Real estate loan types

One loan, several correct labels

A private lender makes a 30-year purchase loan with no federal mortgage insurance or guaranty. It meets Fannie Mae eligibility, has a fixed rate, amortizes fully, and holds first lien on an owner-occupied home.

1. No FHA, VA, or USDA backing makes it conventional.
2. Enterprise eligibility makes it conforming; rate, amortization, purpose, priority, and occupancy supply separate labels.

Answer: It is a conventional, conforming, fixed-rate, fully amortizing, purchase, first-mortgage loan for an owner-occupied property.

Read a 5/1 ARM correctly

A Loan Estimate describes a 5/1 ARM with an initial rate, a stated index and margin, and contractual caps.

1. The 5 identifies the five-year initial fixed period.
2. The 1 identifies adjustment frequency after that period; future rates use the index and margin subject to caps and floor.

Answer: The rate is initially fixed for five years and then generally adjusts once each year under the loan formula.

Government backing is not the same as government lending

An eligible Veteran obtains a purchase loan from a private bank using a valid COE and VA guaranty.

1. The bank advances the funds and underwrites under applicable requirements.
2. VA guarantees a portion of lender risk and administers the benefit.

Answer: This is a private-lender VA-guaranteed loan, not money routinely loaned directly by VA in the standard purchase transaction.

A second mortgage can be open or closed

A homeowner already has a first mortgage and wants to borrow against equity. Offer A pays one lump sum; Offer B permits repeated draws during a 10-year draw period.

1. Offer A is closed-end home-equity credit.
2. Offer B is a HELOC, which is open-end credit; both are commonly junior liens behind the existing first mortgage.

Answer: Compare the home-equity loan and HELOC using rate, payment, draw, fee, repayment, and foreclosure-risk terms, not just the initial amount.

Apply a stated ARM cap after the formula

At the first adjustment of a classroom ARM, the index is 4.50% and margin 2.25%. The prior rate is 4.50%, and the first-adjustment cap permits an increase of at most two percentage points. The stipulated floor is 3% and lifetime ceiling 9.50%, with no other applicable adjustment term.

1. Index plus margin gives 4.50% + 2.25% = 6.75%.
2. The first-adjustment ceiling is 4.50% + 2.00 percentage points = 6.50%.
3. The stated floor and lifetime ceiling do not bind here. Apply the lower permitted ceiling rather than using 6.75% automatically.

Answer: The stated adjusted rate is 6.50%, not 6.75%; this is not an APR or a prediction of a future index.

Charge interest on the stated drawn amount

A construction lender commits $300,000. For this exercise only, $100,000 is outstanding throughout one month, the simple annual rate is 6%, monthly interest uses one-twelfth of a year, and interest applies only to the drawn balance. Exclude all fees and other advances.

1. Use the stipulated $100,000 outstanding balance, not the unused commitment.
2. $100,000 x 0.06 / 12 = $500.
3. A daily-balance contract, other advances or fees would require a different calculation.

Answer: The stated month has $500 interest, not $1,500 based on the full commitment.

Track a reverse-mortgage balance without assuming a falling home value

A simplified HECM exercise starts with $200,000 debt on a home worth $400,000. During the period, $10,000 is advanced and stipulated interest and fees of $5,000 are added. No payment is made and the home value stays $400,000. No other adjustment applies.

1. The new loan balance is $200,000 + $10,000 + $5,000 = $215,000.
2. Stated equity becomes $400,000 - $215,000 = $185,000.
3. The unchanged value is an explicit assumption. Actual value changes or voluntary payments can change the result.

Answer: Debt rises to $215,000 and equity falls to $185,000 under these stated facts, not under every possible reverse-mortgage scenario.

Do not count the wrapped balance twice

A classroom wraparound obligation is expressly $250,000 in total, including an existing $150,000 underlying balance and $100,000 additional financing. Ignore interest, fees and other advances. The question asks only what those inclusive figures mean.

1. The inclusive wrap amount already contains the $150,000 underlying balance.
2. $250,000 - $150,000 = $100,000 is the additional financing.
3. The vocabulary does not release the underlying obligation or approve the arrangement under the loan documents and law.

Answer: The stated inclusive amount is $250,000, not $400,000; the additional financing is $100,000.

Apply the Illinois baseline without promising approval

For an exercise using the 2026 one-unit Illinois Enterprise acquisition limit, Loan A is conventional for $833,000. Loan B is conventional for $800,000. The question isolates the amount test; no other eligibility or approval is stipulated.

1. The applicable one-unit amount is $832,750. Loan A exceeds it by $833,000 - $832,750 = $250.
2. Loan A is jumbo by the stated amount comparison. Loan B is $32,750 below the limit.
3. Loan B still needs every other applicable Enterprise and lender requirement. Neither comparison proves a borrower approval.

Answer: Loan A is above the amount limit; Loan B passes only the stated amount test.

Keep the guarantee percentage separate from down payment

Use a $200,000 note solely to illustrate the USDA guaranteed program's 90% lender note guarantee. Assume no other arithmetic input; do not calculate an actual guarantee claim or approve the applicant.

1. $200,000 x 0.90 = $180,000 is the stated covered portion of the note.
2. The remaining percentage is not a required $20,000 borrower down payment.
3. The program can permit 100% financing for eligible files, while closing costs and other funds can still matter. Actual guarantee payments require their own conditions.

Answer: The stated coverage arithmetic is $180,000; it does not impose a 10% down payment or promise a claim payment.

