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Illinois broker exam preparation

Real estate financing practice questions

Start with the question being asked. A note is a repayment promise, FHA is a type of backing, and LTV is a ratio. Sorting those roles first makes a long financing scenario easier to solve.

Last reviewed:

What this financing practice covers

Use this original financing practice set to work on loan documents, payment structures, government programs, lending laws and calculations. Answer before opening each explanation, then check the fact that ruled out the closest alternative.

The PSI broker outline effective June 24, 2026 assigns 10% of the 100 scored national questions to the whole Financing area. This page is a teaching set, not ten predicted PSI items, a full simulation or a validated pass-readiness measure. Use the facts and assumptions supplied; actual loan eligibility and costs require the applicable current program rules.

Work from the question to the controlling fact

  1. Identify the task: name a document, recognize a feature, choose a program, apply a disclosure rule or calculate an amount.
  2. Separate the borrower's obligation, the real estate pledged as security, the payment structure and any government backing. One loan can have all four.
  3. For a government program, ask who lends, who insures or guarantees, and which borrower and property conditions the question supplies.
  4. For a law question, identify the covered transaction and triggering event before counting time or choosing the required action.
  5. For math, write the target and its base. Use loan amount for points, the specified property-value base for LTV and consistent monthly amounts for payment ratios.
  6. Check the strongest alternative. Explain which fact would have to change for it to become correct.
  7. Read the explanation and relevant source for uncertain answers. Revisit the rule with unfamiliar facts rather than treating a high repeat score as an exam prediction.
The fact that decides a financing question
Question asks aboutStart withCheck before answering
Promise to repayPromissory noteAmount, payment terms and maturity
Real estate pledged as securityMortgage or deed of trustActual instrument and governing law
Balance demanded after defaultAcceleration provisionRequired default and notice conditions
Rate adjustmentIndex plus marginApplicable cap, floor and adjustment date
Large maturity balanceBalloon structureRemaining principal, not ordinary monthly payment
FHA, VA or USDALender and federal program rolesInsurance, guaranty or direct lending
Loan sale or securitizationSecondary marketDistinguish origination from later funding
Credit discriminationECOA and Regulation BProtected basis and actual creditor conduct
Settlement referral paymentRESPA section 8Coverage, agreement and any lawful exception
Loan or payment calculationCorrect base and periodRequested unit and rounding instruction

The distinctions that matter

financing practice: key distinctions
DistinctionHow it worksWhat to notice
Note and security instrumentThe note states the repayment promise. The mortgage or deed of trust supplies real-property security.A deed transferring ownership is a different document.
Fixed rate and fixed total housing costA fixed note rate does not freeze taxes, insurance, association charges or every payment component.Read which part of the payment is fixed.
Interest-only and negative amortizationPaying the full required interest can leave principal unchanged. When unpaid interest is added to principal, the balance grows.Ask whether the payment covers accrued interest.
Conventional and conformingConventional describes financing without the relevant federal mortgage insurance or guaranty. Conforming also requires applicable enterprise standards.The terms are not interchangeable, and the loan limit is not the only standard.
Primary and secondary marketsThe primary market originates the borrower's loan. Later loan purchases and securitization supply secondary-market liquidity.Selling the loan does not necessarily change who services it.
PITI and a broader housing expenseNarrow PITI means principal, interest, property taxes and homeowners insurance. A program's housing expense can include other required components.Do not silently omit mortgage insurance or association charges from a broader request.
Official disclosure deadlines and a study reminderDifferent rules use different business-day definitions, triggers and delivery standards.A Loan Estimate mailing deadline and a Closing Disclosure receipt deadline are not identical.

Work through the facts and calculations

Separate the note from the mortgage

A question asks which document contains the borrower's promise to repay principal and interest and which document creates the real-property security interest.

  1. The promise and debt terms belong in the promissory note.
  2. The mortgage or deed of trust supplies the real-property collateral relationship.
  3. The documents are connected but perform different legal functions.

Answer: The note evidences the debt; the mortgage or deed of trust secures it.

Identify an adjustable rate

A loan's future note rate equals a published index plus a lender margin, subject to periodic and lifetime limits.

