Alabama Finance
Practice Questions & Answers (2026)
Finance questions on the Alabama real estate exam cover mortgage types, loan-to-value ratios, qualifying ratios, and federal lending laws. The Alabama Real Estate Commission (AREC) tests both the mechanics of real estate financing and the regulatory framework — particularly RESPA, TILA (Truth in Lending), and the TRID rules that govern loan disclosures. Alabama candidates often lose points on financing questions because they understand the concept but miss the specific numerical thresholds or disclosure timing requirements that appear on the AL exam. Pay particular attention to ARM vs. fixed-rate mortgage distinctions, the calculation of LTV ratios, and what information must appear in specific disclosure documents.
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Alabama Finance — Practice Questions & Answers
171 questions on Finance from the Alabama real estate question bank. First 10 are free — sign up to unlock all 171.
Q1. In Alabama, what instrument is primarily used to secure a mortgage loan with real property as collateral?
Explanation
Alabama is a mortgage state (lien theory state). A mortgage is the primary instrument used to pledge real property as collateral for a loan. The borrower retains title while the lender holds a lien.
Q2. Alabama's usury laws regulate:
Explanation
Alabama usury laws set limits on the maximum interest rates that lenders may charge on loans. Charging interest above the legal maximum is illegal and can result in penalties for the lender.
Q3. Under the Alabama Mortgage Brokers Act, individuals who broker mortgage loans must:
Explanation
Mortgage brokers in Alabama must be licensed by the Alabama State Banking Department under the Alabama Mortgage Brokers Act. A real estate license alone does not authorize mortgage brokering activities.
Q4. In Alabama, a mortgage that covers more than one property is called a:
Explanation
A blanket mortgage covers two or more parcels of real property. It is commonly used by developers who purchase multiple lots and want a single mortgage covering the entire tract.
Q5. What does the Truth in Lending Act (TILA) require lenders to disclose to Alabama borrowers?
Explanation
TILA (Regulation Z) requires lenders to disclose the annual percentage rate (APR) and total cost of credit in a standardized format so borrowers can compare loan offers.
Q6. An Alabama buyer obtains an FHA loan. FHA loans are insured by:
Explanation
FHA loans are insured by the Federal Housing Administration, a division of HUD. FHA insurance protects the lender against borrower default, allowing lenders to offer lower down payment requirements.
Q7. In Alabama, which type of loan has an interest rate that changes periodically based on a market index?
Explanation
An adjustable-rate mortgage (ARM) has an interest rate that adjusts periodically based on a market index. The rate can go up or down, which changes the monthly payment.
Q8. A buyer in Alabama assumes the seller's existing mortgage. This means the buyer:
Explanation
When a buyer assumes a mortgage, they take personal responsibility for repaying the loan. The buyer steps into the seller's shoes and becomes personally liable for the debt.
Q9. RESPA (Real Estate Settlement Procedures Act) applies to Alabama transactions involving:
Explanation
RESPA applies to federally related mortgage loans — which includes most residential mortgage loans in Alabama. It requires disclosure of settlement costs and prohibits kickbacks and referral fees.
Q10. Which document in an Alabama mortgage transaction is the borrower's personal promise to repay the debt?
Explanation
The promissory note is the borrower's personal promise to repay the debt. The mortgage is the security instrument that pledges the property as collateral. Both documents are typically executed at closing.
Q11. A conventional loan in Alabama is one that is:
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