Arkansas Finance
Practice Questions & Answers (2026)
Finance questions on the Arkansas real estate exam cover mortgage types, loan-to-value ratios, qualifying ratios, and federal lending laws. The Arkansas 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. Arkansas 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 AR 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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Arkansas Finance — Practice Questions & Answers
150 questions on Finance from the Arkansas real estate question bank. First 10 are free — sign up to unlock all 150.
Q1. Arkansas is a 'lien theory' state. This means that when a borrower takes out a mortgage:
Explanation
In a lien theory state like Arkansas, the borrower retains legal title to the property. The lender does not hold title — instead, the mortgage creates a lien (security interest) on the property until the loan is paid off.
Q2. Arkansas uses which security instruments to secure a real estate loan?
Explanation
Arkansas uses both mortgages and deeds of trust as security instruments for real estate loans. Deeds of trust involve three parties: borrower (trustor), lender (beneficiary), and a neutral trustee.
Q3. The loan-to-value (LTV) ratio is calculated as:
Explanation
LTV = Loan Amount ÷ Appraised Value (or purchase price, whichever is lower). A higher LTV means less equity and more risk for the lender, often requiring private mortgage insurance (PMI).
Q4. Which type of loan is backed by the full faith and credit of the U.S. government and is designed to help veterans purchase homes?
Explanation
VA loans are guaranteed by the U.S. Department of Veterans Affairs and are available to eligible veterans, active-duty service members, and surviving spouses. They typically require no down payment and no PMI.
Q5. A buyer obtains an FHA loan. The minimum down payment required is approximately:
Explanation
FHA loans require a minimum down payment of 3.5% for borrowers with a credit score of 580 or higher. This makes FHA loans accessible to buyers who cannot afford larger down payments.
Q6. In an adjustable-rate mortgage (ARM), the interest rate adjustment is tied to a financial:
Explanation
ARM interest rates are calculated by adding the lender's margin to a financial index (such as SOFR or the 1-year Treasury). The sum becomes the new interest rate when the loan adjusts.
Q7. What is the purpose of the Truth-in-Lending Act (TILA)?
Explanation
TILA requires lenders to clearly disclose credit terms — including the APR, finance charges, and total payments — so consumers can make informed borrowing decisions and compare loan offers.
Q8. A mortgage that requires only interest payments for an initial period, after which the full principal becomes due, is known as a:
Explanation
A balloon mortgage has regular payments (often interest-only or partially amortized) followed by a large lump-sum 'balloon' payment of the remaining principal at the end of the loan term.
Q9. Under RESPA (Real Estate Settlement Procedures Act), which of the following is prohibited?
Explanation
RESPA prohibits kickbacks and fee-splitting between settlement service providers (e.g., lenders, title companies, real estate agents) because such practices inflate closing costs for consumers.
Q10. A buyer's front-end (housing) debt-to-income ratio is calculated by dividing:
Explanation
The front-end DTI ratio = Monthly Housing Costs (Principal, Interest, Taxes, Insurance — PITI) ÷ Gross Monthly Income. Lenders use this to assess affordability.
Q11. Arkansas is classified as a 'lien theory' state. This means that when a borrower takes out a mortgage:
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