  1. The index can move with the referenced market measure.
  2. The margin is added under the note's adjustment formula.
  3. Caps limit specified changes but do not make the loan fixed.

Answer: The facts describe an adjustable-rate mortgage.

Identify the backing, not just the word federal

One stated program is FHA insurance through an approved lender. Another is a VA guaranty supporting a private lender's loan to an eligible veteran.

  1. FHA insures the eligible mortgage under its program.
  2. VA backing in the stated loan is a guaranty, not FHA insurance.
  3. Borrower and property eligibility, fees and lender approval remain separate questions.

Answer: The first is FHA-insured and the second VA-backed; the description does not say either agency originated that private loan.

Calculate LTV

A simplified problem gives a $340,000 loan and a $400,000 value base. What is LTV?

  1. LTV equals loan divided by the stated value base.
  2. $340,000 / $400,000 = 0.85.
  3. Convert the decimal to 85%.

Answer: The LTV is 85%.

Calculate point dollars

A borrower pays 1.25 points on a $320,000 loan. What is the dollar charge?

  1. One point equals 1% of loan amount.
  2. Convert 1.25% to 0.0125.
  3. $320,000 x 0.0125 = $4,000.

Answer: The point charge is $4,000.

Match the credit-discrimination rule

A creditor rejects an otherwise qualified applicant because of race. Which federal credit framework most directly addresses that stated conduct?

  1. The stated reason is a prohibited basis, not a neutral application of a lawful credit standard.
  2. ECOA and Regulation B govern discrimination in credit.
  3. RESPA settlement-referral rules do not replace that analysis; other fair-housing protections may also apply.

Answer: ECOA and Regulation B directly address the stated credit discrimination.

Separate PITI from the broader housing total

Monthly principal and interest is $1,850. Annual property tax is $7,200, annual homeowners insurance is $1,440 and monthly association dues are $200. The question asks for narrow PITI.

  1. Convert annual tax to $600 per month and insurance to $120 per month.
  2. PITI is $1,850 + $600 + $120 = $2,570.
  3. The broader total including the stated dues is $2,770, but that is not the requested narrow PITI.

Answer: Narrow PITI is $2,570 per month.

Distinguish underwriting inputs from approval

A hypothetical question supplies $8,000 gross monthly qualifying income and $3,000 in total counted monthly debt.

  1. The supplied total-debt ratio is $3,000 / $8,000 = 37.5%.
  2. Using take-home pay would answer a different question.
  3. The ratio alone does not establish that a lender must approve the actual application.

Answer: The calculated ratio is 37.5%, with eligibility and program standards still separate.

Apply a rate cap after index plus margin

For this adjustment, the prior note rate is 3%, index 5%, margin 2%, periodic increase cap two percentage points and lifetime ceiling 8%. No other provision changes the result.

  1. The fully indexed rate is 5% + 2% = 7%.
  2. The periodic cap limits this increase to 3% + two percentage points = 5%.
  3. The 8% lifetime ceiling is higher, so the capped result remains 5%. This example supplies the needed contract assumptions.

Answer: The rate for this adjustment is 5%.

Use the lower purchase value in the stated program

A standard Fannie Mae purchase first mortgage, with no special exception or financed mortgage insurance, has a $400,000 price, $380,000 appraisal and $342,000 loan.

  1. The general purchase base is the lower of price and current appraised value: $380,000.
  2. The loan divided by that base is $342,000 / $380,000 = 90%.
  3. Using the price would produce 85.5%, a different ratio on the wrong base for these stated facts.

Answer: The LTV is 90% for this example.

Mistakes to avoid

  • Calling the mortgage the repayment promise. Choose the note for the promise and the security instrument for collateral.
  • Assuming an ARM cap makes the rate fixed. Apply the stated index, margin, adjustment period and cap.
  • Assuming every conventional loan is conforming or avoids PMI. Check the applicable underwriting and insurance requirements.
  • Treating a federal guaranty as loan approval. Borrower, property and lender requirements still matter.
  • Calculating points from purchase price. Use the loan amount unless the problem asks about something else.
  • Adding annual taxes to a monthly payment. Put every component into the same period first.
  • Using one universal three-business-day rule. Check the covered loan, trigger, day definition and whether the rule concerns mailing, delivery or receipt.
  • Using an 85% practice score as a validated readiness cutoff. Review missed and uncertain rules. This set does not establish a pass-prediction threshold.

