NMLO General Mortgage Knowledge Test Questions
A veteran needs two documents to show eligibility to obtain a VA-guaranteed loan. One is a Certificate of Eligibility and the other is a a) URAR-1003. b) Certificate of Occupancy. c) birth certificate. d) DD-214.
A Certificate of Eligibility (COE) is issued by the VA to those who qualify for VA loans and is required by a lender to establish the amount and status of the veteran's eligibility under the VA loan guarantee program. Additionally, a DD214, NG 22/23, or Statement of Service showing the veteran's status must be obtained.
An amortized loan that has a final payment due earlier than the amortization term necessary to pay off the entire remaining balance is an example of a a) construction perm loan. b) balloon loan. c) construction loan. d) reverse mortgage.
A balloon loan is a loan that is amortized over a set number of years (usually 30), but the balance may be due in 15 years. You may recognize the term as 360/180 or 360/120. 360 months = 30 years, 180 months = 15 years, and 120 months = 10 years. For example, a 360/180 loan denotes a 30-year payment (360 months) but a term of 15 years (180) months. With a 30-year payment on a 15-year loan, a balloon would occur. This is also an example of partial amortization.
A conforming loan a) is offered to borrowers who do not meet qualifications for Fannie Mae/Freddie Mac. b) exceeds the maximum loan amount established by Fannie Mae/Freddie Mac. c) is for more than $453,100 on a single family home and also called a jumbo loan. d) follows the secondary market criteria set by Fannie Mae/Freddie Mac.
A conforming loan is a loan that meets the qualifying standards of the Federal National Mortgage Association (Fannie Mae) or Federal Home Loan Mortgage Corporation (Freddie Mac), and thus can be sold on the secondary market.
Conforming loans follow the underwriting guidelines of a) Freddie Mac and Ginnie Mae. b) FHA. c) Ginnie Mae and HUD. d) Fannie Mae and Freddie Mac.
A conforming loan is a loan that meets the qualifying standards of the Federal National Mortgage Association (Fannie Mae) or Federal Home Loan Mortgage Corporation (Freddie Mac), and thus can be sold on the secondary market.
A buyer makes installment payments to the seller in exchange for the right to occupy the property; no deed transfers until all payments have been made or a specified point in the payment agreement. This scenario describes how a _____ works. a) land contract b) purchase money mortgage c) seller assumption d) seller mortgage assistance program
A contract between a vendor (seller) and vendee (buyer) where payments are made by the buyer to the seller in exchange for the right to occupy and enjoy a property is known as a land contract.
What type of mortgage loan is made by an institutional lender or a private party with real estate as security for the loan that the government neither guarantees nor insures? a) conventional b) conforming c) traditional d) qualified
A conventional mortgage loan is usually made by a bank or institutional lender and is not insured or guaranteed by a government entity or agency, such as FHA or VA. Conventional loans may be conforming loans or nonconforming loans; however, most conventional loans conform to guidelines set by government-sponsored entities (GSEs), such as Freddie Mac and Fannie Mae, so that they may be sold in the secondary market. When a loan meets the criteria necessary to be sold in the secondary market, it is considered a conforming loan.
A disadvantage of a 15-year fixed-rate loan versus a 30-year fixed-rate loan is a) the down payment required is usually lower. b) monthly payments are usually higher. c) total payments made over the life of the loan are lower. d) greater tax deductions for overall interest paid.
A disadvantage to a 15-year loan is that monthly payments are usually higher.
Jeremy is interested in buying a house, but he's nervous about interest rates going up. Which would be the safest mortgage loan type for him to consider? a) adjustable-rate mortgage b) fixed-rate mortgage c) graduated payment mortgage d) interest-only mortgage
A fixed-rate loan, assuming that Jeremy is comfortable with the rate quoted, has an interest rate that will remain constant through the life of the loan.
A borrower pays the seller for the right to occupy the property, but the seller retains title until the borrower pays a specified number of payments. This describes a a) convertible loan. b) reverse mortgage. c) participation plan. d) land contract.
A land contract is a real estate installment agreement where the buyer (vendee) makes payments to the seller (vendor) in exchange for the right to occupy, use, and enjoy the land, but no deed or title transfers until all, or a specified portion of, payments have been made.
