Practical Real Estate Law 7th Edition

Hinkel Test Bank

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Test Bank Answer Key

Chapter 9 Financing Sources in Real Estate Transactions
TRUE/FALSE

1. A savings bank may make only residential loans.

ANS: F

2. A savings bank may make only commercial loans.

ANS: F

3. A loan made to fund construction of a bridge is known as a bridge loan.

ANS: F

4. A short-term loan made for acquisition of property is generally referred to as a bridge loan.

ANS: T

5. Government-guaranteed loans are called conventional loans.

ANS: F

6. The risk of repayment of a conventional loan depends upon the ability of the borrower to pay
and the value of the security provided by the mortgage.

ANS: T

7. The ratio of a borrower’s assets to their debts is known as the loan-to-value ratio.

ANS: F

8. The FHA makes direct loans to home buyers.

ANS: F

9. The FHA does not make direct loans to borrowers but instead guarantees loans made by
approved lenders.

ANS: T

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10. The Veterans Administration makes direct loans to home buyers.

ANS: F

11. The Veterans Administration guarantees loans made by private lenders.

ANS: T

12. Private mortgage insurance guarantees that the borrower owns the property.

ANS: F

13. Fannie Mae is involved in the secondary mortgage market.

ANS: T

14. Mortgage loans are closed in the secondary market and are bought and sold in the
primary market.

ANS: F

15. Once a mortgage loan is closed in the primary market, the loan can be bought and sold in the
secondary market.

ANS: T

16. The term of repayment on a permanent loan is generally longer than that on a construction loan.

ANS: T

17. The term of repayment on a construction loan is generally longer than that on a permanent loan.

ANS: F

18. Construction loans are generally amortized loans.

ANS: F

19. One major underwriting concern for a permanent lender is the estimate of the cost
of construction.

ANS: F

20. One major concern for a construction lender is the market value of the real property given as
security for the loan.

ANS: F
Instructor’s Manual and Test Bank to Accompany Practical Real Estate Law 226
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21. Payment of principal and interest on a loan is called the “loan-to-value ratio.”

ANS: F

22. The payment of principal and interest on a loan is called “debt service.”

ANS: T

23. Interest payable at the beginning of each payment period is known as “payment in arrears.”

ANS: F

24. Interest due at the end of each payment period is known as “payment in arrears.”

ANS: T

25. Interest on most mortgage loans is paid in advance.

ANS: F

26. Interest on most mortgage loans is paid in arrears.

ANS: T

27. The payment under a fully amortized loan payment is constant and does not vary from
month to month.

ANS: T

28. Payments under a fully amortized loan payment plan decline each month.

ANS: F

29. Payments under a straight-line amortized plan become smaller each month.

ANS: T

30. A fully amortized loan will always have a balloon payment.

ANS: F

31. A fully amortized loan should never have a balloon payment.

ANS: T

Instructor’s Manual and Test Bank to Accompany Practical Real Estate Law 227
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accessible website, in whole or in part.

32. The last payment on a partially amortized loan will always be a balloon payment.

ANS: T

33. A loan in which the borrower makes periodic payments of interest, and principal becomes
payable in full in one installment at the end of the loan, is known as a negative amortized loan.

ANS: F

34. Construction loans are generally straight or term loans.

ANS: T

35. The principal balance of the loan may increase as payments are made under a negative
amortization loan.

ANS: T

36. A subprime loan is a loan with very low interest rates (less than the bank’s prime lending rate).

ANS: F

37. Subprime loans generally involve residential loans made with high interest rates or high up-
front fees.

ANS: T

38. An interest-only loan means that so long as interest is being paid on the loan, the loan never has
to be repaid.

ANS: F

39. A subprime loan is a loan that requires the payment of interest only.

ANS: F

Instructor’s Manual and Test Bank to Accompany Practical Real Estate Law 228