Answer these original financing questions

These are original teaching questions, not recalled or predicted PSI questions. Answer first, then explain why the other choices fail.

1. Which document contains the borrower's promise to repay a typical mortgage loan?

  1. Ownership deed
  2. Promissory note
  3. Mortgage
  4. Title policy
Show answer and explanation

Answer: B. Promissory note

The note states the repayment obligation. The mortgage supplies security, the deed concerns ownership and a title policy insures specified title risks rather than creating the repayment promise.

2. A loan's rate can reset using an index plus margin, subject to stated caps. What structure is described?

  1. A title insurance policy
  2. An adjustable-rate mortgage
  3. A deed restriction
  4. A fixed-rate loan
Show answer and explanation

Answer: B. An adjustable-rate mortgage

The index, margin and reset provisions describe an ARM. Caps limit the specified changes; they do not make the note rate fixed. A deed restriction and title policy do not set this loan-rate formula.

3. Which of these programs insures eligible mortgages through approved lenders?

  1. VA guaranty
  2. FHA
  3. A private seller acting alone
  4. Conventional financing without government backing
Show answer and explanation

Answer: B. FHA

FHA is the insurance program among these choices. VA-backed private lending uses a guaranty. Conventional financing and a private seller alone are not FHA mortgage insurance, and federal backing does not itself approve a borrower.

4. A problem supplies a $270,000 loan and a $300,000 value base. What is the LTV?

  1. 111.11%
  2. 81%
  3. 90%
  4. 10%
Show answer and explanation

Answer: C. 90%

$270,000 / $300,000 = 0.90, or 90%. Ten percent is the complementary share on this simplified base; 111.11% reverses the fraction, and 81% does not follow the supplied values.

5. A creditor denies credit because of the applicant's race. Which framework most directly addresses that stated credit discrimination?

  1. CERCLA
  2. RESPA section 8 alone
  3. The Sherman Act alone
  4. ECOA and Regulation B
Show answer and explanation

Answer: D. ECOA and Regulation B

ECOA and Regulation B address discrimination in credit. RESPA section 8 concerns covered settlement referrals and fee splitting; CERCLA concerns environmental liability, and antitrust law does not replace the stated credit-discrimination analysis. Other housing laws can also apply.

6. In this two-party transaction, the borrower grants the mortgage on the borrower's property to the lender. Which term describes that granting role?

  1. Mortgagee
  2. Appraisal reviewer
  3. Title insurer
  4. Mortgagor
Show answer and explanation

Answer: D. Mortgagor

The borrower granting the mortgage is the mortgagor in these facts; the lender receiving the security is the mortgagee. Title insurance and appraisal are different roles. In actual Illinois law, the mortgagor definition concerns the property interest subject to the mortgage and can include successors, so do not assume every mortgagor personally signed the repayment note.

7. A borrower has a fixed note rate. Property taxes and insurance premiums rise. Which statement is sound?

  1. The note rate can stay fixed while the total housing cost rises
  2. The loan automatically becomes an ARM
  3. The total housing cost must remain unchanged
  4. The tax increase cancels the note
Show answer and explanation

Answer: A. The note rate can stay fixed while the total housing cost rises

Fixed note interest does not freeze property taxes, insurance or every housing expense. A higher escrow or housing cost does not by itself create an ARM or cancel the repayment obligation. A fixed-rate note and the separate housing-cost components should be read separately.

8. A loan's regular payments leave a substantial unpaid balance due at maturity. Which feature is described?

  1. A lien release
  2. A fully paid balance
  3. A balloon payment
  4. An appraisal waiver
Show answer and explanation

Answer: C. A balloon payment

A balloon is the substantial remaining maturity payment. Regular payments do not necessarily amortize the entire balance. A lien release and appraisal waiver describe different events, and the facts expressly say a balance remains.

9. The required monthly interest is $900. A permitted $700 payment leaves $200 of interest unpaid, and the terms add it to principal. What occurs?

