Finding a Mortgage

Ready to test your knowledge? You'll have ten multiple choice questions to answer. Click on each question to reveal the question and multiple choice answers. After you've completed answering all ten questions, click "Grade Me!" at the end of the quiz to see how you did.

Question 1

As part of the loan terms, lenders may request that you establish an escrow account for the term of your loan for the payment of:

(A) Property taxes and homeowner's insurance.	Correct Incorrect
(B) Private mortgage insurance.	Correct Incorrect
(C) Interest to be paid on the loan.	Correct Incorrect
(D) Property maintenance and upkeep.	Correct Incorrect

When a mortgage lender provides funds for the purchase of a home, they take a secured interest in that home. Often, one of the lending conditions they put in place is that homeowners be required to have an hazard insurance policy in place to protect the value of the home. Of course, most states also require homeowners to pay property taxes. Failure to pay those taxes may result in the state seizing your property in order to recover the unpaid taxes. Lenders use escrow accounts to ensure that their security interest in your home is protected by making sure funds are available to pay for a homeowners insurance policy and to pay property taxes when they are due.

Question 2

A "Loan Estimate" is:

(A) The Loan Estimate shows you what loan terms the lender expects to offer if you decide to move forward.	Correct Incorrect
(B) The certification provided by a professional appraiser that gives you the appraised price of the home you intend to purchase.	Correct Incorrect
(C) A document that seller's of homes are required to provide to potential buyers showing that the asking price of the home was fairly arrived at.	Correct Incorrect
(D) The document you or your realtor will provide to the seller of a home that documents your offering price for the home.	Correct Incorrect

Home lenders are required by law to provide you with a "Loan Estimate" within three business days of receiving your mortgage loan application. The Loan Estimate provides you with information regarding the loan, including the interest rate, monthly payment, closings costs, as well as additional loan details. Loan Estimates are typically provided prior to your loan being approved or denied and show you the terms the lender expects to offer if you are approved and accept their loan offer. Prior to October 2015, lenders were required to provide a Good Faith Estimate and an initial Truth-In-Lending statement instead of a Loan Estimate. The Consumer Financial Protection Bureau replaced those documents with the Loan Estimate as part of the "Know Before You Owe" program.

Question 3

Which of the following IS NOT a type of mortgage:

(A) Conventional	Correct Incorrect
(B) Non-Conforming	Correct Incorrect
(C) FHA	Correct Incorrect
(D) HUD	Correct Incorrect

A conforming loan is a mortgage that conforms to Fannie Mae and Freddie Mac guidelines. Conforming loans share a similar set of characteristics, including the maximum loan amount, so that the loans can be packaged and sold on the secondary market as part of investment bundles. Non-conforming loans generally do not adhere to those conforming loan standards. The size of the mortgage is the most common difference, but non-conforming mortgages can also differ based on such things as credit score requirements, debt-to-income or loan-to-value ratios. Typically, lenders who issue non-conforming loans hold onto those loans throughout the loan term.

In some cases, home purchasers who cannot qualify for a conforming or non-conforming loan may qualify for an FHA loan. The Federal Housing Administration will help potential homeowners by guaranteeing a portion of the loan in exchange for additional fees.

Question 4

For single-family home purchases in the continental United States, a non-conforming or "Jumbo" mortgage is required for loan amounts above:

(A) $417,000	Correct Incorrect
(B) $625,500	Correct Incorrect
(C) $250,000	Correct Incorrect
(D) $1,000,000	Correct Incorrect

For most of the country, Fannie Mae and Freddie Mac limit loan amounts at $417,000 for one-unit properties (or single-family homes). Amounts over that will require a non-conforming, or "Jumbo" loan. There are exceptions to this if a home is located in a ´high cost county´. Those counties are primarily located in Northern & Southern California and some counties surrounding Denver, Boston, Nashville and Seattle. In these areas, conforming loan limits will be greater than the $417,000 standard. The Federal Housing Finance Agency, or FHFA is the federal agency responsible for setting these limits, which they reevaluate on an annual basis.

Question 5

If you elect a 5/1 Adjustable Rate Mortgage, your rates will:

(A) Remain constant for the first five years of the loan term and then adjust each year thereafter.	Correct Incorrect
(B) Adjust once a year for the first five years and then remain stable for remainder of the loan term.	Correct Incorrect
(C) Feature a 5% APR at first and then adjust up or down by 1% each year, depending on the direction of interest rates.	Correct Incorrect
(D) Feature a low 1% introductory rate for the first year and then adjust to 5% for the remainder of the loan term.	Correct Incorrect

With a 5/1 Adjustable Rate Mortgage, the rate remains unchanged for the first five years of the loan. During this period, the monthly mortgage payment remains unchanged. After the first five years, the rate can be adjusted annually for the remainder of the loan term, or until the loan is paid off. Each time the interest rate is adjusted, the monthly payment will change accordingly. With most Adjustable Rate Mortgages, their are interest rate caps, which limit how great an interest rate increase can occur. These caps often exist for both annual increases as well as the life of the loan.

