These Texas real estate finance & mortgages practice questions are designed to match the actual exam format. Each question includes a detailed explanation so you understand why the answer is correct — not just what it is.
TL;DR
The Finance and Mortgages section covers loan types, the mortgage process, TRID disclosure timing, Texas-specific lending rules (including the 80% home equity lending limit and 12-day waiting period), and real estate math related to financing. These topics appear on both the national and state portions.
What Does the Texas Real Estate Finance Section Test?
Based on the current Pearson VUE Texas Real Estate Candidate Handbook and exam content outline, Finance and Mortgages content appears on both the national and state portions of the Texas real estate licensing exam. Our complete study guide explains how to weight each section in your preparation. The national portion covers mortgage types, loan qualification, and federal lending regulations. The state portion covers Texas-specific financing rules including homestead lending restrictions — these intersect with content tested in our closing and settlement practice questions.
Finance questions require calculation skills as well as conceptual knowledge — if math is a weak area, work through our real estate math practice questions alongside this section. Candidates who understand the underlying math — how LTV is calculated, how DTI affects qualification, how amortization works — consistently outperform those who rely on memorization alone.
What Topics Are Tested?
- Mortgage types — conventional, FHA, VA, and USDA loans. Know the distinguishing features: FHA requires mortgage insurance premium (MIP) and has specific down payment requirements; VA loans are available to eligible veterans with no down payment required; conventional loans follow Fannie Mae/Freddie Mac guidelines.
- Loan-to-value ratio (LTV) — calculated as loan amount divided by appraised value or purchase price, whichever is lower. Higher LTV = more lender risk = typically higher rates or PMI requirement.
- Debt-to-income ratio (DTI) — front-end DTI compares housing costs to gross monthly income; back-end DTI compares all monthly debt payments to gross monthly income. Lenders use both to qualify borrowers.
- Amortization — the process of paying down a loan over time through regular payments. Early payments are weighted toward interest; later payments toward principal. Understand how payments are structured and be able to perform basic amortization-related calculations.
- Points and APR — one discount point equals 1% of the loan amount paid upfront to reduce the interest rate. APR (Annual Percentage Rate) reflects the cost of borrowing including interest and many loan-related fees — it is a more complete measure of cost than the interest rate alone.
- Texas homestead lending restrictions — Texas has constitutional protections that restrict home equity lending — the same homestead that limits equity borrowing also governs conveyance rules tested in our property ownership practice questions. A homeowner may not borrow more than 80% of the home's fair market value through a home equity loan. There is also a mandatory 12-day waiting period after the loan application and required disclosures are provided before closing a home equity loan.
- RESPA and TRID — the Real Estate Settlement Procedures Act governs disclosure of settlement costs. TRID (TILA-RESPA Integrated Disclosure) requires the Loan Estimate within three business days of application (any day the lender is open for business) and the Closing Disclosure three business days before closing (all calendar days except Sundays and federal holidays).
- Truth in Lending Act (TILA) — requires disclosure of APR, finance charges, and total payments. Borrowers have a right of rescission (three business days to cancel) on refinances of primary residences (not purchases, second homes, or investment properties).
What Are the Common Exam Traps in This Section?
- LTV calculation using lower of appraised value or purchase price — if a property appraises below the purchase price, lenders use the appraised value, not the contract price, to calculate LTV. This affects the loan amount and PMI requirements.
- Texas 80% home equity rule — all liens on a Texas homestead combined cannot exceed 80% of the property's fair market value. This includes the first mortgage plus any home equity loan.
- Business days vs calendar days — TRID uses two definitions of "business day." For the Loan Estimate, it is any day the lender is open for business. For the Closing Disclosure, it is all calendar days except Sundays and federal holidays (Saturday counts).
- Points vs APR — paying points reduces the interest rate but increases upfront costs. APR reflects the total cost including points. A lower interest rate does not always mean a lower APR.
- FHA MIP vs PMI — FHA loans require mortgage insurance premium (MIP) regardless of down payment, and it generally cannot be cancelled for most FHA loans, depending on the down payment amount and loan term. Conventional PMI is required only when LTV exceeds 80% and can typically be requested for cancellation at 80% LTV (20% equity) and must be automatically terminated at 78% LTV.
- Right of rescission — applies to refinances of primary residences (not purchases, second homes, or investment properties). Borrowers have three business days after closing to cancel. This is a common distractor question.
How Ardelia Structures These Practice Questions
Ardelia's question bank contains 300+ Finance and Mortgages practice questions covering both conceptual and calculation-based content. Each question includes:
- A full explanation of why the correct answer is right
- Step-by-step worked solutions for calculation questions
- The specific regulation, loan type, or formula being tested
- Memory tips for rules with specific numbers (80% rule, DTI thresholds, waiting periods)
The adaptive engine tracks your performance separately on calculation questions vs conceptual questions. If you are strong on loan types but weak on TRID timing rules, your sessions will shift accordingly.
Frequently Asked Questions
- How is LTV calculated and why does it matter?
- LTV (loan-to-value) is calculated by dividing the loan amount by the lower of the appraised value or the purchase price — see our real estate math practice questions for worked examples of LTV and DTI calculations. For example, a $180,000 loan on a property appraised at $200,000 gives an LTV of 90%. Higher LTV means more risk for the lender — typically requiring PMI on conventional loans or MIP on FHA loans.
- What is the Texas 80% home equity rule?
- Texas's constitution restricts home equity lending so that all liens on a homestead — including the first mortgage and any home equity loan — cannot exceed 80% of the property's fair market value. There is also a mandatory 12-day waiting period after the loan application and required disclosures are provided before the loan can close. These protections are unique to Texas and intersect with the homestead conveyance rules covered in our property ownership practice questions.
- When is the Closing Disclosure required?
- Under TRID, the borrower must receive the Closing Disclosure at least three business days before the loan closes. If changes occur that require a new Closing Disclosure (such as an APR increase of more than 0.125%), the three-business-day clock resets. Saturday counts as a business day for the Closing Disclosure (all calendar days except Sundays and federal holidays).
- What is the difference between FHA MIP and conventional PMI?
- FHA loans require mortgage insurance premium (MIP) regardless of the down payment amount, and it generally cannot be cancelled for most FHA loans depending on down payment and loan term. Conventional PMI is required only when LTV exceeds 80%, can typically be requested for cancellation at 80% LTV, and must be automatically terminated at 78% LTV. This distinction is commonly tested.
Source: Pearson VUE Texas Real Estate Salesperson Candidate Handbook · Texas Real Estate Commission (trec.texas.gov)