Test Bank Answer Key
Chapter 9 Financing Sources in Real Estate Transactions
TRUE/FALSE
1. A savings bank may make only residential loans.
2. A savings bank may make only commercial loans.
3. A loan made to fund construction of a bridge is known as a bridge loan.
4. A short-term loan made for acquisition of property is generally referred to as a bridge loan.
5. Government–guaranteed loans are called conventional loans.
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.
7. The ratio of a borrower’s assets to their debts is known as the loan–to-value ratio.
8. The FHA makes direct loans to home buyers.
9. The FHA does not make direct loans to borrowers but instead guarantees loans made by
approved lenders.
10. The Veterans Administration makes direct loans to home buyers.
11. The Veterans Administration guarantees loans made by private lenders.
12. Private mortgage insurance guarantees that the borrower owns the property.
13. Fannie Mae is involved in the secondary mortgage market.
14. Mortgage loans are closed in the secondary market and are bought and sold in the
primary market.
15. Once a mortgage loan is closed in the primary market, the loan can be bought and sold in the
secondary market.
16. The term of repayment on a permanent loan is generally longer than that on a construction loan.
17. The term of repayment on a construction loan is generally longer than that on a permanent loan.
18. Construction loans are generally amortized loans.
19. One major underwriting concern for a permanent lender is the estimate of the cost
of construction.
20. One major concern for a construction lender is the market value of the real property given as
security for the loan.
21. Payment of principal and interest on a loan is called the “loan–to–value ratio.”
22. The payment of principal and interest on a loan is called “debt service.”
23. Interest payable at the beginning of each payment period is known as “payment in arrears.”
24. Interest due at the end of each payment period is known as “payment in arrears.”
25. Interest on most mortgage loans is paid in advance.
26. Interest on most mortgage loans is paid in arrears.
27. The payment under a fully amortized loan payment is constant and does not vary from
month to month.
28. Payments under a fully amortized loan payment plan decline each month.
29. Payments under a straight-line amortized plan become smaller each month.
30. A fully amortized loan will always have a balloon payment.
31. A fully amortized loan should never have a balloon payment.
32. The last payment on a partially amortized loan will always be a balloon payment.
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.
34. Construction loans are generally straight or term loans.
35. The principal balance of the loan may increase as payments are made under a negative
amortization loan.
36. A subprime loan is a loan with very low interest rates (less than the bank’s prime lending rate).
37. Subprime loans generally involve residential loans made with high interest rates or high up–
front fees.
38. An interest-only loan means that so long as interest is being paid on the loan, the loan never has
to be repaid.
39. A subprime loan is a loan that requires the payment of interest only.