The difference between a property's market value and the outstanding balance of any loans against it.
Why Equity matters on the exam
This term belongs to Real Estate Math. The questions below are real items from Freehold's bank that use it - each one cites its source.
Exam questions using Equity
Every Freehold question shows why the right answer is right — and cites its source.
Which statement about private mortgage insurance is correct?
PMI protects the borrower if the lender later becomes insolvent or fails
PMI is required on every FHA loan in place of the separate mortgage insurance premium
PMI eliminates the lender's need to order an appraisal before closing
PMI protects the lender against loss if the borrower defaults on a high loan-to-value conventional loan
Show answer & explanation
PMI protects the lender against loss if the borrower defaults on a high loan-to-value conventional loan — PMI is purchased to protect the lender, not the borrower, against loss from default when a conventional loan has a high loan-to-value ratio and reduced borrower equity.
Source: PSI National Real Estate Exam Content Outline §4 Financing
Loan-to-value ratio (LTV) expresses the relationship between:
The buyer's income and their monthly debt payments
The purchase price and the property's own separate assessed property tax valuation figure
The loan amount and the property's appraised value or sale price, whichever is less
The size of the down payment and the buyer's total closing costs paid at the settlement
Show answer & explanation
The loan amount and the property's appraised value or sale price, whichever is less — LTV compares the loan amount to the lesser of the appraised value or sale price; a higher LTV means less borrower equity and generally greater lender risk.
Source: PSI National Real Estate Exam Content Outline §4 Financing
Under Regulation Z, a borrower refinancing a loan secured by their primary residence generally has the right to rescind the transaction within:
24 hours of signing
10 calendar days after signing
3 business days after signing
A full thirty days after closing
Show answer & explanation
3 business days after signing — Regulation Z's right of rescission gives borrowers three business days to cancel certain refinance and home equity transactions secured by their principal residence; it does not apply to purchase-money mortgages.
Source: PSI National Real Estate Exam Content Outline §4 Financing
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