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PSI Real Estate Exam: Financing
Questions and Answers | Latest Version | 2025/2026 | Correct & Verified
What is the primary purpose of a mortgage?✔✔ To secure a loan for the purchase of real estate
What is the difference between a fixed-rate mortgage and an adjustable-rate mortgage (ARM)?✔✔ A fixed-rate mortgage has an unchanging interest rate, while an ARM adjusts periodically
What is the role of the Federal Reserve in real estate financing?✔✔ To regulate the money supply and influence interest rates
What is a down payment in a real estate transaction?✔✔ The initial amount paid by the buyer to reduce the loan balance
What is private mortgage insurance (PMI)?✔✔ Insurance that protects the lender in case the borrower defaults, typically required when the down payment is less than 20% 1 / 3
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What does LTV stand for in real estate financing?✔✔ Loan-to-Value
What is the formula to calculate the Loan-to-Value (LTV) ratio?✔✔ Loan amount divided by appraised value or purchase price, whichever is lower
What is a balloon mortgage?✔✔ A mortgage that requires a large payment at the end of the term to pay off the loan
What is an amortization schedule?✔✔ A table detailing each loan payment, showing the amount applied to principal and interest
What does it mean when a loan is fully amortized?✔✔ The loan will be paid off in full with scheduled payments over the term
What is a promissory note in real estate financing?✔✔ A legal document in which the borrower agrees to repay the loan under specified terms 2 / 3
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What is a prepayment penalty?✔✔ A fee charged to the borrower if the loan is paid off early
What is the difference between a conventional loan and a government-backed loan?✔✔ A conventional loan is not insured or guaranteed by the government, while government- backed loans, like FHA and VA loans, are
What is the main difference between an FHA loan and a VA loan?✔✔ FHA loans are for first-time homebuyers and require a small down payment, while VA loans are for veterans and active military members with no down payment required
What is the role of a mortgage broker?✔✔ A mortgage broker helps connect borrowers with lenders but does not lend money directly
What is a debt-to-income ratio (DTI)?✔✔ A ratio used by lenders to assess a borrower's ability to manage monthly payments based on their income
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