What this section covers: Area and acreage, Valuation, NOI and cap rate, property taxes, Commission, Loan costs, LTV, points, Settlement costs and prorations, Investment and property management.
5 free practice questions
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Question 1A lender approves a $255,000 loan on a home valued at $300,000. What is the loan-to-value ratio?
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Answer: C — 85%.
LTV = loan / value = $255,000 / $300,000 = 0.85, or 85%.
Checked against: National outline VIII.D.2 Loan to Value (LTV)
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Question 2A buyer pays 2 discount points on a $250,000 loan. How much do the points cost?
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Answer: C — $5,000.
One point equals 1% of the loan amount, not of the price. 2 points = $250,000 x 0.02 = $5,000.
Checked against: National outline VIII.D.4 Amortization, discount points
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Question 3A $200,000 loan carries 6% annual interest. How much interest is due in the first month?
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Answer: B — $1,000.
Annual interest = $200,000 x 0.06 = $12,000; one month = $12,000 / 12 = $1,000.
Checked against: National outline VIII.D.1 Interest
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Question 4An investor buys a building for $600,000. Its net operating income is $45,000 a year. What is the capitalization rate?
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Answer: B — 7.5%.
Cap rate = NOI / value = $45,000 / $600,000 = 0.075, or 7.5%.
Checked against: National outline VIII.B.3 Capitalization rate
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Question 5Annual property taxes of $3,650 are paid in arrears and have not been paid this year. Closing is March 31 of a non-leap year. Use a 365-day year; the seller owns the day of closing. What is the tax proration?
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Answer: B — $900 debit to the seller, credit to the buyer.
Daily tax = $3,650 / 365 = $10. The seller owned the home January 1 to March 31: 31 + 28 + 31 = 90 days, so $900. The taxes are unpaid, and the buyer will pay the whole year's bill later, so the seller is debited $900 and the buyer credited $900.
Checked against: National outline VIII.E.5 Prorated items; VIII.E.6 Debits and credits
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