Financing & Settlement Practice Questions
Financing and Settlement is 7 scored items on the National/General portion of the Texas Sales Agent exam. Pearson divides them among four official subtopics: financing concepts and components, lender requirements, federal financing regulations and regulatory bodies, and settlement and closing the transaction. Work the questions below, then read every explanation.
Exam prep only
Financing questions reward one habit: classify the facts before using them. Separate the repayment promise from the security instrument, the loan program from the loan feature, and the disclosure deadline from the closing event.
Use an A-to-D check. Identify the financing concept, lender requirement, federal rule, or settlement step being tested. Then choose the document, program, deadline, insurance, or debit and credit treatment that fits.
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Financing & Settlement Practice Questions
15 scenario-based questions on financing & settlement, scored, each with a full explanation after you answer. Every question is also written out below if you would rather study at your own pace.
Every question explained
Prefer to study at your own pace? Here are all 15 questions. Read each one and pick your answer, then reveal the correct answer, the reasoning, and the trap that catches most candidates.
1. A borrower signs both a promissory note and a security instrument to buy a home. Which document creates the borrower's obligation to repay the debt?
- A.The security instrument, because it is recorded
- B.The promissory note, which is the borrower's written promise to repay
- C.The deed, because it transfers ownership
- D.The closing disclosure
Show answer and explanation
Correct answer: B. The promissory note, which is the borrower's written promise to repay
Why B is correct: The promissory note is the borrower's written promise to repay and evidence of the debt. The security instrument, commonly a deed of trust in Texas, pledges the property as collateral and creates the lien securing that obligation.
Trap: The security instrument creates the lien. The note states and evidences the repayment promise.
Source: Financing instruments; promissory note
2. A seller lets a buyer take possession and make monthly payments but keeps legal title until the contract requirements are satisfied. Which financing method best fits these facts?
- A.A conventional first mortgage
- B.A land contract or contract for deed
- C.A reverse mortgage
- D.A sale-leaseback
Show answer and explanation
Correct answer: B. A land contract or contract for deed
Why B is correct: A land contract, also called a contract for deed, is seller financing in which the buyer typically takes possession and pays over time while the seller retains legal title until the contract requirements are met. State law controls the detailed rights and remedies.
Trap: Seller financing is broader than a purchase-money mortgage. Retained legal title is the land-contract clue.
Source: Pearson VUE outline VII.A.1.b, seller financing
3. A regulated lender makes a loan secured by an improved home in a Special Flood Hazard Area where National Flood Insurance Program coverage is available. Which statement is most accurate?
- A.A standard homeowners policy always satisfies the flood requirement
- B.Federal mandatory-purchase rules generally require separate flood insurance
- C.Flood insurance is required only if the buyer requests it
- D.PMI replaces flood insurance whenever LTV exceeds 80 percent
Show answer and explanation
Correct answer: B. Federal mandatory-purchase rules generally require separate flood insurance
Why B is correct: Federal mandatory-purchase rules generally require flood insurance for a regulated loan secured by improved real property or a mobile home in a Special Flood Hazard Area when National Flood Insurance Program coverage is available. Flood coverage is distinct from standard hazard or homeowners insurance.
Trap: Hazard insurance, flood insurance, and mortgage insurance protect against different risks.
Source: Federal flood insurance mandatory-purchase requirements
4. On a conventional loan, private mortgage insurance is generally required when the loan-to-value ratio is
- A.below 50 percent
- B.above 80 percent, meaning the down payment is under 20 percent
- C.exactly 100 percent only
- D.never, because conventional loans have no PMI
Show answer and explanation
Correct answer: B. above 80 percent, meaning the down payment is under 20 percent
Why B is correct: Private mortgage insurance is generally required on a conventional loan when the loan-to-value ratio exceeds 80 percent, that is, when the down payment is less than 20 percent. Under federal law, PMI must automatically terminate when the balance reaches 78 percent of original value, if the borrower is current.
Trap: PMI protects the lender, not the borrower, and applies above 80 percent LTV. It can be removed as the balance drops.
Source: Mortgage insurance; Homeowners Protection Act; conventional PMI
5. Under Regulation Z, when must a creditor deliver or place the Loan Estimate in the mail after receiving an application?
