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Financing and Settlement Practice Questions: Loans, Disclosures and Closing

Financing and settlement account for seven scored National questions on the Texas sales agent exam. This free 15-question quiz covers loan documents, lender requirements, federal lending rules and closing adjustments. Every answer includes an explanation and source links. Two separate Texas examples cover transfer taxes and tax prorations; they do not affect your National quiz score.

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Financing & Settlement Practice Questions

15 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.

15 questions
~11 min
National practice only

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Study mode · National principles

Work through the questions at your own pace.

Choose an answer mentally, then open its explanation. Each question has a source and a point to watch. These are original practice questions, not Pearson VUE exam items or a prediction of your result.

1

The repayment promise is not the collateral

A buyer signs loan documents to finance a home. Which document states the borrower's written promise to repay the loan?

  1. The mortgage securing the loan
  2. The promissory note
  3. The seller's deed of conveyance
  4. The Closing Disclosure
Check answer and explanation

Correct answer: B. The promissory note

The note states the repayment obligation. The mortgage or deed of trust provides security in the property for that debt. The seller's deed conveys an ownership interest, while the Closing Disclosure explains the transaction's loan terms and costs.

Watch for this: Ask whether the document creates a repayment promise, provides collateral or conveys ownership.

Rule: Financing instruments; promissory note and security instrument

2

Who keeps legal title during the installments?

A seller finances a home purchase. The buyer takes possession and pays installments, but the seller retains legal title until the payment contract is fulfilled. Which arrangement fits?

  1. A conventional purchase loan
  2. A home-equity line of credit
  3. A seller's leaseback after closing
  4. A contract for deed
Check answer and explanation

Correct answer: D. A contract for deed

A contract for deed, also called a land installment contract, combines the sale with seller financing while legal title stays with the seller until the contract is fulfilled. Do not assume the label removes consumer protections or lets the seller evict immediately after any missed payment. Applicable law and the agreement control the remedies.

Watch for this: Seller financing is the broad category. Retained legal title is the distinguishing fact here.

Rule: Seller financing; contract for deed

3

Flood coverage is a separate requirement

A national bank is making a loan secured by a house in a Special Flood Hazard Area where NFIP coverage is available. No exemption applies. What insurance requirement must it address?

  1. Flood coverage meeting the federal loan requirements
  2. Homeowners coverage as a substitute for all flood coverage
  3. PMI as a replacement for the required flood policy
  4. Flood coverage only if the borrower requests it
Check answer and explanation

Correct answer: A. Flood coverage meeting the federal loan requirements

For this designated loan, the bank must require qualifying flood coverage. A compliant private flood policy can satisfy the requirement; NFIP is not the only possible source. Mortgage insurance protects against a different risk and cannot replace required flood coverage.

Watch for this: The stem establishes the lender, location and coverage conditions. Do not turn this into a rule for every loan on vacant land.

Rule: 12 CFR 22.2(e) and 22.3(a), (c)

4

Calculate LTV before deciding what PMI means

For a conventional home purchase, the price and appraised value are both $300,000. The borrower puts down $30,000 and borrows $270,000. Which statement is accurate?

  1. LTV is 10%; PMI protects the borrower's down payment
  2. LTV is 80%; PMI pays the borrower's property taxes
  3. LTV is 90%; PMI is commonly required to protect the lender
  4. LTV is 100%; PMI replaces the homeowner's policy
Check answer and explanation

Correct answer: C. LTV is 90%; PMI is commonly required to protect the lender

$270,000 divided by $300,000 is 90% LTV. With less than 20% down, a conventional borrower will commonly need PMI, subject to the loan program. It protects the lender against default-related loss, not the borrower against losing the home. FHA mortgage insurance has different rules.

Watch for this: Down-payment percentage and LTV are different numbers. PMI is not homeowners insurance.

