Real estate exam terms
11 terms, each with a plain definition, the term it is most often confused with, and how the license exam actually asks about it.
A loan whose rate moves with an index over the life of the loan
The rate is an index plus a fixed margin, adjusted at set intervals and bounded by periodic and lifetime caps. The margin stays constant; the index is what moves.
Index, margin, adjustment period and caps are the four components, and items usually ask you to identify which is fixed and which floats.
One mortgage secured by more than one parcel of property
Subdividers use it: a single loan covers every lot in a tract. A partial release clause lets individual lots come out from under the lien as they are sold and paid for, which is what makes the lots saleable at all.
The release clause is the examinable feature. Without it the developer cannot deliver clear title on a single lot.
A loan not insured or guaranteed by a government program
The default category: everything that is not FHA, VA or USDA. Conventional loans that meet the size and underwriting standards of the major secondary market purchasers are called conforming; those that exceed the limits are jumbo.
Defined by what it is not. That negative definition is itself an examinable point.
A loan made by an approved lender and insured by the Federal Housing Administration
The FHA insures; it does not lend. The insurance reduces the lender’s risk, which is what allows a lower down payment than a conventional loan typically requires, and the borrower pays a mortgage insurance premium for it.
"The FHA does not make loans" is stated on exams more often than almost any other financing fact.
A loan whose interest rate does not change for its whole term
The payment of principal and interest is level for the life of the loan, so the borrower carries no interest rate risk. Taxes and insurance in an escrow account can still change the total monthly payment.
The distinction that matters is between the principal and interest payment, which is fixed, and the PITI payment, which is not.
One mortgage covering real property together with personal property
Appliances, furnishings or equipment are financed in the same loan as the building. It turns up in furnished condominium and resort sales, where the buyer would otherwise need two kinds of credit for one purchase.
A blanket mortgage covers multiple parcels of real estate. A package mortgage covers one property and the chattels that go with it.
Blanket covers several parcels of real property; package covers real property plus the personal property inside it. The two words are swapped in items constantly.
A mortgage the buyer gives back to the seller as part of the purchase price
The seller delivers the deed and takes a mortgage for part of what is still owed, so the buyer gets title on the day of closing and the seller becomes the lender. It is the main alternative to a land contract when a seller finances a sale.
Under a land contract the buyer holds equitable title only and legal title stays with the seller until the price is paid.
Title passes at closing. That single fact is the difference from a land contract, where the seller keeps legal title until the last payment is made.
The seller extends credit to the buyer instead of a third-party lender
It takes two main shapes: a purchase-money mortgage, where the buyer receives the deed and gives the seller a mortgage back, and a land contract, where the seller keeps legal title until the price is paid.
The difference is who holds legal title during the term, and that is what the question is testing.
A government program supporting home purchase in designated rural areas
Available for properties in areas the Department of Agriculture designates as rural, subject to income limits, and structured so that eligible borrowers can finance without a down payment.
Grouped with FHA and VA as the third government-backed program. The examinable feature is the geographic and income eligibility.
A loan guaranteed by the Department of Veterans Affairs for eligible veterans
The guarantee, rather than insurance, is what allows qualifying veterans to buy with no down payment. Eligibility comes through service, a funding fee generally applies with statutory exemptions, and the property must meet VA condition requirements.
Guaranteed, not insured, and not made by the VA — the wording distinctions are the item.
A new seller-financed loan that wraps around an existing loan left in place
The buyer pays the seller on the larger wraparound note and the seller keeps paying the original lender out of it. The arrangement only survives while the underlying loan stays undisturbed.
Connect it to the due-on-sale clause. If the first loan carries one, the transfer can be called and the wrap collapses.
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