  1. A $200 principal curtailment
  2. Positive principal amortization of $200
  3. Negative amortization of $200
  4. Automatic forgiveness of $200
Show answer and explanation

Answer: C. Negative amortization of $200

The unpaid $200 is added to principal, so the balance grows. Principal is not reduced or forgiven. Paying all accrued interest would be different from the stated shortfall.

10. A question expressly describes a private lender's VA-backed purchase loan. Which statement follows?

  1. VA has replaced all lender underwriting
  2. VA owns the borrower's home immediately
  3. VA provides backing while applicable borrower, property and lender requirements remain
  4. Every veteran is automatically approved
Show answer and explanation

Answer: C. VA provides backing while applicable borrower, property and lender requirements remain

VA backing does not eliminate the other requirements or transfer the home to VA. The stated private lender still originates the loan; eligibility documentation alone is not final approval.

11. Which distinction between the ordinary USDA guaranteed and Section 502 Direct programs is correct?

  1. Both are always direct loans from USDA
  2. Every urban property qualifies
  3. Neither has income or property requirements
  4. Guaranteed lending uses approved lenders; Direct lending is a separate USDA program
Show answer and explanation

Answer: D. Guaranteed lending uses approved lenders; Direct lending is a separate USDA program

The guaranteed program and Direct program have different lending and eligibility structures. A federal guaranty is not the same as USDA making the loan directly. Neither label removes applicable income and property requirements.

12. A lender originates a loan to a homebuyer and later sells it to Fannie Mae. Which sequence fits?

  1. Two primary-market originations to the same borrower
  2. A new deed to Fannie Mae merely because of the loan sale
  3. Primary-market origination, then secondary-market activity
  4. A zoning change, then a tax appeal
Show answer and explanation

Answer: C. Primary-market origination, then secondary-market activity

The borrower-lender origination is primary-market activity. Fannie Mae purchases loans and supports secondary-market funding. Selling a mortgage loan does not by itself describe a second borrower origination, zoning action or ownership deed transfer.

13. What does the stated Ginnie Mae MBS guaranty principally protect?

  1. Timely principal and interest payments to security holders under the guaranty
  2. The borrower against every repair bill
  3. The market price of every house
  4. Automatic approval of every FHA applicant
Show answer and explanation

Answer: A. Timely principal and interest payments to security holders under the guaranty

Ginnie Mae's guaranty concerns payments on qualifying mortgage-backed securities. It is distinct from insuring a borrower's property, guaranteeing market prices or automatically approving an individual mortgage application.

14. Which product is an open-end line that permits repeated borrowing against home equity during the available draw period?

  1. An automatic property-tax exemption
  2. A closed-end ownership deed
  3. A HELOC
  4. A title policy
Show answer and explanation

Answer: C. A HELOC

A HELOC is an open-end credit line. Access remains subject to the agreement and lawful restrictions; it is not unlimited borrowing forever. The other choices do not create that revolving home-equity credit.

15. For the HECM reverse mortgage described, which responsibility remains with the homeowner?

  1. The loan is free money
  2. Title must immediately be deeded to the lender
  3. No property expenses ever remain
  4. Pay property taxes and homeowners insurance and meet the occupancy and maintenance requirements
Show answer and explanation

Answer: D. Pay property taxes and homeowners insurance and meet the occupancy and maintenance requirements

A HECM does not erase those obligations. The homeowner generally retains title, and interest and fees can increase the debt. The absence of ordinary monthly mortgage payments is not the absence of a loan or of ongoing property responsibilities.

16. A construction loan advances funds as work progresses. The documents do not promise automatic permanent financing. What should the student conclude?

  1. No loan balance ever becomes due
  2. Every construction loan converts automatically
  3. Staged advances make the loan a title policy
  4. Permanent conversion may require a new application or separate arrangement
Show answer and explanation

Answer: D. Permanent conversion may require a new application or separate arrangement

Construction funding often uses staged advances. Permanent conversion depends on the agreement and applicable approval requirements, so a new application may be needed. Neither automatic conversion nor debt forgiveness follows from staged funding.