Rule: Loan-to-value; conventional mortgage insurance

5

The Loan Estimate clock starts with the application

A creditor receives the six required application items on Monday for a loan covered by the Loan Estimate rule. It conducts substantially all business functions Monday through Friday. No holiday or exception applies. By when must it deliver or mail the initial Loan Estimate?

  1. Monday
  2. Tuesday
  3. Wednesday
  4. Thursday
Check answer and explanation

Correct answer: D. Thursday

The deadline is the third business day after receipt: Tuesday, Wednesday, Thursday. This is delivery or mailing, not required receipt by Thursday. Waiting for verification documents does not postpone an application that already contains the six required items.

Watch for this: Do not substitute loan approval for receipt of the application. The separate seven-business-day pre-consummation rule also matters.

Rule: 12 CFR 1026.19(e)(1)(iii); 1026.2(a)(3), (6)

6

Disclosure does not make a referral kickback lawful

For transactions involving federally related mortgage loans covered by RESPA, a title company agrees to pay a broker $150 for each referral. The broker provides no other service. How should the arrangement be classified?

  1. Payment for title work the broker actually performed
  2. A prohibited settlement-service referral payment
  3. A permitted fee once shown on the Closing Disclosure
  4. An exempt referral between two real estate brokerages
Check answer and explanation

Correct answer: B. A prohibited settlement-service referral payment

Section 1024.14(b) prohibits paying or accepting value for covered settlement-service referrals. The broker is paid only for sending business, not actual title services. Disclosure does not cure that arrangement. Permitted payments, including qualifying real estate brokerage referral arrangements, must be distinguished from this title-company kickback.

Watch for this: A title company paying for referrals is not the same arrangement as a lawful broker-to-broker real estate referral.

Rule: 12 CFR 1024.14(b), (g)(1)

7

The Closing Disclosure uses a different clock

A consumer actually receives the initial Closing Disclosure on Friday for a covered loan. No federal legal holiday, waiver or later change requiring a new waiting period applies. What is the earliest consummation day under the three-business-day rule?

  1. Monday
  2. Wednesday
  3. Tuesday
  4. The same Friday
Check answer and explanation

Correct answer: C. Tuesday

Count Saturday, Monday and Tuesday; Sunday does not count. This waiting period uses calendar days except Sundays and specified federal legal holidays, not just days the lender is open. The question gives actual receipt, so no presumed-mail-receipt period is added.

Watch for this: Receiving the disclosure and mailing it are not the same event. Saturday normally counts for this waiting period.

Rule: 12 CFR 1026.19(f)(1)(ii)-(iii); 1026.2(a)(6)

8

Ginnie guarantees securities; the GSEs buy loans

Which statement correctly distinguishes Ginnie Mae's role from Fannie Mae and Freddie Mac in the secondary mortgage market?

  1. Ginnie guarantees eligible MBS; Fannie and Freddie buy mortgages
  2. Ginnie buys conventional loans; Fannie and Freddie insure FHA loans
  3. Ginnie originates loans; Fannie and Freddie issue borrower notes
  4. Ginnie insures individual loans; Fannie and Freddie insure lenders
Check answer and explanation

Correct answer: A. Ginnie guarantees eligible MBS; Fannie and Freddie buy mortgages

Ginnie Mae guarantees payments to investors in qualifying mortgage-backed securities backed by government-insured or guaranteed loans. It does not buy or sell mortgage loans. Fannie Mae and Freddie Mac purchase qualifying mortgages and support securitization. These are secondary-market roles, not three interchangeable retail lenders.

Watch for this: Separate guaranteeing a security's payments from insuring a loan or lending directly to a homebuyer.

Rule: Secondary mortgage market; Ginnie Mae and GSE roles

9

Which document conveys ownership?

In an ordinary home sale, all required execution, delivery and acceptance conditions are met. Which closing document conveys the seller's stated ownership interest to the buyer?

  1. The Loan Estimate
  2. The promissory note
  3. The security instrument
  4. The deed
Check answer and explanation

Correct answer: D. The deed

The deed is the conveyance instrument. The note concerns repayment; the security instrument secures the loan. Recording serves a different purpose, including public notice, and is not a substitute for a valid conveyance. Applicable state law controls the detailed transfer and recording requirements.

