Tennessee Finance
Practice Questions & Answers (2026)
Finance questions on the Tennessee real estate exam cover mortgage types, loan-to-value ratios, qualifying ratios, and federal lending laws. The Tennessee Real Estate Commission (TREC) 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. Tennessee 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 TN 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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Tennessee Finance — Practice Questions & Answers
134 questions on Finance from the Tennessee real estate question bank. First 10 are free — sign up to unlock all 134.
Q1. The Federal Reserve's primary tool for influencing mortgage interest rates is:
Explanation
The Federal Reserve influences interest rates primarily by adjusting the federal funds rate—the rate at which banks lend to each other overnight. Changes in this rate affect mortgage rates throughout the economy.
Q2. Private Mortgage Insurance (PMI) is typically required when:
Explanation
PMI protects the lender if the borrower defaults. It is typically required on conventional loans when the LTV exceeds 80% (down payment is less than 20%). PMI can be cancelled once equity reaches 20%.
Q3. A discount point paid at loan origination is equal to:
Explanation
One discount point equals 1% of the loan amount. Borrowers pay points at closing to reduce (buy down) the interest rate on their mortgage. Each point typically reduces the rate by approximately 0.25%.
Q4. A mortgage assumption allows a buyer to:
Explanation
Mortgage assumption allows a buyer to take over the seller's existing loan, including the original interest rate and remaining balance. FHA and VA loans are typically assumable; most conventional loans include a due-on-sale clause that prevents assumption.
Q5. The Real Estate Settlement Procedures Act (RESPA) prohibits:
Explanation
RESPA prohibits kickbacks and referral fees between settlement service providers (lenders, title companies, attorneys, etc.) that are not for services actually performed. It protects consumers from inflated settlement costs.
Q6. In Tennessee, the most common instrument used to secure a real estate loan is a:
Explanation
Tennessee is a deed-of-trust state. A deed of trust involves three parties: the borrower (trustor), the lender (beneficiary), and a neutral third-party trustee. Foreclosure is non-judicial (by trustee's sale), making it faster than judicial mortgage foreclosure.
Q7. Under a Tennessee deed of trust, if the borrower defaults, the lender may foreclose through:
Explanation
Tennessee's deed of trust contains a power-of-sale clause allowing the trustee to sell the property without court involvement upon default. This non-judicial process is faster than judicial foreclosure.
Q8. Tennessee law provides homeowners with a right of redemption after a residential foreclosure for a period of:
Explanation
Tennessee provides a 2-year statutory right of redemption for residential properties after a foreclosure sale. This allows the borrower to reclaim the property by paying the foreclosure sale price plus interest and costs.
Q9. A VA loan guaranty benefit allows eligible veterans to:
Explanation
Eligible veterans can use the VA loan guaranty to purchase a primary residence with no down payment and without private mortgage insurance (PMI). The VA guarantees a portion of the loan, reducing lender risk.
Q10. An adjustable-rate mortgage (ARM) includes a 'cap' provision that:
Explanation
ARM caps limit interest rate increases — periodic caps limit adjustments per period (e.g., 2% per year), and lifetime caps limit total increases over the loan term (e.g., 5% above the initial rate). This protects borrowers from unlimited payment increases.
Q11. A 'due-on-sale' clause in a mortgage or deed of trust requires that:
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