17. A property seller agrees to finance a buyer's purchase. What is the safest general exam conclusion?

  1. The seller is extending credit; documents, applicable rules and any qualified exemptions still matter
  2. All lending rules disappear because the seller is a person
  3. The arrangement is automatically FHA-insured
  4. Every seller automatically needs exactly the same license in every transaction
Show answer and explanation

Answer: A. The seller is extending credit; documents, applicable rules and any qualified exemptions still matter

Seller financing identifies who supplies credit. It does not establish a universal exemption, automatic federal insurance or one identical licensing result. The actual structure and the particular requirements and exemptions must be checked.

18. A settlement provider gives a real estate licensee a thing of value under an agreement to refer federally related mortgage settlement business. Assume no lawful exception applies. Which rule is central?

  1. A zoning variance
  2. A lawful fee merely because it is small
  3. RESPA section 8 and Regulation X
  4. An automatic loan rescission for the referral recipient
Show answer and explanation

Answer: C. RESPA section 8 and Regulation X

The stated referral agreement, covered settlement business and thing of value invoke the RESPA prohibition. Amount alone does not create an exception. Zoning and an invented automatic rescission do not answer this referral-payment question.

19. A creditor receives all six required pieces for a covered TRID application. It wants a seventh document before treating the Loan Estimate clock as started. Which answer is correct?

  1. The consumer must close immediately
  2. Only the appraisal report can trigger an application
  3. The six-piece application trigger cannot be postponed merely by demanding an extra item
  4. The creditor may postpone the trigger until it has everything it prefers
Show answer and explanation

Answer: C. The six-piece application trigger cannot be postponed merely by demanding an extra item

The covered TRID application definition uses the six specified pieces. The creditor may seek other information, but that does not rewrite the trigger or permit delaying the estimate merely for an extra item. Underwriting and appraisal work are separate from this application-definition question.

20. For a covered TRID transaction, which comparison correctly distinguishes the basic disclosure timing rules?

  1. Both always use calendar days
  2. Neither has a rule before consummation
  3. Both require only mailing three days after consummation
  4. The initial Loan Estimate generally must be delivered or mailed within three general business days after application; the Closing Disclosure generally must be received at least three specific business days before consummation
Show answer and explanation

Answer: D. The initial Loan Estimate generally must be delivered or mailed within three general business days after application; the Closing Disclosure generally must be received at least three specific business days before consummation

The two rules differ in trigger, delivery standard and business-day definition. Specific business days generally exclude Sundays and federal legal public holidays; general days concern when the creditor is open for substantially all business functions. Coverage, exceptions and special timing rules still matter.

21. A covered loan finances the acquisition of the consumer's principal dwelling. Does Regulation Z's ordinary three-business-day rescission right automatically apply merely because a mortgage is involved?

  1. Yes, to every purchase mortgage
  2. No lending disclosure requirements can ever apply
  3. Yes, because every Closing Disclosure creates rescission
  4. No; the residential mortgage transaction exemption must be considered
Show answer and explanation

Answer: D. No; the residential mortgage transaction exemption must be considered

The acquisition transaction described is within the residential mortgage transaction exemption from that rescission rule. A mortgage or Closing Disclosure alone does not create the right. This does not erase other disclosure duties or any separate contract or state-law rights.

22. Monthly P&I is $1,850, annual tax is $7,200 and annual homeowners insurance is $1,440. Monthly association dues are $200. What is narrow PITI?

  1. $2,570
  2. $1,850
  3. $10,490
  4. $2,770
Show answer and explanation

Answer: A. $2,570

Monthly tax is $600 and insurance is $120. Narrow PITI is $1,850 + $600 + $120 = $2,570. The $2,770 total includes association dues and answers a broader request; $10,490 mixes annual and monthly amounts, while $1,850 omits tax and insurance.

23. A hypothetical problem supplies $8,000 gross monthly qualifying income and $3,000 total counted monthly debt. What is the total-debt ratio?

  1. 266.67%
  2. A guaranteed approval
  3. $5,000
  4. 37.5%
Show answer and explanation

Answer: D. 37.5%

$3,000 / $8,000 x 100 = 37.5%. Subtracting gives a dollar difference, reversing the fraction gives the wrong ratio, and a calculated ratio is not an approval guarantee.