Watch for this: A deed and a deed of trust do different work despite sharing a word.

Rule: Settlement and title transfer; deed delivery

10

Unpaid taxes: charge the seller, credit the buyer

A closing problem gives annual unpaid property taxes of $3,600, a 360-day year and 90 days allocated to the seller. The buyer will pay the full bill later. What adjustment covers the seller's share?

  1. $900 seller credit and $900 buyer debit
  2. $900 seller debit and $900 buyer credit
  3. $2,700 seller debit and $2,700 buyer credit
  4. $3,600 seller credit and $3,600 buyer debit
Check answer and explanation

Correct answer: B. $900 seller debit and $900 buyer credit

$3,600 / 360 = $10 per day; $10 x 90 = $900. Charge that amount to the seller and credit the buyer who will pay the bill. If the seller had already prepaid the tax, the adjustment would be different. Use the day count and allocation supplied in the problem.

Watch for this: Check paid versus unpaid before choosing the debit and credit. Do not assume a 365-day year when the problem says 360.

Rule: Proration; 12 CFR 1026.38(j)(2), (k)(2)

11

Signing, funding and consummation are not synonyms

A buyer says that signing the purchase contract, becoming obligated on the loan, disbursing funds and recording the deed must all be the same legal event. Which correction is sound?

  1. These are distinct events; applicable law determines their effect
  2. The purchase contract always consummates the future mortgage
  3. Recording creates every buyer's promise to repay the loan
  4. Funds can move only after every document becomes public
Check answer and explanation

Correct answer: A. These are distinct events; applicable law determines their effect

Consummation is when the consumer becomes legally obligated on the credit transaction under applicable law. Signing a purchase contract alone does not necessarily do that. Disbursement moves funds, and recording enters documents in public records. Do not impose one universal sequence on every state's closing process.

Watch for this: Read the event named in the rule. 'Closing' can describe a process rather than one legal instant.

Rule: Settlement; 12 CFR 1026.2(a)(13) and official interpretation

12

A transfer clause has limits

A loan provision allows the lender, subject to applicable law, to demand the remaining balance if the borrower transfers the secured property without consent. What is that provision?

  1. A defeasance clause
  2. A subordination clause
  3. A due-on-sale clause
  4. A habendum clause
Check answer and explanation

Correct answer: C. A due-on-sale clause

A due-on-sale, or alienation, clause gives the lender an acceleration option for a covered transfer. Federal law protects specified transfers for qualifying residential loans, so 'every transfer makes the debt immediately due' is too broad. Read the clause together with those protections rather than treating its name as a complete answer about enforceability.

Watch for this: Identify the clause first, then check consent and statutory protections. Acceleration is not automatic in every transfer.

Rule: Mortgage clauses; 12 USC 1701j-3(a)-(d)

13

Intentional occupancy misrepresentation

An applicant plans from the outset to rent a house to tenants but knowingly claims it will be a primary residence to obtain better mortgage terms. What type of misrepresentation is illustrated?

  1. A disclosed loan assumption
  2. Occupancy fraud
  3. A secondary-market loan sale
  4. An adverse-action notice
Check answer and explanation

Correct answer: B. Occupancy fraud

The false statement concerns intended occupancy and is made to influence loan terms. FinCEN identifies this as occupancy fraud. A genuine later change of plans is not the same as the intentional false application described here. A criminal case requires proof under the applicable law; this question classifies the conduct.

Watch for this: The tested fact is intent when the representation is made, not merely whether the property is rented at some later date.

Rule: Mortgage fraud; material application misrepresentation; FinCEN FIN-2012-A009

14

Assess the income, not a stereotype about its source

A lender rejects an otherwise qualified applicant solely because part of the applicant's income comes from public assistance, without assessing the income's amount or likely continuation. Which rule is implicated?

