Real Estate Practice Test

Real Estate Financing & Settlement Practice Questions

Financing & Settlement makes up 4 of every 50 questions on a Tigertest Real Estate practice test. Here are 10 of the 16 questions on it, each with the answer and the reason.

Updated 2026-11-10 by the Tigertest team. Weighted to the Pearson VUE national salesperson outline (2025), which matches PSI's. Your state portion is separate.

1. 1. In a deed of trust, which party holds title for the lender and may conduct a nonjudicial sale if the borrower defaults?

   • A.Mortgagor
   • B.Trustee
   • C.Trustor
   • D.Beneficiary

   Answer: B. The trustee holds title on behalf of the lender (beneficiary) and has the power of sale; the borrower is the trustor. The promissory note is the borrower's promise to pay, while the deed of trust is the security instrument.

2. 2. An adjustable-rate mortgage uses an index currently at 3.25 percent and a margin of 2.5 percent, with no caps reached. The new interest rate will be:

   • A.0.75 percent
   • B.3.25 percent
   • C.2.50 percent
   • D.5.75 percent

   Answer: D. An ARM's rate equals index plus margin: 3.25% + 2.5% = 5.75%. The index alone is wrong because the margin, which stays fixed for the life of the loan, is always added; caps limit how much the rate can change per period or over the loan.

3. 3. In a lien-theory state, a borrower who signs a mortgage to finance a home purchase:

   • A.Keeps legal title; the lender holds a lien
   • B.Conveys legal title to a neutral trustee
   • C.Receives only equitable title until payoff
   • D.Conveys legal title to the lender until payoff

   Answer: A. In lien-theory states the mortgage creates only a lien, and the borrower (mortgagor) keeps legal title. In title-theory states the lender holds legal title until the loan is repaid, which is the tempting but wrong answer here.

4. 4. A bank originates conforming mortgage loans and then sells them to Fannie Mae to obtain more money to lend. The sale takes place in the:

   • A.Federal Reserve discount market
   • B.Commercial paper market
   • C.Secondary mortgage market
   • D.Primary mortgage market

   Answer: C. Fannie Mae, Freddie Mac and Ginnie Mae operate in the secondary market, buying or guaranteeing loans so lenders can replenish funds. The primary market is where the bank originally made the loans to borrowers.

5. 5. A developer finances a 40-lot subdivision with a single loan and plans to sell lots one at a time with clear title. The loan should be a:

   • A.Wraparound mortgage
   • B.Purchase money mortgage
   • C.Blanket mortgage with a release clause
   • D.Package mortgage covering all forty lots

   Answer: C. A blanket mortgage covers several parcels, and a partial release clause frees each lot from the lien as it is sold and a payment is made. A package mortgage covers real property plus personal property such as appliances, not multiple lots.

6. 6. A homeowner sells the property to a buyer without paying off the existing loan, and the lender demands the entire balance immediately. The lender is enforcing the:

   • A.Due-on-sale clause
   • B.Subordination clause
   • C.Prepayment clause
   • D.Defeasance clause

   Answer: A. A due-on-sale (alienation) clause lets the lender accelerate the debt when the property is transferred. The defeasance clause requires the lender to release the lien when the loan is paid in full, which is the opposite situation.

7. 7. A buyer purchased a home for $250,000, its appraised value, with a conventional loan requiring PMI. Under the Homeowners Protection Act, PMI ends automatically when the scheduled balance reaches:

   • A.$225,000
   • B.$200,000
   • C.$187,500
   • D.$195,000

   Answer: D. Automatic termination occurs at 78% of original value: $250,000 x 0.78 = $195,000. At 80% ($200,000) the borrower may request cancellation, but it is not automatic.

8. 8. A veteran with full entitlement wants to buy a home with no down payment and no monthly mortgage insurance. Which loan best fits?

   • A.Conventional jumbo loan
   • B.VA-guaranteed loan
   • C.FHA-insured loan
   • D.Conventional loan at 97 percent LTV

   Answer: B. VA loans require no down payment and no monthly mortgage insurance, though a funding fee usually applies and a certificate of eligibility is needed. FHA loans require at least 3.5% down plus upfront and annual MIP.

9. 9. A buyer's gross monthly income is $7,500. Using a 28 percent housing expense ratio, the maximum monthly payment for principal, interest, taxes and insurance is:

   • A.$3,225
   • B.$2,100
   • C.$2,700
   • D.$2,325

   Answer: B. $7,500 x 0.28 = $2,100 for PITI, which includes hazard insurance and any required flood insurance. $2,700 uses the 36% total debt ratio, which applies to all monthly debts, not housing alone.

10. 10. A builder's newspaper ad for new homes says, "Only $1,500 per month!" Under Regulation Z, the ad must also disclose:

    • A.The builder's license number
    • B.The property tax rate
    • C.Only the annual percentage rate, stated conspicuously
    • D.Down payment, repayment terms and the APR

    Answer: D. A monthly payment amount is a trigger term, so the ad must also state the down payment, the terms of repayment and the APR. Stating only the APR is enough when no trigger term is used, which is not the case here.