Kentucky Practice Test → Finance

Kentucky Finance
Practice Questions & Answers (2026)

Finance questions on the Kentucky real estate exam cover mortgage types, loan-to-value ratios, qualifying ratios, and federal lending laws. The Kentucky Real Estate Commission (KREC) 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. Kentucky 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 KY 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.

Full Practice Exam →Take Interactive Quiz

Kentucky Exam Study Resources

Everything you need to pass — in one place.

Practice TestMock ExamFlashcardsStudy ScheduleKentucky BlogFull Access

Practice by Topic

Kentucky License Law →Agency →Contracts →Finance →Property Ownership →Property Valuation →+6 more topics
Practice Questions

Kentucky Finance — Practice Questions & Answers

145 questions on Finance from the Kentucky real estate question bank. First 10 are free — sign up to unlock all 145.

Q1. Private mortgage insurance (PMI) is typically required when:

A.The buyer makes a down payment of 20% or more
B.The down payment is less than 20% on a conventional loan
C.The buyer uses an FHA loan
D.The property is a second home

Explanation

PMI is typically required on conventional loans when the buyer's down payment is less than 20%, protecting the lender against default.

Q2. What federal law requires lenders to provide a Loan Estimate within three business days of receiving a mortgage application?

A.RESPA
B.Truth in Lending Act
C.TRID (TILA-RESPA Integrated Disclosure Rule)
D.Equal Credit Opportunity Act

Explanation

The TRID rule (TILA-RESPA Integrated Disclosure) requires lenders to provide a Loan Estimate within three business days of receiving a completed mortgage application.

Q3. A discount point paid on a mortgage loan is equal to:

A.1% of the sales price
B.1% of the loan amount
C.0.5% of the loan amount
D.$1,000 regardless of loan size

Explanation

One discount point equals 1% of the loan amount. Points are prepaid interest that reduces the mortgage interest rate.

Q4. Which type of mortgage loan is insured by the Federal Housing Administration?

A.VA loan
B.USDA loan
C.FHA loan
D.Conventional loan

Explanation

FHA loans are insured by the Federal Housing Administration, allowing buyers to obtain financing with lower down payments and less stringent credit requirements.

Q5. An amortized mortgage loan means that each payment:

A.Covers only interest with a balloon at the end
B.Is applied to both principal and interest
C.Remains constant in principal amounts
D.Increases annually to match inflation

Explanation

An amortized loan has payments that cover both principal and interest. Early payments are mostly interest; over time, more of each payment goes toward principal.

Q6. The annual percentage rate (APR) on a mortgage loan is:

A.Always equal to the stated interest rate
B.The true cost of the loan including fees and points expressed as a yearly rate
C.The rate charged only during the first year
D.Set by the Federal Reserve

Explanation

APR reflects the true annual cost of borrowing, including the interest rate plus fees, points, and other costs. It is always equal to or higher than the stated rate.

Q7. A VA loan is guaranteed by which agency?

A.Federal Housing Administration
B.U.S. Department of Veterans Affairs
C.U.S. Department of Agriculture
D.Federal Deposit Insurance Corporation

Explanation

VA loans are guaranteed by the U.S. Department of Veterans Affairs, enabling eligible veterans and service members to obtain home financing with no down payment requirement.

Q8. An adjustable-rate mortgage (ARM) is characterized by:

A.A fixed interest rate for the life of the loan
B.An interest rate that adjusts periodically based on a market index
C.A balloon payment at the end of 5 years
D.No interest charges in the first year

Explanation

An ARM has an interest rate that changes periodically based on a market index (such as SOFR), causing monthly payments to rise or fall accordingly.

Q9. Which of the following best describes a 'balloon mortgage'?

A.A loan with increasing monthly payments
B.A loan with smaller regular payments and a large lump sum due at the end
C.A loan with no down payment
D.A loan with a fixed rate and 30-year term

Explanation

A balloon mortgage has relatively small periodic payments with a large lump-sum (balloon) payment due at the end of the loan term, often 5–7 years.

Q10. Under RESPA, which of the following is prohibited?

A.Requiring title insurance
B.Kickbacks for referrals of settlement services
C.Charging origination fees
D.Requiring escrow for taxes and insurance

Explanation

RESPA (Real Estate Settlement Procedures Act) prohibits kickbacks and unearned fees for referrals of settlement services such as title insurance, appraisals, or mortgage services.

Q11. The debt-to-income (DTI) ratio used by lenders is calculated as:

A.Total assets divided by total liabilities
B.Monthly debt payments divided by gross monthly income
🔒

135 more Finance questions

Create a free account to unlock all 145 Kentucky Finance questions with full explanations.

Sign Up Free — Unlock All QuestionsLog In

Free account · No credit card · Instant access to 25 questions

Other Kentucky Exam Topics

Kentucky License LawAgencyContractsProperty OwnershipProperty ValuationFair HousingEscrow & TitleReal Estate MathEnvironmentalLand Use & ZoningProperty Management
← Back to Kentucky Full Practice Test

Ready to take the full exam? Start free.

25 free questions · No signup · Instant access to all Kentucky topics

Free Kentucky Practice Exam →Full Access — 1,500+ Questions