  1. ECOA's prohibition on discrimination based on public-assistance income
  2. RESPA's permission to pay for services actually performed
  3. The Closing Disclosure's requirement to itemize settlement costs
  4. The flood-insurance requirement for a designated loan
Check answer and explanation

Correct answer: A. ECOA's prohibition on discrimination based on public-assistance income

Public-assistance income is a protected basis under Regulation B. A creditor may assess relevant creditworthiness, including the amount and probable continuation of income, but may not simply reject it because of its protected source. ECOA does not require approval regardless of repayment ability.

Watch for this: A lawful review of reliability is different from automatically excluding a protected income source.

Rule: 12 CFR 1002.2(z); 1002.6(b)(2), (5)

15

80% cancellation is not the 78% termination rule

A current borrower has a conventional, fixed-rate loan on a single-family principal residence with borrower-paid PMI. The Homeowners Protection Act applies and no high-risk exception applies. Which event generally triggers automatic PMI termination?

  1. An appraisal showing 20% equity at any time
  2. Any extra payment that reduces principal below 80%
  3. The scheduled date the balance reaches 78% of original value
  4. The date the borrower first requests cancellation in writing
Check answer and explanation

Correct answer: C. The scheduled date the balance reaches 78% of original value

Automatic termination generally uses the scheduled 78% date, with the borrower current. Requested cancellation at 80% is a separate route with payment-history, value and lien conditions. Extra principal payments can support an earlier cancellation request; they do not turn the scheduled-termination rule into an actual-balance test.

Watch for this: Distinguish requesting cancellation from automatic termination. Do not apply these conventional PMI rules to FHA MIP.

Rule: Homeowners Protection Act; 12 USC 4902(a)-(b)

Quick reference

Give each document one clear job.

Start with the purpose, then check the rule. Follow a link to work through an example and its sources.

Four distinctions that prevent common financing mistakes
Document or ruleWhat to remember
Note and security instrumentThe note states the debt promise. The mortgage or deed of trust provides collateral security.
Loan EstimateFor the covered application deadline, deliver or mail within three business days after receipt of the application.
Closing DisclosureFor the ordinary waiting period, the consumer must receive it at least three business days before consummation.
PMI removalRequested cancellation at 80% has conditions. Automatic termination generally uses the scheduled 78% date with payments current.

These are recognition cues, not every condition or exception. The two disclosure deadlines use different business-day definitions. Consummation means becoming legally obligated on the credit transaction, not simply signing a purchase contract.

Optional supplement · Texas-specific applications

2 Texas rules to keep separate.

These examples require Texas form or statutory knowledge. They are not included in the National quiz or its score. If you only need National practice, you can skip to the study resources.

1

A transfer-tax prohibition does not erase closing costs

Which proposed new Texas tax is directly prohibited by Article VIII, Section 29(a) of the Texas Constitution?

  1. A tax on mineral production
  2. A general business tax measured by activity
  3. A tax on issuance of title insurance
  4. A transfer tax on a transaction conveying fee simple title
Check answer and explanation

Correct answer: D. A transfer tax on a transaction conveying fee simple title

Section 29(a) bars enactment of a transfer tax on a fee-simple conveyance after January 1, 2016. Section 29(b) preserves specified categories, including the other choices. This does not mean a Texas closing has no recording fees, title charges or property-tax adjustments. A National math problem may still supply a hypothetical transfer-tax rate.

Watch for this: Use Texas law for a Texas-law question, but use the supplied rate when a National calculation asks for one.

Rule: Texas Constitution Article VIII, Section 29(a)-(b)

2

The actual tax bill can require a later adjustment

A Texas resale uses TREC Form 20-19 with Paragraph 13 unchanged. Current-year taxes were prorated using an estimate at closing. When the current-year tax statement arrives, the actual tax differs. What does Paragraph 13 require?

