Texas Principles Of Real Estate II Final Exam Questions
& Detailed Answers Latest Updated 2026
(GUARANTEED PASS)
Question
The Texas Bootstrap Loan Program is a self-help housing construction program
for very low-income families.
A. True
B. False - VERIFIED ANSWER- A. True
Rationale: The Texas Bootstrap Loan Program helps very low-income rural
families build their own homes through "sweat equity" and provides loans for
materials. Participants contribute labor to construct their homes, reducing
overall costs.
Question
The Federal Reserve Bank:
A. Was created to provide the nation with a more stable monetary and financial
system
B. Makes loans directly to consumers
C. Insures mortgages
D. Regulates real estate licensees - VERIFIED ANSWER- A. Was created to
provide the nation with a more stable monetary and financial system
Rationale: The Federal Reserve System was established in 1913 to provide the
nation with a safer, more flexible, and more stable monetary and financial
system. It conducts monetary policy, regulates banks, and provides financial
services.
Question
The use of a property that will give it its greatest current value is its:
,A. Highest and best use
B. Market value
C. Assessed value
D. Investment value - VERIFIED ANSWER- A. Highest and best use
Rationale: Highest and best use is the reasonably probable and legal use of
vacant land or improved property that is physically possible, appropriately
supported, financially feasible, and results in the highest value. It is a
fundamental concept in appraisal.
Question
A small corner grocery store existed before the land was zoned residential by
a new zoning ordinance. The grocery store is an example of:
A. A nonconforming use
B. A variance
C. A conditional use
D. An illegal use - VERIFIED ANSWER- A. A nonconforming use
Rationale: A nonconforming use is a land use that was lawful before the
adoption of a zoning ordinance but does not conform to current zoning
regulations. It is generally allowed to continue but may have restrictions on
expansion, reconstruction, or change of use.
Question
Laws that limit the amount of interest that can be charged to borrowers are
called:
A. Usury laws
B. Consumer protection laws
C. Truth in lending laws
D. Interest rate caps - VERIFIED ANSWER- A. Usury laws
Rationale: Usury laws establish maximum interest rates that lenders can
charge borrowers to prevent predatory lending practices. In Texas, the usury
,limit is generally 10% for most loans, with exceptions for certain types of
lending.
Question
A borrower's property serves as collateral while the borrower retains the
rights of possession and use of it by the process of:
A. Hypothecation
B. Pledge
C. Assignment
D. Subordination - VERIFIED ANSWER- A. Hypothecation
Rationale: Hypothecation is the process of pledging property as collateral for
a loan without giving up possession of the property. The borrower retains use
and enjoyment while the lender has a security interest.
Question
Which of the following estimates of value is most likely to provide only a rough
estimate of the value of the rental property?
A. Gross rent multiplier
B. Income capitalization
C. Cost approach
D. Sales comparison approach - VERIFIED ANSWER- A. Gross rent multiplier
Rationale: The gross rent multiplier (GRM) provides a quick, rough estimate of
value by multiplying gross monthly income by a factor. It does not account for
operating expenses, vacancies, or other factors that affect net income, making
it less precise than the income capitalization approach.
Question
An estate for years will always have an:
A. Expiration date
B. Renewal option
C. Month-to-month tenancy
D. Automatic renewal - VERIFIED ANSWER- A. Expiration date
, Rationale: An estate for years is a leasehold estate with a definite beginning
and ending date. It terminates automatically on the expiration date without
requiring notice from either party.
Question
The use of property could be changed without changing the zoning by using a:
A. Variance
B. Nonconforming use permit
C. Conditional use permit
D. Zoning amendment - VERIFIED ANSWER- A. Variance
Rationale: A variance grants permission to deviate from specific zoning
requirements (such as setbacks, height restrictions, or lot coverage) without
changing the underlying zoning classification. It is typically granted when strict
application would cause undue hardship.
Question
Which of the following are public restrictions on the use of real property?
A. Zoning laws
B. Condominium bylaws
C. Restrictive covenants
D. Deed restrictions - VERIFIED ANSWER- A. Zoning laws
Rationale: Zoning laws are public (government) restrictions on land use, while
condominium bylaws, restrictive covenants, and deed restrictions are private
(contractual) restrictions created by developers or property owners.
