Free Real Estate Massachusetts-Real-Estate-Salesperson Practice Exam with Questions & Answers | Set: 11

The correct answer is C, 80%. On conventional financing, lenders commonly require private mortgage insurance when the borrower finances more than approximately 80% of the property ' s applicable value, meaning the down payment is less than about 20%.

PMI protects the lender, not the borrower, against part of the financial loss resulting from borrower default.

Candidates should distinguish this general origination rule from federal PMI cancellation provisions. Under the federal Homeowners Protection Act, qualifying borrowers can generally request cancellation when the mortgage reaches 80% of the home ' s original value if statutory conditions are satisfied. Automatic termination generally occurs at the scheduled 78% threshold for qualifying loans when required conditions are met.

FHA mortgage insurance is different from private mortgage insurance. FHA-insured mortgages use government mortgage-insurance requirements rather than conventional PMI.

Loan-to-value is calculated by comparing the loan amount to the applicable property value or purchase price under lender rules.

Study Guide Reference: Financing — Conventional Mortgages, Loan-to-Value Ratios and Private Mortgage Insurance.

A wraparound mortgage is a type of seller financing in which the new loan “wraps around” an existing loan. The buyer makes one combined payment to the seller, who continues paying the original loan while retaining the difference.

In this case:

The seller owes $20,000 at 7%.

The buyer wants to borrow $60,000 total ($20,000 existing + $40,000 new).

The new loan is structured at 10% interest, covering both debts.

This is exactly how a wraparound mortgage works: the seller finances the buyer’s loan, keeps the existing mortgage in place, and earns the difference between the interest rates.

The other options:

Blanket mortgage (A): covers multiple parcels.

Equity loan (B): based on homeowner equity.

Buydown (D): involves prepaying interest to reduce borrower’s rate.

Correct answer: C: wraparound.

Comprehensive and Detailed Explanation (150–250 words):

A home warranty (separate from homeowners insurance) is a service contract that covers the cost of repair or replacement of major home systems and appliances due to normal wear and tear. Typical coverage includes heating and cooling systems, electrical, plumbing, and major appliances such as ovens, dishwashers, and refrigerators.

A: Structural or flooding issues are generally covered by homeowner’s insurance or flood insurance, not warranties.

B: Roofs and foundations may not be covered unless optional riders are purchased.

D: Buyer’s personal property and seller’s fixtures are not part of warranty coverage.

Thus, the best answer is C.

The correct answer is B, Mortgage commitment letter. A mortgage commitment is a lender ' s written indication that the lender has approved or committed to the proposed mortgage subject to the specific terms, conditions, expiration dates, documentation, property requirements, and other conditions stated in the commitment.

It is materially different from prequalification or preapproval. Those earlier underwriting stages can provide evidence of borrowing capacity but do not necessarily constitute the final lender commitment required by a purchase agreement ' s financing contingency.

Massachusetts Board offers curriculum distinguishes prequalification and preapproval and specifically recognizes mortgage contingencies as key provisions of purchase offers.

A buyer relying on a financing contingency must carefully comply with contractual deadlines and requirements. Receiving a conditional commitment does not mean every condition has necessarily been satisfied or that closing funds are unconditionally guaranteed. Employment verification, appraisal, title, insurance, credit changes, property condition, and other matters can remain outstanding.

Study Guide Reference: Financing/Contracts — Mortgage Commitments, Preapproval and Financing Contingencies.

The common law of agency requires real estate licensees to act in the best interests of their principal (the client). The six fiduciary duties are: obedience, loyalty, disclosure, confidentiality, accounting, and reasonable care/diligence.

The most fundamental of these is loyalty — meaning the agent must always place the client’s interests above all others, including their own.

Hiring a contractor (A) goes beyond the agent’s authority unless authorized.

Disclosing divorce (B) would breach confidentiality, not fulfill a duty.

Analyzing legal title exceptions (C) constitutes unauthorized legal practice.

Thus, the correct answer is D: placing the principal’s interests first.