Question 6

Which of the following ARE NOT included in a Loan Estimate?

(A) A summary of the loan and terms being offered.	Correct Incorrect
(B) Summary of settlement charges or closing costs.	Correct Incorrect
(C) Escrow account information.	Correct Incorrect
(D) A comparison to rates and fees offered by other lenders in your area.	Correct Incorrect

The Loan Estimate form provides potential borrowers with important information regarding the loan for which they are applying. Items included in the Loan Estimate are the estimated interest rate, monthly payment, and total closing costs. In addition, the Loan Estimate should include information on estimated costs for taxes and insurance that may be required in the form of escrow payments, and how rates, payments and other costs may change in the future. If the loan has special features, such as prepayment penalties or negative amortization, that information is required to be disclosed on the Loan Estimate.

Question 7

It may make sense to buy mortgage discount 'points' (or pay a charge for a specific interest rate as noted on a Loan Estimate) for a lower interest rate if you:

(A) Need to lower your monthly payment in order to fit under a debt-to-income or housing ratio guideline.	Correct Incorrect
(B) Plan on staying in your home for an extended number of years and paying more up front for a lower interest rate will lower your long-term interest payments.	Correct Incorrect
(C) Both A and B	Correct Incorrect
(D) Neither A or B	Correct Incorrect

When you obtain a mortgage, you often have an opportunity to pay ´points´ that allow you to receive a lower interest rate for the remainder of the loan term. When you pay ´points´, you are paying interest in a lump sum upfront. Each point typically costs one percent of the total mortgage amount. It may make sense to buy points if you´re trying to lower your overall monthly payment in order to comply with debt-to-income or housing ratio requirements, or if you are planning to be in the home for an extended period of time and the cost of the buy down is less than the amount you will pay over time in interest charges during the remainder of the loan term.

Question 8

Which of the following IS NOT a condition for obtaining a FHA (Federal Housing Administration) Loan?

(A) The borrower must pay an upfront mortgage insurance premium (MIP) of 1.00% of the home loan, regardless of their credit score.	Correct Incorrect
(B) The borrower must make a down payment equal to 20% of the home's value.	Correct Incorrect
(C) The property you are purchasing must meet certain minimum government standards at appraisal.	Correct Incorrect
(D) The borrower must pay a monthly mortgage insurance premium (MIP) based on the borrower's loan-to-value (LTV) ratio and length of loan.	Correct Incorrect

FHA Loans can be obtained without making a 20 percent minimum down payment. FHA loan guidelines allow for 95% loan-to-value ratios for loan terms greater than 15 years. In such cases however, borrowers are required to pay Mortgage Insurance Premiums with rates based on the base loan amount, loan-to-value and length of term.

Question 9

With a fixed rate loan, your interest rate will:

(A) Always stay the same for the entire length of the loan term.	Correct Incorrect
(B) Always be lower than rates offered on adjustable rate mortgages.	Correct Incorrect
(C) Always be equal to the 'prime rate'.	Correct Incorrect
(D) Eliminate any need for you to pay for mortgage insurance.	Correct Incorrect

Fixed rate mortgages are fully amortizing loans where the interest rate on the loan remains the same throughout the term of the loan, as does the monthly payment. Fixed rate mortgages are almost always more expensive than adjustable rate mortgages due to the risk the lender takes by guaranteeing a rate over a lengthy period of time. While the ´prime rate´ is often the underlying benchmark for setting loan rates, it is not the same as the interest rate offered on loan products. Finally, the need to pay mortgage insurance is usually determined by the loan-to-value ratio for the loan, not the interest rate.

Question 10

An "interest rate lock":

(A) Guarantees that you will get the interest rate and points the lender quoted you, even while the loan is being processed.	Correct Incorrect
(B) Is an alternative phrase used to describe a Fixed Rate Loan.	Correct Incorrect
(C) Represents the initial period of an adjustable rate mortgage which at the end of, the interest rate 'unlocks' and can be adjusted based on current market rates.	Correct Incorrect
(D) None of the above.	Correct Incorrect

A mortgage rate lock is a lender´s promise to hold a certain interest rate for a specified period of time in exchange for a certain number of points. Without a mortgage rate lock, home buyers risk changes to interest rates while their loan is being processed and approved. A sudden increase in rates during this time period may price you out of the market.

	Correct	Incorrect
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Information presented in the Northwest Financial Wellness Center is provided for educational purposes only and is not related to actual Northwest products or services. Northwest makes no representations as to the accuracy, completeness or specific suitability of any information presented. Information provided should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. Northwest recommends you consult a professional for any specific guidance you are seeking.

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