Residential Mortgages Practice Questions
Residential mortgages is about 9 questions on the Florida sales associate exam. It covers the note versus the mortgage, lien theory and judicial foreclosure, the FHA, VA, and conventional loan programs, private mortgage insurance, adjustable rates, points, and the clauses that let a lender accelerate. Work the questions below, then read every explanation.
Exam prep only
Mortgage questions look technical, but they reward one habit: separate the debt from the security, and separate the loan program from the loan feature. The note is the debt. The mortgage is the security. FHA, VA, and conventional are programs. Points, caps, and PMI are features.
Use The Debt-Then-Security Split. Name what creates the obligation, then name what secures it, then identify the program and the feature the question is actually testing. Most wrong answers swap two of those four pieces.
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Residential Mortgages Practice Questions
10 scenario-based questions on residential mortgages, scored, each with a full explanation after you answer. Every question is also written out below if you would rather study at your own pace.
Every question explained
Prefer to study at your own pace? Here are all 10 questions. Read each one and pick your answer, then reveal the correct answer, the reasoning, and the trap that catches most candidates.
1. A borrower signs both a promissory note and a mortgage to buy a home. Which instrument creates the borrower's obligation to repay the debt?
- A.The mortgage, because it is recorded in the public record
- B.The promissory note, which is the borrower's written promise to repay
- C.The deed, because it transfers ownership
- D.The satisfaction, which proves the loan was made
Show answer and explanation
Correct answer: B. The promissory note, which is the borrower's written promise to repay
Why B is correct: The promissory note is the instrument that creates the debt. It is the borrower's written promise to repay on stated terms. The mortgage is the security instrument that pledges the property as collateral and creates the lien.
Trap: The mortgage creates the lien, not the debt. A debt can exist without a mortgage, but a mortgage cannot exist without a debt.
Source: F.S. Chapter 697, mortgages
2. In Florida, after a borrower signs a mortgage, who holds title to the property and how does the lender enforce its interest if the borrower defaults?
- A.The lender holds title and may take the property without going to court
- B.A trustee holds title and may sell the property without a court
- C.The borrower holds title and the lender holds a lien enforced through judicial foreclosure
- D.Title is split equally between borrower and lender until the loan is paid
Show answer and explanation
Correct answer: C. The borrower holds title and the lender holds a lien enforced through judicial foreclosure
Why C is correct: Florida is a lien theory state. The borrower keeps legal and equitable title, and the lender holds only a lien as security. To take the property after default, the lender must go through the courts, which is judicial foreclosure.
Trap: In a lien theory state the borrower, not the lender, holds title. Florida does not use nonjudicial or trustee foreclosure for mortgages.
Source: F.S. Chapter 697; F.S. Chapter 702, foreclosure
3. A first-time buyer has limited savings and a 620 credit score. She needs a loan that allows a low down payment of 3.5 percent but requires mortgage insurance premiums. Which loan program fits?
- A.A VA loan
- B.A conventional loan with no mortgage insurance
- C.An FHA loan
- D.A loan with no insurance of any kind
Show answer and explanation
Correct answer: C. An FHA loan
Why C is correct: An FHA loan is insured by the Federal Housing Administration, allows a down payment as low as 3.5 percent for borrowers with qualifying credit, and requires mortgage insurance premiums, including an upfront premium and an annual premium.
Trap: FHA is insured, not guaranteed. VA loans are guaranteed and target veterans, which does not fit this buyer.
Source: FHA program, U.S. Department of Housing and Urban Development
4. A qualified veteran wants to buy a primary residence with no down payment and no monthly mortgage insurance. Which loan program is designed for this?
- A.FHA, because it requires only 3.5 percent down
- B.A conventional loan at 80 percent loan-to-value
- C.A VA loan, which is guaranteed and requires a funding fee instead of monthly mortgage insurance
- D.A subprime loan
Show answer and explanation
Correct answer: C. A VA loan, which is guaranteed and requires a funding fee instead of monthly mortgage insurance
Why C is correct: A VA loan is guaranteed by the U.S. Department of Veterans Affairs for eligible veterans. It allows a zero down payment and does not require monthly mortgage insurance. Instead it charges a one-time funding fee, which can usually be financed.
Trap: VA loans charge a funding fee, not monthly mortgage insurance. Do not confuse the funding fee with FHA mortgage insurance premiums.
Source: VA home loan program, U.S. Department of Veterans Affairs
5. On a conventional loan, private mortgage insurance is generally required above a certain loan-to-value ratio, and federal law requires the lender to automatically terminate it at another level. Which pair is correct?
- A.Required above 80 percent LTV; automatic termination at 78 percent
- B.Required above 90 percent LTV; automatic termination at 80 percent
- C.Required on every conventional loan for the life of the loan
- D.Required above 78 percent LTV; automatic termination at 75 percent
Show answer and explanation
Correct answer: A. Required above 80 percent LTV; automatic termination at 78 percent
Why A is correct: Private mortgage insurance is generally required on a conventional loan when the loan-to-value ratio is above 80 percent, meaning the down payment is under 20 percent. Under the Homeowners Protection Act, the lender must automatically terminate PMI when the balance reaches 78 percent of the original value, if the borrower is current.