- A.1 business day
- B.3 business days
- C.7 business days
- D.10 business days
Show answer and explanation
Correct answer: B. 3 business days
Why B is correct: The creditor must deliver or place the Loan Estimate in the mail no later than the third business day after receiving an application. This is a delivery-or-mailing deadline, not a promise that mailed disclosures will arrive by that third day.
Trap: The Closing Disclosure uses receipt before consummation. The Loan Estimate uses delivery or mailing after application.
Source: 12 CFR 1026.19(e)(1)(iii)
6. A title company offers a real estate broker a cash payment for every buyer the broker refers, with no service performed in return. Under RESPA, this is
- A.a normal referral arrangement
- B.a prohibited kickback for an unearned referral fee
- C.lawful if disclosed at closing
- D.permitted because title work is not a settlement service
Show answer and explanation
Correct answer: B. a prohibited kickback for an unearned referral fee
Why B is correct: RESPA prohibits kickbacks and unearned referral fees between settlement-service providers. Paying a broker simply for referrals, with no service performed, is a prohibited kickback. Disclosure does not cure it.
Trap: A payment for steering business, with no service rendered, is a RESPA violation, not a normal commission or a curable disclosure issue.
Source: 12 CFR 1024.14(b) and (c)
7. At a Texas closing, which of the following is generally NOT a cost, because Texas does not impose it?
- A.Recording fees
- B.A statewide real estate transfer tax
- C.Title insurance premiums
- D.Prorated property taxes
Show answer and explanation
Correct answer: B. A statewide real estate transfer tax
Why B is correct: Texas Constitution Article VIII, Section 29 prohibits a state tax on the transfer of a fee-simple interest in real property. Recording fees, title insurance premiums, and prorated taxes may still appear. A National/General exam problem can also supply a hypothetical transfer-tax rate and ask you to calculate it.
Trap: Separate Texas law from a national calculation. Use any rate the question expressly supplies.
Source: Settlement; Texas Constitution Article VIII, Section 29
8. Under the TRID rule, a borrower must receive the Closing Disclosure
- A.at the closing table
- B.at least three business days before consummation of the loan
- C.thirty days after closing
- D.only if requested
Show answer and explanation
Correct answer: B. at least three business days before consummation of the loan
Why B is correct: The creditor must ensure the consumer receives the Closing Disclosure no later than three business days before consummation. Consummation is the point when the consumer becomes contractually obligated on the credit transaction under applicable state law.
Trap: Use receipt and consummation for the Closing Disclosure. Do not silently replace them with delivery and closing.
Source: 12 CFR 1026.19(f)(1)(ii)(A)
9. Which statement correctly distinguishes Ginnie Mae from Fannie Mae and Freddie Mac?
- A.Ginnie Mae buys conventional loans from originators
- B.Ginnie Mae guarantees qualifying mortgage-backed securities but does not buy or sell loans
- C.Fannie Mae and Freddie Mac insure FHA loans
- D.All three are federal lending agencies that originate home loans
Show answer and explanation
Correct answer: B. Ginnie Mae guarantees qualifying mortgage-backed securities but does not buy or sell loans
Why B is correct: Ginnie Mae guarantees timely principal and interest on qualifying securities backed by government-insured or government-guaranteed loans. It does not buy or sell loans. Fannie Mae and Freddie Mac are government-sponsored enterprises that buy qualifying mortgages.
Trap: Ginnie guarantees securities. Fannie and Freddie buy qualifying mortgages.
Source: FHFA and Ginnie Mae, secondary mortgage market
10. Which closing document transfers the seller's stated real-property interest to the buyer when it is legally delivered and accepted?
- A.The deed
- B.The promissory note
- C.The Loan Estimate
- D.The deed of trust
Show answer and explanation
Correct answer: A. The deed
Why A is correct: The deed is the conveyance document. The note states the repayment promise, and the deed of trust secures that promise. Loan disclosures explain terms but do not convey the seller's title.
Trap: The deed transfers the interest. The deed of trust creates a lien.
Source: Settlement and closing; conveyance documents
11. Unpaid property taxes cover a period when the seller owned the property. How is the seller's prorated share generally entered at closing?