  1. Keep the estimate because closing ends every adjustment
  2. Adjust the prorations using the current-year tax statement
  3. Charge the entire difference to the settlement agent
  4. Cancel the deed and repeat the conveyance
Check answer and explanation

Correct answer: B. Adjust the prorations using the current-year tax statement

Paragraph 13 requires the parties to adjust the prorations when current-year tax statements are available if the actual taxes differ from the amount used at closing. It also allows exemption changes affecting that year's taxes to be considered. The form assigns payment of current-year taxes to the buyer if they were not paid at or before closing.

Watch for this: An estimated closing adjustment is not a guarantee of the final tax bill or a rule that the seller pays the bill again.

Rule: TREC Form 20-19, Paragraph 13; effective July 1, 2026

Use the rule the question actually gives you.

A Texas form question requires the Texas form. A National proration problem may supply its own year length, closing-day allocation or transfer-tax rate. Use those stated assumptions without treating them as Texas law.

Pearson VUE: notes on math calculations

Know the scope

How this set fits the National outline.

The official topic has 7 scored items. The counts below describe our 15-question sample, not a promise of which questions you will see. The Texas bonus examples are excluded.

Financing & Settlement: official allocation and free practice coverage
National subtopicExam itemsOur questions
Financing concepts and components24
Lender Requirements13
Federal Financing Regulations and Regulatory Bodies25
Settlement and closing the transaction23

A sample is not complete coverage of every possible question. See Pearson VUE's Salesperson outline, section VII. Sources beside each answer explain the underlying principle. Texas-specific rules and examples link to their own authority.

Before choosing an answer, identify the job: promising repayment, securing a debt, disclosing loan terms or transferring ownership. Then check who must act and when. Those distinctions solve more problems than memorizing a document's name alone.

These original questions use hypothetical facts. They cover all four broad outline groups, not every skill, loan program or underwriting requirement. Their mix and difficulty are not calibrated to Pearson VUE's exam. A score here measures this set, not your probability of passing.

Choose what to study next.

Start with the lesson behind a missed question, then try another problem without notes.

Before you continue

How many financing and settlement questions are on the exam?

The Salesperson National outline assigns seven scored items: two financing concepts, one lender requirements, two federal regulations and two settlement/closing. This sample has 15 questions across those four groups. The two Texas examples are separate and unscored.

Are these real Pearson VUE exam questions?

No. These are original questions with hypothetical facts and sourced explanations. They have not been calibrated to Pearson's difficulty and do not cover every skill or loan program. Your score measures this practice set, not your chance of passing.

Does business day mean the same thing for both mortgage disclosures?

No. The initial Loan Estimate's application-based deadline uses days the creditor conducts substantially all business functions. The Closing Disclosure waiting period generally counts Saturdays but excludes Sundays and the specified federal legal holidays. Start with the correct rule and the stated delivery or receipt facts.

Is PMI removed automatically at 80%?

Not under the standard automatic-termination rule. Borrowers can request cancellation at 80% subject to conditions; automatic termination generally uses the scheduled 78% date with payments current. FHA and lender-paid mortgage insurance have different rules. Check the loan and servicer's requirements.

Do these questions cover every FHA, VA and USDA requirement?

No. Loan-program and borrower-qualification rules extend beyond this short sample. Use the linked financing lessons for broader study, and current agency and lender guidance for an actual application. Do not infer eligibility, loan approval or a current interest rate from a practice answer.

Will this quiz result be saved if I open the app?

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Sources and review notes

Reviewed September 7, 2026 for rules effective through September 5, 2026. Pearson VUE supplies the topic allocation, not these questions. CFPB regulations and guidance, federal law, FHFA, Ginnie Mae and FinCEN support the National explanations. The Texas Constitution and current TREC resale form support the separate Texas examples. All scenarios and dollar amounts are hypothetical, not reported transactions or current loan offers. This page is exam preparation, not advice for a transaction.

Use the source beside an answer to check the specific rule. Cornell Law's Wex entries explain general legal concepts; they are not Texas statutes or Pearson VUE answer keys.

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