What is the exam-ready answer?
| Official syllabus topic | Basic Real Estate Financing Concepts |
|---|---|
| Official PSI area | Financing |
| Published area weight | 10% of the 100-question national portion |
| Exam portion | National salesperson portion |
| Source edition | PSI Georgia Candidate Information Bulletin dated July 1, 2026 |
The Rule
PSI publishes the weight for the complete content area, not a fixed question count for this lesson. Learn the rule well enough to apply it when PSI changes names, numbers, or parties in a new scenario.
The lesson
These ideas work together. On the exam, the wrong answers usually describe a nearby concept, so learn where each one stops.
Principal and interest
Principal is the amount borrowed or unpaid balance. Interest is the charge for using funds. The note states the rate, payment method, and maturity.
Equity and LTV
Owner equity is market value minus liens. LTV compares the loan to the lender's accepted value base and helps measure collateral risk.
Payments and reserves
PITI refers to principal, interest, taxes, and insurance. A lender may collect escrow installments for taxes and insurance in addition to principal and interest.
Mortgage markets
Primary-market lenders originate loans to borrowers. Secondary-market participants buy and sell existing mortgage loans or interests in them, supporting liquidity.
Decision rule
Georgia-specific distinction
Worked example
Scenario. A home is valued at $400,000 and secures a $320,000 loan.
Reason it through. LTV is $320,000 divided by $400,000. Equity before other liens is value minus debt.
Answer. LTV is 80%, and the owner's equity is $80,000.
Common exam traps
- Dividing value by loan for LTV
- Calling equity cash in a bank account
- Treating PITI as principal and interest only
- Assuming leverage removes risk
Original practice questions with detailed explanations
These questions were written for instruction and mapped to the current outline. They are not copied from PSI or any live examination. Choose an answer before opening the explanation.
Question 1A home appraises at $250,000 and sells for $240,000. The lender bases LTV on the lower of price or appraised value. The buyer borrows $216,000. What is the LTV?
- A. 10%
- B. 86.4%
- C. 90%
- D. 111.1%
Show answer and explanation →
Answer: C. 90%
LTV is the loan divided by the value base, and here the base is the lower $240,000 price: $216,000 divided by $240,000 is 90%. Using the $250,000 appraisal gives 86.4%, the most common error when the stem sets a lower-of rule.
Question 2A home is worth $350,000. The owner owes $210,000 on the first security deed and $40,000 on a home equity line of credit. What is the owner's equity?
- A. $100,000
- B. $140,000
- C. $250,000
- D. $310,000
Show answer and explanation →
Answer: A. $100,000
Equity is market value minus all liens: $350,000 minus $250,000 in total debt leaves $100,000. The $140,000 answer forgets the home equity line, which is the trap when a property carries more than one lien.
Question 3A lender makes a loan to a Georgia homebuyer and then sells the loan to Fannie Mae. Where did the sale to Fannie Mae take place?
- A. Primary mortgage market
- B. Secondary mortgage market
- C. Federal Reserve discount window
- D. Capital reserve market
Show answer and explanation →
Answer: B. Secondary mortgage market
The primary market is where loans are made to borrowers, and the secondary market is where existing loans are bought and sold. The primary market is the wrong answer because the loan started there, but the sale of an existing loan is secondary-market activity.
Ready to move on?
You are ready for the next lesson when all of these are true.
- Explain Basic Real Estate Financing Concepts in one clear answer without notes.
- Separate Principal and interest from Equity and LTV using a fresh example.
- Apply the decision rule to a new fact pattern and name the fact that controls the result.
- State the Georgia-specific point or explain why the national rule applies unchanged.
- Answer every practice question and explain the rule each rejected option misapplies.
- Revisit this topic later in mixed practice without category labels.
Recommended next lesson
Continue with Mortgage Underwriting and Loan Qualification. LTV and equity feed straight into loan approval, and the next lesson shows how underwriters weigh credit, income, debt-to-income ratio, assets and collateral, and why a preapproval stays conditional until closing.
Return to the Financing hub to see every official branch and the complete lesson sequence for this content area.