To determine the fully indexed rate of an ARM, the margin is added to the a) note rate. b) prime rate. c) periodic cap. d) index.
A margin, which is also sometimes referred to as a spread, is added to the selected index to determine the fully indexed rate on an ARM.
With an ARM, the margin is added to the selected index to determine the a) periodic cap. b) annual percentage rate. c) convertible fixed rate. d) fully indexed rate.
A margin, which is also sometimes referred to as a spread, is added to the selected index to determine the fully indexed rate on an ARM.
A nonconforming loan refers to a loan that does NOT a) require a down payment. b) adhere to Federal Fair Housing laws. c) include private mortgage insurance. d) follow Fannie Mae/Freddie Mac criteria.
A nonconforming loan is a mortgage loan that does not meet Fannie Mae/Freddie Mac standards and, thus, cannot be sold on the secondary market.
Which is TRUE about nonconforming loans? a) They can be sold to FHLMC but not FNMA. b) All states prohibit them. c) They may cost a homeowner more in fees. d) They meet Fannie Mae/Freddie Mac standards.
A nonconforming loan is a mortgage loan that does not meet Fannie Mae/Freddie Mac standards and, thus, cannot be sold on the secondary market. Nonconforming loans generally have higher fees than conforming loans but are not necessarily predatory. They can be difficult to sell on the secondary market and cannot be purchased by GSEs.
A jumbo loan is a type of a) nonconforming loan. b) prohibited loan. c) FHA loan. d) conforming loan.
A nonconforming loan is a mortgage loan that does not meet Fannie Mae/Freddie Mac standards and, thus, cannot be sold on the secondary market. One of the main reasons why a loan is classified as nonconforming is that it is a jumbo loan. A jumbo loan is a loan that exceeds the maximum loan amount established by the Federal Housing Finance Agency for Fannie Mae and Freddie Mac conforming mortgage loan limits.
A partially amortized mortgage requires a a) due on sale clause. b) junior lien. c) balloon payment. d) partial release.
A partially amortized loan has periodic payments that do not fully amortize the loan by the end of the loan term. The larger final payment is known as a balloon payment.
Which borrower would be the best candidate for a reverse equity mortgage? a) a borrower with a poor credit history but who has a large down payment b) a borrower whose spouse was a veteran who died in the line of active duty c) a borrower whose income is at or below 80% of the adjusted median income level d) a borrower who is age 62 or older who owns their home free and clear
A reverse mortgage borrower must be at least 62 years old and own a home with little or no outstanding mortgage.
The type of mortgage that provides the borrower with an option to receive a monthly check without the borrower paying a required monthly payment is known as a a) nonconforming loan. c) bridge mortgage. b) reverse mortgage. d) graduated payment mortgage.
A reverse mortgage provides borrowers 62 years or older with a monthly check (or up front lump sum disbursement) and the balance is owed at the end of the loan term, when the borrower loses primary residency status, or when the borrower dies.
If a customer wants to refinance his first mortgage and leave an existing second mortgage in place, the second lender must sign a(n) a) lien release clause b) subordination agreement c) alienation agreement d) lease agreement
A subordination agreement allows the first lender to file a lien in front of the second lien holder, even though the second lien holder is entitled to first lien position after the original first lien is paid off.
What is the basic entitlement available to veterans for a VA-guaranteed loan? a) $36,000 b) $78,000 c) $144,000 d) $55,000
All eligible veterans receive $36,000 of basic entitlement or maximum guarantee amount.
With a(n) _____ loan the AUS recognizes a good credit risk and may require a reduced list of documentation; for example, only verbal verification of employment as opposed to two years of W-2s. a) A-minus b) Graduated Payment c) Alt-A d) FHA
Alt-A loans, also called alternative documentation loans, are loans that hold borrowers with good credit to different documentation standards than traditional loans. It is possible that a borrower with excellent credit and a large down payment will not be required to furnish as much documentation as a borrower with average scores and an average down payment. The AUS recognizes a good credit risk and may require a reduced list of documentation; for example, only verbal verification of employment as opposed to two years of W-2s.