24. A borrower pays 1.25 points on a $320,000 loan. What is the charge?

  1. $3,200
  2. $400
  3. $40,000
  4. $4,000
Show answer and explanation

Answer: D. $4,000

One point is 1% of the loan amount. Thus 1.25% is 0.0125 and $320,000 x 0.0125 = $4,000. The other amounts use a wrong conversion or only one point. No fixed interest-rate reduction follows from the point charge alone.

25. An ARM has a current rate of 3%, a 2-percentage-point cap on this adjustment and an 8% lifetime ceiling. The applicable index is 5% and margin is 2%. No floor, carryover or other provision changes this calculation. What is the capped rate for this adjustment?

  1. 3%
  2. 8%
  3. 7%
  4. 5%
Show answer and explanation

Answer: D. 5%

Index plus margin gives 7%. This adjustment can rise only two percentage points from 3%, so the rate is capped at 5%; the 8% lifetime ceiling does not further limit that result. Three percent ignores the allowed adjustment, 7% ignores the periodic cap and 8% mistakes a ceiling for a required rate.

26. A standard Fannie Mae purchase first mortgage has no special LTV exception or financed mortgage insurance. The price is $400,000, appraisal $380,000 and loan $342,000. What is the LTV?

  1. 95%
  2. 10%
  3. 85.5%
  4. 90%
Show answer and explanation

Answer: D. 90%

Use the lower price or current appraised value: $380,000. Then $342,000 / $380,000 = 90%. The 85.5% choice uses the higher price, 95% compares appraisal with price, and 10% is the complement on the lower base. Different programs and special transactions can have different definitions.

27. What is the ordinary purpose of private mortgage insurance on a conventional loan?

  1. To guarantee that the home value rises
  2. To protect the lender against covered borrower-default losses
  3. To pay all home-repair bills
  4. To insure every borrower against unemployment
Show answer and explanation

Answer: B. To protect the lender against covered borrower-default losses

PMI protects the lender under its coverage. It is not homeowners insurance, unemployment protection or a home-value guarantee. Paying PMI does not erase the borrower's repayment obligation, and cancellation requires the applicable rules rather than a guessed universal trigger.

28. The October 22, 2026 housing order directs a conditional mortgage-insurance pilot for mortgages made after the pilot is established. Which conclusion is supported by that text alone?

  1. Further program establishment, scope and applicable requirements matter; every existing borrower is not automatically covered
  2. All PMI on every existing loan ended on October 22
  3. Every lender must waive all title insurance on every purchase
  4. All guaranteed USDA and VA loans now have one government-set interest rate
Show answer and explanation

Answer: A. Further program establishment, scope and applicable requirements matter; every existing borrower is not automatically covered

A direction to establish a limited pilot does not establish a universal existing-loan benefit or prove its operational date. The order separately addresses eligible refinance title review and agency Direct-loan rates, subject to law and appropriations. It does not support the other blanket claims.

29. A borrower needs a nine-month temporary loan to buy a new dwelling while planning to sell the current dwelling within those nine months. Which description best fits that financing purpose?

  1. A property-tax exemption
  2. A permanent fully amortized loan by definition
  3. Bridge financing
  4. A title policy
Show answer and explanation

Answer: C. Bridge financing

Bridge financing can cover the stated gap between the new purchase and planned sale. The loan's actual costs, security and federal coverage still require their own analysis; the label alone does not exempt every bridge loan from all lending rules. The other choices do not describe the temporary financing purpose.

30. The loan requires $900 of monthly interest and the borrower pays exactly that interest, with no principal paid and no fees or interest added to the balance. What happens to principal for that month?

  1. It is automatically forgiven
  2. It grows by $900
  3. It falls by $900
  4. It stays unchanged under the stated assumptions
Show answer and explanation

Answer: D. It stays unchanged under the stated assumptions

Paying exactly the accrued interest leaves the stated principal unchanged. Principal would fall with a principal payment, or grow if unpaid interest or other financed amounts were added. The facts expressly rule those out; interest-only payment is not loan forgiveness.

Common questions

How many financing questions are on the national broker exam?