1. Which loan is conventional but not conforming because its amount exceeds the applicable Enterprise limit?

1. Jumbo loan
2. Conventional loan below the amount limit that fails another Enterprise eligibility rule
3. Conforming conventional loan
4. Conventional loan retained in portfolio solely because of lender preference

2. Who commonly makes the loan in an FHA-insured home purchase?

1. VA under the standard guaranty program
2. USDA under its separate Section 502 Direct program
3. FHA as the direct purchase lender in every insured transaction
4. An FHA-approved private lender

3. In a standard 5/1 ARM, what does the 1 generally represent?

1. An adjustment every month after five years
2. One adjustment each year after the initial period
3. A one-percentage-point lifetime rate cap
4. An adjustment every six months after five years

4. Which loan permits repeated borrowing against available home equity during a draw period?

1. Package mortgage by definition
2. Fully disbursed purchase loan
3. Closed-end home-equity loan
4. Home equity line of credit

5. A mortgage covering five separate apartment parcels is best described by which collateral label?

1. Blanket mortgage
2. Package mortgage
3. A junior mortgage secured by just one parcel
4. A mortgage on just one apartment parcel with several units

6. A conventional one-unit loan in an Illinois county has an amount below $832,750 for the stated 2026 Enterprise acquisition limit. Does that amount alone establish conforming eligibility?

1. Yes, if the note has any fixed rate
2. Yes, for every property and borrower
3. No conventional loan can be conforming
4. No; other applicable Enterprise requirements still matter

7. Which is the most accurate fixed-rate statement?

1. Every fixed-rate loan fully amortizes
2. Fixed rate guarantees there is no balloon
3. Every housing charge must stay level
4. A fixed note rate can coexist with changing taxes or insurance

8. An ARM has a 4.50% index, 2.25% margin, prior rate 4.50% and a first-adjustment increase cap of two percentage points. The stipulated 3% floor and 9.50% lifetime ceiling do not otherwise bind. What rate results?

1. 6.50%
2. 4.50%
3. 9.50%
4. 6.75%

9. Which best distinguishes USDA Section 502 Guaranteed from Section 502 Direct?

1. Direct is merely a HELOC draw period
2. Both are necessarily conventional loans
3. Guaranteed uses approved private lenders; Direct is a separate USDA lending route
4. Guaranteed requires a 10% down payment because the note guarantee is 90%

10. Which statement correctly distinguishes interest-only from negative amortization?

1. Every interest-only payment adds unpaid interest
2. Negative amortization means the balance falls faster
3. An interest-only loan can never mature
4. Paying all current interest without principal leaves principal unchanged for that period

11. Under a construction contract stipulated to charge 6% simple annual interest only on $100,000 drawn throughout one month using one-twelfth of a year, what interest results?

1. $500
2. $18,000
3. $1,500
4. $6,000

12. A HECM borrower has no required monthly principal-and-interest installment. Which duty still applies?

1. The borrower must transfer title to FHA
2. Every heir must become a co-borrower
3. No charge or maintenance duty survives
4. Required property charges, maintenance and principal-residence obligations continue

13. Which fact most directly identifies a package mortgage in this exercise?

1. The loan has an adjustable rate
2. The collateral expressly includes real estate and specified additional personal property
3. The buyer intends to keep a sofa that is not pledged
4. The lender uses two underwriting employees

14. Does a bridge loan, by its label alone, guarantee that replacement financing or a property sale will occur before maturity?

1. No bridge can ever be repaid through a sale
2. Yes, because temporary loans cannot default
3. No; timing, eligibility, extension and repayment risks remain
4. Yes, whenever the borrower owns another home

15. A wraparound obligation is expressly $250,000 inclusive of an existing $150,000 balance. Ignoring all fees and interest, how much additional financing does that describe?

1. $400,000
2. $150,000
3. $250,000
4. $100,000

16. Does a VA Certificate of Eligibility alone guarantee approval for an unlimited loan?

1. Yes, because the VA guaranty eliminates underwriting
2. Yes, if the veteran has full entitlement
3. Yes, if no PMI is charged
4. No; lender approval, affordability and property requirements still apply

17. A blanket mortgage covers five parcels. The owner sells one parcel. Does the sale alone establish that parcel's release from the lien?

1. No; apply the actual release provision and other applicable requirements
2. Yes, if the buyer receives a deed
3. Yes, if the loan rate is fixed
4. Yes, because every sale automatically releases collateral

18. The USDA guaranteed program describes a 90% lender note guarantee and can allow 100% financing for eligible borrowers. Does the 90% guarantee itself require the borrower to make a 10% down payment?

1. Yes, unless the loan is a HELOC
2. No; lender guarantee coverage and borrower down payment are different quantities
3. Yes, in every case
4. No, because all USDA loans are direct loans

19. Which HECM household statement is most accurate?

1. Borrower eligibility and eligible non-borrowing spouse protections have distinct conditions
2. Every spouse must be a co-borrower
3. A non-borrowing spouse automatically receives all future loan advances
4. Every heir automatically receives lifelong occupancy

20. A loan has a fixed note rate, monthly interest-only payments and a remaining balance due at its stated maturity. Which classification fits these stipulated terms?

1. An ARM solely because principal remains
2. A HELOC solely because it has monthly payments
3. Fully amortizing solely because its rate is fixed
4. Fixed-rate, interest-only, with a balloon at maturity