- A.Seller credit and buyer debit
- B.Seller debit and buyer credit
- C.Debit to both parties
- D.Credit to both parties
Show answer and explanation
Correct answer: B. Seller debit and buyer credit
Why B is correct: The seller is charged for the seller's share, so the seller receives a debit. The buyer receives the offsetting credit because the buyer will later pay the bill, assuming the facts state that the taxes are unpaid.
Trap: A debit is a charge. A credit is an amount in that party's favor.
Source: Settlement and closing; prorations
12. Which statement about the events around closing is most accurate?
- A.Signing, loan consummation, funding, disbursement, and recording always occur at the same instant
- B.Recording the deed is what creates the borrower's promise to repay
- C.Signing, consummation, funding, disbursement, and recording are distinct events whose order and effect depend on the transaction and applicable law
- D.The Closing Disclosure transfers title when the borrower signs it
Show answer and explanation
Correct answer: C. Signing, consummation, funding, disbursement, and recording are distinct events whose order and effect depend on the transaction and applicable law
Why C is correct: Closing is a coordinated process, not one universal legal instant. Signing, consummation of credit, funding, disbursement, delivery, and recording do different work. State law and the transaction documents control their order and legal effect.
Trap: Do not use the word closing as a substitute for every event that happens near settlement.
Source: Settlement and closing the transaction
13. A loan clause that lets the lender demand full repayment if the borrower sells or transfers the property is a
- A.due-on-sale (alienation) clause
- B.defeasance clause
- C.subordination clause
- D.habendum clause
Show answer and explanation
Correct answer: A. due-on-sale (alienation) clause
Why A is correct: A due-on-sale, or alienation, clause allows the lender to call the entire loan balance due if the property is sold or transferred. It generally prevents a buyer from assuming the loan without the lender's consent.
Trap: The due-on-sale clause blocks unapproved loan assumptions by accelerating the balance on transfer.
Source: Mortgage clauses; due-on-sale clause
14. An applicant secretly claims that an investment property will be their primary residence to obtain more favorable loan terms. This conduct is best classified as
- A.a lawful secondary-market sale
- B.occupancy fraud
- C.a permissible loan assumption
- D.an ECOA adverse-action notice
Show answer and explanation
Correct answer: B. occupancy fraud
Why B is correct: A material false statement about intended occupancy made to influence loan terms is mortgage fraud. Other common examples involve false income, employment, debt, assets, identity, or undisclosed agreements.
Trap: A profitable resale is not automatically fraud. The material misrepresentation is the tested fact.
Source: Mortgage fraud; material application misrepresentation
15. The Equal Credit Opportunity Act (ECOA) prohibits a lender from discriminating in credit decisions based on
- A.the borrower's credit score
- B.race, color, religion, national origin, sex, marital status, age, or receipt of public assistance
- C.the property's appraised value
- D.the size of the down payment
Show answer and explanation
Correct answer: B. race, color, religion, national origin, sex, marital status, age, or receipt of public assistance
Why B is correct: ECOA and Regulation B prohibit discrimination in any aspect of a credit transaction based on race, color, religion, national origin, sex, marital status, qualifying age, receipt of public assistance, and good-faith exercise of specified consumer-credit rights. Lenders may still evaluate legitimate creditworthiness and collateral factors.
Trap: ECOA bars discrimination on protected bases, not legitimate credit factors like income or credit history.
Source: 12 CFR 1002.2(z)
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Get the full question bankFrequently asked questions
How many financing and settlement questions are on the Texas exam?+
Financing and Settlement is 7 scored items on the National/General portion: 2 on financing concepts and components, 1 on lender requirements, 2 on federal financing regulations and regulatory bodies, and 2 on settlement and closing.
How does foreclosure work in Texas?+
Texas lenders typically use a deed of trust with a trustee who holds the power of sale. On default, the trustee can conduct a non-judicial foreclosure under Texas Property Code 51.002, without a court ordering the sale, which differs from judicial foreclosure used in mortgage states.
Does Texas charge a transfer tax at closing?+
Texas Constitution Article VIII, Section 29 prohibits a state tax on the transfer of a fee-simple interest in real property. Recording fees, title insurance, and prorated property taxes may still apply. A National/General exam problem can also supply a transfer-tax rate for a calculation.