The PSI broker outline effective June 24, 2026 allocates 10% of the 100 scored national questions to the whole Financing area. That is not a quota for this page or for any one loan topic.

Are these official PSI questions?

No. These are original teaching questions. They are not secure, recalled or predicted PSI items, and the set is not calibrated to PSI difficulty.

What is a good score on this practice set?

Use the misses and uncertain correct answers to choose a specific review task. No percentage on this set is a validated readiness cutoff or pass guarantee.

What is the note-versus-mortgage distinction?

The note records the repayment promise. The mortgage or deed of trust supplies real-property security. The ownership deed is a separate document.

Does a fixed-rate mortgage keep every housing cost fixed?

No. A fixed note rate does not freeze taxes, insurance or association charges. Read which payment component the question asks about.

How do I calculate points?

Multiply the loan amount by the points divided by 100. One point is 1% of the loan amount; it is not a fixed one-percentage-point reduction in the interest rate.

Which value should I use for LTV?

Use the problem's specified base. For a standard Fannie Mae purchase first mortgage, the general rule uses the lower of sales price and current appraised value, with special transaction exceptions. Other programs and refinances can differ.

Are conventional and conforming the same?

No. Conventional describes the type of government backing absent from the loan; conforming also requires applicable enterprise standards. Merely staying under a loan limit is not the whole eligibility test.

Does FHA lend the purchase money directly?

The ordinary FHA-insured mortgage is made through an approved lender. Insurance, borrower eligibility and lender approval are separate issues.

Is USDA always direct lending?

No. USDA has both guaranteed and Direct programs. Check which one the question names before assigning lender roles, income rules or loan terms.

What remains due on a HECM reverse mortgage?

The homeowner still has property-tax, insurance, principal-residence and maintenance obligations. Borrowed funds, interest and fees form a debt; ordinary monthly mortgage-payment treatment does not make it free money.

Does every mortgage have a three-day right to cancel?

No. Regulation Z's rescission rule has coverage conditions and exemptions, including the defined acquisition residential mortgage transaction. Other contract or state-law rights require separate analysis.

Do all three-business-day rules mean the same thing?

No. Check the triggering event, general or specific business-day definition and whether mailing, delivery or receipt is required. Loan Estimate and Closing Disclosure rules illustrate the difference.

Can the app replace approved pre-license education?

No. Pass Illinois is exam preparation. Optional app practice has free Property Ownership access; full access is paid. It does not supply the approved education for the standard broker path.

Does VA eligibility mean the lender must approve a loan?

No. VA eligibility or backing does not establish every borrower, property and lender requirement. The ordinary private-lender transaction still requires the applicable approval process.

What do Fannie Mae and Ginnie Mae do in these questions?

Fannie Mae buys loans and supports secondary-market funding. Ginnie Mae guarantees timely payments on qualifying mortgage-backed securities. Distinguish those roles from a lender originating a borrower's loan or FHA insuring an eligible mortgage.

Is the ARM rate always just index plus margin?

That gives the fully indexed rate. The actual reset also depends on the contract's adjustment date, caps, floors and other applicable terms. Use the complete facts supplied in the problem.

Does PMI protect the borrower?

Ordinary PMI protects the lender against covered default losses. It is distinct from homeowners insurance and does not erase the borrower's debt or guarantee a home's value.

Did the October 22, 2026 order automatically cancel every existing borrower's PMI?

No. It directs a conditional pilot applying to mortgages made after the pilot is established, with applicable requirements preserved. Its text alone does not establish an operational date or universal existing-loan benefit. It also distinguishes eligible refinance title review and agency Direct-loan rates from all purchase or guaranteed loans.

How do interest-only and balloon features differ?

Interest-only describes what a periodic payment covers. A balloon describes a substantial balance due at maturity. A loan can have both features, so read the payment schedule and final maturity obligation.

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Official sources and scope

Reviewed October 28, 2026. Sources below identify the rules and program roles used in these original scenarios. Program handbooks and regulations have different effective dates; a publication or announcement date does not by itself change every existing loan. Earlier identified primary readings are reused within their recorded scope.

This is exam preparation, not advice for a specific transaction. State law and the applicable facts control. Our editorial and corrections process explains how to report an issue.

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