees a specific interest rate for a defined period.
The monthly payment will decrease.
The borrower’s income will not be reverified.
Why do lenders analyze credit utilization ratio?
High utilization may signal financial strain.
Utilization replaces credit score.
Low utilization disqualifies borrowers.
For investment property loans, DSCR is used to:
Evaluate whether property income can sufficiently cover debt payments.
Calculate PMI requirements.
Set insurance deductibles.
Why might investors prefer long‑term rental properties?
They provide stable, predictable income streams.
They require no maintenance.
They are exempt from local regulations.
Which scenario best represents house flipping?
Buying, renovating, and quickly selling for profit.
Holding land for farming.
Buying a home and living in it for decades.
How does vacancy rate influence rental property performance?
Higher vacancy reduces rental income stability.
Higher vacancy increases insurance payouts.
Higher vacancy guarantees tenant quality.
Why must properties have hazard insurance before closing?
It protects the collateral (home) if damage occurs.
Not this one
Why is a Closing Disclosure provided at least 3 business days before settlement?
To ensure borrowers have time to review terms and costs before signing.
Probably not me
How do rising interest rates affect mortgage affordability?
Higher rates increase monthly payments, reducing affordability.
Higher rates remove PMI requirements.
Higher rates force lenders to reduce closing costs.
Why do lenders review a borrower’s credit inquiries?
Numerous recent inquiries may indicate financial instability or increased reliance on credit.
Inquiries automatically lower insurance premiums.
Inquiries reveal employer history.
Which factor would most likely cause a lender to require a higher down payment?
A high income-to-debt ratio.
A long history of on-time payments.
A property located in a desirable neighborhood.
A low credit score indicating increased risk.
What is the main reason lenders require verification of a borrower's assets?
To ensure the borrower can cover closing costs and reserves.
To calculate the interest rate.
To determine the property's market value.
To set the loan term length.
Which component of a mortgage payment is applied directly to reduce the outstanding loan amount?
Taxes.
Interest.
Insurance.
Principal.
What is the main difference between a CMA and an appraisal?
A CMA is required by lenders.
An appraisal estimates renovation costs.
A CMA determines property taxes.
A CMA helps set a listing price; an appraisal is used for loan approval.
Which of the following best describes the purpose of a debt-to-income (DTI) ratio in mortgage underwriting?
To estimate future property taxes.
To assess whether a borrower can manage monthly payments based on income and existing debts.
To determine the property’s market value.
To calculate the required down payment.
What is the main reason lenders require a title search before approving a mortgage?
To ensure there are no outstanding claims or liens on the property.
To verify the borrower’s employment history.
To determine the neighborhood’s crime rate.
To assess the borrower’s credit score.
Which factor would most likely improve a borrower’s chances of mortgage approval?
Multiple recent credit inquiries.
Frequent late payments on previous loans.
High credit utilization ratio.
A stable employment history with consistent income.
