#1
What is a common factor considered by lenders to determine home loan eligibility?
Credit score
ExplanationIt reflects the borrower's creditworthiness and likelihood of timely repayment.
#2
Which of the following factors is NOT typically considered in the home loan approval process?
Number of pets
ExplanationPets are unrelated to financial stability or repayment ability.
#3
What is PMI in the context of home loans?
Private Mortgage Insurance
ExplanationIt protects lenders against loss if a borrower defaults on a mortgage with a low down payment.
#4
What does APR stand for in relation to home loans?
Annual Percentage Rate
ExplanationIt represents the total cost of borrowing, including interest and fees, expressed as a yearly rate.
#5
What is the significance of the term 'amortization' in the context of home loans?
It describes the process of gradually paying off a loan through regular payments.
ExplanationIt outlines how loan principal and interest are paid over time, affecting monthly payments and total interest.
#6
What does LTV stand for in the context of home loans?
Loan-to-Value
ExplanationIt measures the ratio of the loan amount to the property's appraised value.
#7
What is the typical range for a healthy debt-to-income ratio when applying for a home loan?
30-40%
ExplanationIt ensures the borrower's income can comfortably cover debt obligations.
#8
Which of the following is a potential benefit of refinancing a home loan?
Lower interest rates
ExplanationIt can reduce monthly payments or shorten the loan term, saving money over time.
#9
What is a 'jumbo loan' in the context of home financing?
A loan for luxury properties that exceed conventional loan limits
ExplanationIt's designed for high-value properties that require larger loan amounts.
#10
Which of the following factors can affect a borrower's ability to qualify for a home loan?
Age of the borrower
ExplanationIt can impact income stability and retirement status, influencing loan approval.
#11
What is the purpose of a pre-approval in the home loan process?
To estimate the loan amount for which a borrower may be eligible
ExplanationIt provides a preliminary assessment of a borrower's creditworthiness and potential loan terms.
#12
What is the role of an escrow account in the home loan process?
To hold funds for property taxes and insurance payments
ExplanationIt ensures timely payment of property-related expenses to protect both the borrower and the lender.
#13
What is a potential consequence of defaulting on a home loan?
Foreclosure
ExplanationIt's the legal process by which a lender repossesses and sells a property due to non-payment.
#14
What is a 'contingency' clause in a home purchase agreement?
A clause allowing the buyer to back out of the contract under certain conditions
ExplanationIt protects buyers by providing an exit option if specific conditions aren't met.
#15
What is a 'closing disclosure' in the home loan process?
A final report detailing the terms and costs of the loan
ExplanationIt provides borrowers with comprehensive information about the loan before closing.