An A-minus loan is a) riskier than a prime loan and less risky than a subprime loan. b) less risky than both prime and subprime loans. c) riskier than a subprime loan and less risky than a prime loan. d) riskier than both prime and subprime loans.
An A-minus loan is for borrowers with credit record blemishes, such as being 30 days late one or two times over the past year, having lower credit scores (usually under 680 FICO), having limited funds for a down payment, a high DTI ratio, or a record of bankruptcy and/or foreclosure. A-minus loans are riskier than prime mortgages but not as risky as subprime mortgages. Since the loan is riskier, the interest rate is higher.
The type of loan that has an interest rate that varies up or down depending on the cost of money as determined by an index is called a(n) a) adjustable-rate loan. b) installment loan. c) straight loan. d) fully amortized loan.
An adjustable-rate mortgage (ARM) loan has an interest rate that varies up or down depending on the cost of money as determined by an index.
Which of the following is NOT a reason that a typical reverse mortgage becomes due? a) last surviving borrower dies b) borrowers cease to live in the home for 12 consecutive months c) no withdrawals are made in a consecutive 12 month timeframe d) borrowers sell the home
Assuming the borrower upholds the terms of the contract, a typical reverse mortgage becomes due when the last surviving borrower dies, the borrowers sell the home, or the borrowers cease to live in the home for 12 consecutive months. At that point, the homeowner or the homeowner's heirs must repay the total loan amount, which includes the money that was paid out as well as any interest, insurance, closing costs, or other fees as stipulated in the terms of the loan.
Fannie Mae requires private mortgage insurance on home loans with less than a) 50% down. b) 20% down. c) 30% down. d) 10% down.
Both Fannie Mae and Freddie Mac require private mortgage insurance (PMI) on home loans with less than 20% down.
A borrower's income is considered adequate for a conventional conforming mortgage loan if the proposed payment of principal, interest, taxes, and insurance (PITI) does NOT exceed what percentage of stable monthly income? a) 28% b) 41% c) 30% d) 29%
Conventional conforming loans sold to Fannie Mae or Freddie Mac require a 28% housing expense ratio and 36% debt-to-income ratio. Fannie Mae and Freddie Mac may approve loans higher than the suggested 28/36 ratios if the loan file has other compensating factors (strong assets, long job time, etc.), but technically the maximum ratios for a conforming loan are 28/36.
The income housing expense and total debt-to-income ratios for conventional conforming loans are a) 29% and 36%. b) 29% and 41%. c) 28% and 36%. d) 31% and 43%.
Conventional conforming loans sold to Fannie Mae or Freddie Mac require a 28% housing expense ratio and 36% debt-to-income ratio. Fannie Mae and Freddie Mac may approve loans higher than the suggested 28/36 ratios if the loan file has other compensating factors (strong assets, long job time, etc.), but technically the maximum ratios for a conforming loan are 28/36.
Mortgage loans offered through FHA, VA, and USDA Section 502 programs are referred to as what type of loan? a) conventional b) traditional c) qualified d) non-conventional
Conventional financing refers to real estate that is paid for or financed with a conventional loan-one that is usually made by a bank or institutional lender and that is not insured or guaranteed by a government entity or agency, such as FHA or VA. Mortgage loans offered through government loan programs, such as FHA, VA, and USDA programs, are conversely referred to as non-conventional loans.
Desktop Underwriter® is the industry-leading underwriting system that helps lenders efficiently complete credit risk assessments to establish a home loan's eligibility for sale and delivery to a) Fannie Mae. b) Freddie Mac. c) Sallie Mae. d) Ginnie Mae.
Desktop Underwriter® (DU®) is the industry-leading underwriting system that helps lenders efficiently complete credit risk assessments to establish a home loan's eligibility for sale and delivery to Fannie Mae.
Lenders who are authorized to underwrite their own FHA-insured loan applications have what type of underwriters in their office? a) direct endorsers b) DU/LP c) title insurance underwriters d) automated underwriters
Direct Endorsers (DEs) are authorized to underwrite their own FHA-insured loan applications and are responsible for the entire loan process through closing. Lenders that have been approved and have licensed direct endorser underwriters can underwrite their own FHA-insured mortgage loan applications. If the lender does not have a DE underwriter, the mortgage loan file must go directly to the FHA for approval.