Trap: PMI protects the lender, not the borrower, and it does not last the life of a conventional loan. The 80 percent and 78 percent figures are the tested numbers.
Source: Homeowners Protection Act
6. On an adjustable-rate mortgage, the interest rate equals an index plus a margin. Which statement describes these two parts correctly?
- A.The index is the lender's fixed markup and the margin moves with the market
- B.The index moves with the market and the margin is the lender's fixed markup
- C.Both the index and the margin are set by the borrower
- D.Rate caps do not apply to adjustable-rate mortgages
Show answer and explanation
Correct answer: B. The index moves with the market and the margin is the lender's fixed markup
Why B is correct: The index is a market benchmark the lender does not control, so it moves up and down with the market. The margin is the lender's fixed markup added to the index. Rate caps limit how much the rate can rise per adjustment period and over the life of the loan.
Trap: The borrower controls neither number. The index is the market piece; the margin is the lender's fixed add-on.
Source: Truth in Lending Act, adjustable-rate disclosures
7. A borrower pays 2 discount points on a 300,000 dollar loan to lower the interest rate. What is the cost, and what is the effect?
- A.600 dollars, and it raises the interest rate
- B.6,000 dollars, and it lowers the interest rate
- C.3,000 dollars, and it has no effect on the rate
- D.6,000 dollars, and it is only a lender processing fee
Show answer and explanation
Correct answer: B. 6,000 dollars, and it lowers the interest rate
Why B is correct: One discount point equals one percent of the loan amount. Two points on a 300,000 dollar loan is 2 percent, or 6,000 dollars. Discount points are prepaid interest that buy down the interest rate, so they lower it.
Trap: Do not confuse discount points, which lower the rate, with origination points, which are a fee for processing the loan and do not lower the rate.
Source: Truth in Lending Act, finance charge disclosures
8. A mortgage contains a clause that lets the lender demand the entire unpaid balance immediately if the borrower sells or transfers the property without first paying off the loan. This clause is a
- A.prepayment penalty clause
- B.subordination clause
- C.due-on-sale (alienation) clause
- D.defeasance clause
Show answer and explanation
Correct answer: C. due-on-sale (alienation) clause
Why C is correct: A due-on-sale clause, also called an alienation clause, lets the lender call the full balance due if the borrower transfers the property without paying off the loan. It is a specific trigger of the lender's broader acceleration power, aimed at preventing an unapproved assumption.
Trap: An acceleration clause is the general power to demand the full balance. A due-on-sale clause is the specific version triggered by transfer of the property.
Source: Mortgage clauses, F.S. Chapter 697
9. A Florida judicial foreclosure sale brings less than the balance the borrower still owes on the loan. The lender may
- A.not pursue the borrower further, because the property fully satisfies the debt
- B.seek a deficiency judgment against the borrower for the remaining balance
- C.garnish the borrower's wages immediately without any further court action
- D.repossess other property the borrower owns without a court order
Show answer and explanation
Correct answer: B. seek a deficiency judgment against the borrower for the remaining balance
Why B is correct: When a foreclosure sale produces less than the debt, the shortfall is a deficiency. In Florida the lender may seek a deficiency judgment against the borrower for the remaining balance, subject to the court's limits on the amount.
Trap: The foreclosure sale does not always wipe out the debt. If the sale falls short, the borrower can still owe the deficiency.
Source: F.S. 702.06, deficiency decree
10. Under the federal TRID rule that combines RESPA and the Truth in Lending Act, within how many business days of receiving a borrower's loan application must the lender deliver the Loan Estimate?
- A.1 business day
- B.3 business days
- C.7 business days
- D.10 business days
Show answer and explanation
Correct answer: B. 3 business days
Why B is correct: The lender must deliver the Loan Estimate within three business days of receiving a loan application. The Loan Estimate discloses the loan's key terms and estimated costs so the borrower can compare offers.
Trap: Do not confuse the 3-business-day delivery of the Loan Estimate with the separate rule that the Closing Disclosure must be received at least 3 business days before closing.
Source: RESPA and TILA, the TRID rule
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How many mortgage questions are on the Florida real estate exam?
Residential mortgages is about 9 percent of the 100-question Florida sales associate exam, so expect roughly 9 questions on the note and mortgage, loan programs, mortgage insurance, rates, and foreclosure.
Is Florida a lien theory or title theory state?
Florida is a lien theory state. The borrower keeps title to the property and the lender holds only a lien. Because the lender does not hold title, foreclosure must go through the courts, which is judicial foreclosure.
What is the difference between the note and the mortgage?
The promissory note creates the debt and is the borrower's promise to repay. The mortgage is the security instrument that pledges the property as collateral and creates the lien. The note controls, because a debt can exist without a mortgage but not the reverse.