California Finance
Practice Questions & Answers (2026)

Explanation

California primarily uses deeds of trust (3 parties: trustor/borrower, beneficiary/lender, trustee) rather than mortgages (2 parties). The trustee holds legal title until the loan is repaid.

Explanation

LTV (Loan-to-Value) is the ratio of the loan amount to the appraised value of the property. An 80% LTV means the buyer is borrowing 80% and putting 20% down.

Explanation

PMI (Private Mortgage Insurance) protects the lender if the borrower defaults. It's typically required when the down payment is less than 20% (LTV above 80%).

Explanation

An ARM has an interest rate that adjusts periodically (e.g., annually) based on a market index like LIBOR or SOFR, plus a margin. This means monthly payments can go up or down.

Explanation

Amortization is the process of paying off a loan through regular scheduled payments. Early payments are mostly interest; later payments apply more to principal.

Explanation

RESPA requires lenders to provide borrowers with disclosures about settlement costs and prohibits kickbacks, referral fees, and unearned fees between settlement service providers.

Explanation

A balloon payment mortgage has regular monthly payments but requires a large lump-sum payment at the end of the term. The loan is not fully amortized — there's a large balance due at maturity.

Explanation

FHA loans are made by private lenders but insured by the Federal Housing Administration. They allow down payments as low as 3.5% and are accessible to borrowers with lower credit scores.

Explanation

VA loans are guaranteed by the Department of Veterans Affairs and available to eligible veterans, active-duty service members, and surviving spouses. They typically require no down payment and no PMI.

Explanation

Mortgage points (discount points) are prepaid interest paid upfront to lower the interest rate. One point = 1% of the loan amount. Paying points makes sense if you plan to keep the loan long-term.