Question
A blanket mortgage is:
A. A mortgage that covers more than one property
B. A mortgage that covers only one property
C. A second mortgage
D. A home equity loan - VERIFIED ANSWER- A. A mortgage that covers more
than one property
& Detailed Answers Latest Updated 2026
(GUARANTEED PASS)
Question
The Texas Bootstrap Loan Program is a self-help housing construction program
for very low-income families.
A. True
B. False - VERIFIED ANSWER- A. True
Rationale: The Texas Bootstrap Loan Program helps very low-income rural
families build their own homes through "sweat equity" and provides loans for
materials. Participants contribute labor to construct their homes, reducing
overall costs.
Question
The Federal Reserve Bank:
A. Was created to provide the nation with a more stable monetary and financial
system
B. Makes loans directly to consumers
C. Insures mortgages
D. Regulates real estate licensees - VERIFIED ANSWER- A. Was created to
provide the nation with a more stable monetary and financial system
Rationale: The Federal Reserve System was established in 1913 to provide the
nation with a safer, more flexible, and more stable monetary and financial
system. It conducts monetary policy, regulates banks, and provides financial
services.
Question
The use of a property that will give it its greatest current value is its:
,A. Highest and best use
B. Market value
C. Assessed value
D. Investment value - VERIFIED ANSWER- A. Highest and best use
Rationale: Highest and best use is the reasonably probable and legal use of
vacant land or improved property that is physically possible, appropriately
supported, financially feasible, and results in the highest value. It is a
fundamental concept in appraisal.
Question
A small corner grocery store existed before the land was zoned residential by
a new zoning ordinance. The grocery store is an example of:
A. A nonconforming use
B. A variance
C. A conditional use
D. An illegal use - VERIFIED ANSWER- A. A nonconforming use
Rationale: A nonconforming use is a land use that was lawful before the
adoption of a zoning ordinance but does not conform to current zoning
regulations. It is generally allowed to continue but may have restrictions on
expansion, reconstruction, or change of use.
Question
Laws that limit the amount of interest that can be charged to borrowers are
called:
A. Usury laws
B. Consumer protection laws
C. Truth in lending laws
D. Interest rate caps - VERIFIED ANSWER- A. Usury laws
Rationale: Usury laws establish maximum interest rates that lenders can
charge borrowers to prevent predatory lending practices. In Texas, the usury
,limit is generally 10% for most loans, with exceptions for certain types of
lending.
Question
A borrower's property serves as collateral while the borrower retains the
rights of possession and use of it by the process of:
A. Hypothecation
B. Pledge
C. Assignment
D. Subordination - VERIFIED ANSWER- A. Hypothecation
Rationale: Hypothecation is the process of pledging property as collateral for
a loan without giving up possession of the property. The borrower retains use
and enjoyment while the lender has a security interest.
Question
Which of the following estimates of value is most likely to provide only a rough
estimate of the value of the rental property?
A. Gross rent multiplier
B. Income capitalization
C. Cost approach
D. Sales comparison approach - VERIFIED ANSWER- A. Gross rent multiplier
Rationale: The gross rent multiplier (GRM) provides a quick, rough estimate of
value by multiplying gross monthly income by a factor. It does not account for
operating expenses, vacancies, or other factors that affect net income, making
it less precise than the income capitalization approach.
Question
An estate for years will always have an:
A. Expiration date
B. Renewal option
C. Month-to-month tenancy
D. Automatic renewal - VERIFIED ANSWER- A. Expiration date
, Rationale: An estate for years is a leasehold estate with a definite beginning
and ending date. It terminates automatically on the expiration date without
requiring notice from either party.
Question
The use of property could be changed without changing the zoning by using a:
A. Variance
B. Nonconforming use permit
C. Conditional use permit
D. Zoning amendment - VERIFIED ANSWER- A. Variance
Rationale: A variance grants permission to deviate from specific zoning
requirements (such as setbacks, height restrictions, or lot coverage) without
changing the underlying zoning classification. It is typically granted when strict
application would cause undue hardship.
Question
Which of the following are public restrictions on the use of real property?
A. Zoning laws
B. Condominium bylaws
C. Restrictive covenants
D. Deed restrictions - VERIFIED ANSWER- A. Zoning laws
Rationale: Zoning laws are public (government) restrictions on land use, while
condominium bylaws, restrictive covenants, and deed restrictions are private
(contractual) restrictions created by developers or property owners.
Question
A blanket mortgage is:
A. A mortgage that covers more than one property
B. A mortgage that covers only one property
C. A second mortgage
D. A home equity loan - VERIFIED ANSWER- A. A mortgage that covers more
than one property
