MORTGAGE KNOWLEDGE TEST
EACH CORRECT ANSWER IS WORTH 2 POINTS
PARTIAL CORRECT ANSWERS MAY BE GIVEN A PARTIAL SCORE
1.
What are standard (non-AUS) qualifying ratios on a Conventional loan?
28/36
2.
How many years employment history is required on a loan application?
Two years
3. What are the key items that should be checked on a borrower’s paystub?
Rate of Pay - # of days in the pay period – Date of paystub
Year-to-date pay corresponds to the periodical payment
Name of Borrower – Name of Employer
Computer Generated Paystub
4. How do you arrive at a borrower’s monthly income?
- if paid monthly: Gross wage income
- if paid hourly: Hourly wage times # hours worked times 52/12
- if paid bi-weekly: Gross wage income times 26/12
- if paid semi-monthly: Gross wage income times 24/12
5. Under what conditions can a borrower obtain a loan for closing costs or down
payment?
As long as the debt is included in the debt ratio
and the program allows for borrowed funds
6. When is mortgage insurance required on a Conventional loan?
When the 1st mortgage LTV is above 80%
7. What is the minimum down payment required on a Conventional loan?
3%
8. If a borrower is putting 20% down payment down on a Conventional loan and part
of the 20% is a gift, how much of the down payment is the borrower required to
provide of their own funds?
5%
1
9. What does PITI mean?
Principal – Interest – Taxes - Insurance
10. What is the minimum monthly payment used on revolving debt where no payment
is shown?
5%
11. When is an installment loan not required to be counted as debt when calculating
the debt ratio?
<10 payments remain
12. If a loan is to begin repayment within the next 12 months, should this be counted as
a debt when calculating the debt ratio?
Yes
13. If a borrower has co-signed for a loan, what documentation must be obtained in
order to not count the debt against the borrower when calculating the debt ratio?
A showing that the debt statement goes to the non-borrower at the non-borrower’s address,
the debt is current and a minimum of three to twelve months cancelled checks/auto debt
from the non-borrower
14. If a borrower has no credit reported, what documentation can be obtained to prove
creditworthiness?
Phone bill – Cable bill – Utility bill – Verification of Rent
Retail Installment Credit not reported to a credit reporting agency
15. Who can provide gift funds to a borrower?
An immediate family member (Parent – Grandparent – Aunt/Uncle – Brother/Sister)
16. What does LTV mean?
Loan To Value
17. How is LTV calculated?
1st Mortgage Balance divided into Appraised Value or Purchase Price
18. What does CLTV mean?
Combined Loan To Value
19. How is CLTV calculated?
1st and 2nd Mortgage Balances divided into Appraised Value or Purchase Price
20. Can a borrower obtain a signature loan for the down payment? If yes, what
documentation is required?
2
No
21. What does APR mean?
Annual Percentage Rate
22. Please explain APR:
APR is an expression of the cost of credit over the term of the loan and
includes prepaid finance charges, prepaid interest and interest charges
23. How long must income received from alimony, child support, dependent social
security or a note continue to be considered qualifying income?
3 years
24. When can bonus and/or overtime income be used for qualifying income?
When received consistently for 2 years and has an expectation to continue
25. If an income source cannot be used for whatever reason when calculating the debt
ratio, what type of factor is this called?
Compensating
26. When considering an EMD to be included in the calculation for funds needed to
close, what documentation is required?
A copy of the check and source of funds:
Bank Statement showing funds cleared
27. If the borrower receives an auto allowance, can this be used as qualifying income?
No
28. What documents are required to calculate qualifying income for a commissioned
borrower?
Last two years personal tax returns
Current paystub showing Year-to-date
29. How are “Un-reimbursed Employee Business Expenses” considered in qualifying
income; and for what type of borrower would these expenses be considered?
Shown on the borrower’s tax returns (2106) – all types
30. For traditional underwriting, what documentation would be required for a
salaried/hourly borrower to calculate qualifying income?
Most current month paystubs and past 2 years W2s
and a verbal verification of employment
31. How is the DTI calculated?
3
Monthly debt payments divided into verifiable Monthly income
32. What is the maximum DTI allowed?
Per Program Guidelines
33. Who can order an appraisal for a mortgage loan?
The lender’s support staff
34. How long must a borrower be self-employed for the income to be allowed for
qualifying income?
2 years with no declining income
35. How long must a borrower be receiving commission income for it to be allowed for
qualifying?
2 years
36. How would a commissioned borrower’s income be calculated?
Averaged over the last 24 months
While making sure that it is not recently declining
37. When are the rear photos of comparable properties to be included in an appraisal?
Never
38. What additional documents are required in an appraisal when the loan is for an
investment property?
Rent Schedule and Operating Income Statement
39. What are the acceptable total ratios for net and gross appraisal adjustments?
15% Net – 25% Gross
40. If the borrower orders the appraisal themselves, what must the appraiser do to
make the appraisal acceptable to the lender?
Nothing – it is not allowed
41. When is the ECOA information not required to be furnished by the lender if the
borrower does not provide it?
When the lender/loan officer doesn’t have a face-to-face meeting with the Borrower
42. What is the limitation to the amount of interested party contributions on a
purchase transaction?
4
9% of the lesser of the property's sales price or appraised value, if the loan-to-ratio (or, if
applicable CLTV) for a mortgage secured by a principal residence or second home is less
than 75%.
6% of the lesser of the property's sales price or appraised value, if the loan-to-ratio (or, if
applicable CLTV) for a mortgage secured by a principal residence or second home is in the
range from 76% through 90%;
3% of the lesser of the property's sales price or appraised value, if the loan-to-ratio (or, if
applicable CLTV) for a mortgage secured by a principal residence or second home is over
90% and
2% of the lesser of the property's sales price or appraised value, regardless of the loan-tovalue ratio (or, if applicable CLTV), for a mortgage secured by an investment property.
43. Who would be considered to be an “interested party” in a purchase transaction?
Seller and/or Realtor and/or Lender
44. At what point in the application process, can a borrower receive a copy of the credit
report from the lender?
Never
45. Name some of the strongest factors relied upon to receive an approval from an
Automated Underwriting System (AUS)?
Credit Score – Assets – Income – Limited Debt – LTV – Employment Stability
46. Name the AUS acronym for Fannie Mae and Freddie Mac and which belongs to
whom:
Fannie Mae = DU – Freddie Mac = LP
47. How many days from the date of application must required disclosures be delivered
to the borrower?
Within 3 days
48. What triggers the re-sending of required disclosures?
A change in loan program, loan amount, subject property, interest-rate
49. What does SRP stand for?
Servicing Release Premium
50. What is the term used when pricing is above a par rate?
Yield Spread Premium
5
___________Score
_____________
Date
6
______________________________
Print your name