For a lower-income buyer with high debt ratios, a preferred loan choice might be a(n) a) conventional loan. b) REIT. c) FHA-insured loan. d) VA-guaranteed loan.
FHA is less stringent when it comes to a borrower's level of income. While no minimum or maximum income is required for an FHA-insured loan, the borrower must have sufficient income to service the debt on the home mortgage and all other credit obligations. This is determined by housing expense and total debt-to-income ratios, which are slightly more liberal than those allowed for conventional loans.
Which characteristic distinguishes an FHA-insured loan from a conventional loan? a) FHA loans are not assumable. b) FHA loans do not require any mortgage insurance. c) FHA loans cannot have prepayment penalties. d) FHA loans do not require a down payment.
FHA loans cannot have prepayment penalties
Borrowers with FHA-insured loans are required to establish bona fide occupancy of the property as their principal residence within ____ days of signing a security instrument. a) 15 b) 30 c) 60 d) 45
FHA loans require that borrowers occupy the property as their principal residence for at least 12 months, although there are some exceptions; for example if the borrower is transferred for work. Borrowers with FHA-insured loans are required to establish bona fide occupancy of the property as their principal residence within 60 days of signing a security instrument.
Federal Housing Administration loans are insured by the federal government through the a) Freddie Mac. b) FDIC. c) Department of Housing and Urban Development. d) Fannie Mae.
Federal Housing Administration (FHA) loans are insured by the federal government through the Department of Housing and Urban Development (HUD).
With a fixed-rate loan, a) principal and interest payments remain constant. b) PMI is required if the Loan To Value(LTV) exceeds 20%. c) a lender may increase the interest rate if a borrower misses two payments in a year. d) a balloon payment is due at the end of the loan term for any unpaid interest.
Fixed-rate loans have interest rates that remain constant for the duration of the loan.
The loan type which limits the Loan To Value(LTV) to 96.5% for credit scores of 580 or higher after all allowable financed items is a) subprime. b) VA-guaranteed. c) FHA-insured. d) conventional.
For credit scores of 580+, the FHA limits the LTV to 96.5%.
What program uses a Certificate of Reasonable Value to determine the value of the property? a) VA-guaranteed b) conventional c) subprime d) FHA-insured
For property purchased with a VA-guaranteed mortgage loan, a Certificate of Reasonable Value (CRV) is used to document an appraiser's estimate of the value of the property to be purchased.
What type of loan has a minimum down payment requirement of 3.5% in most circumstances? a) FHA-insured b) subprime c) conforming d) VA-guaranteed
Generally, a qualified consumer wanting an FHA-insured loan must make a down payment of at least 3.5% if they have a credit score of 580 or higher.
Which of the following loan provides a "safe harbor" for mortgage lenders from liability if the loans are not also higher-priced? a) non-conventional b) qualified c) conventional d) traditional
Generally, a qualified mortgage (QM) must be a 30-year, fully amortizing mortgage. Additionally, points and fees must not exceed annually adjusted limits and the APR on the loan must not exceed the APOR for a comparable transaction by set amounts. Lenders that originate QM loans will be presumed to have met the ATR/QM rule mandated by the Dodd-Frank Act, thereby providing the lender with protection against potential legal challenges by borrowers and the CFPB as to the fairness of the loan.
A _____ mortgage must be a 30-year, fully amortizing mortgage and the MLO must verify that the borrower has the ability to repay the loan. a) conforming b) primary c) conventional d) qualified
Generally, a qualified mortgage (QM) must be a 30-year, fully amortizing mortgage. One feature that must be present for a loan to fall under the definition of a General Qualified Mortgage is that the lender must make a reasonable, good-faith determination that a borrower has the ability to meet the financial obligations of a mortgage loan before it can be made.
Donna just graduated from college and is ready to buy her first house. If interest rates are high but she wishes to build equity, she will be more likely to consider a(n) a) interest-only mortgage. b) adjustable-rate mortgage. c) fixed-rate mortgage. d) reverse mortgage.
Generally, as interest rates rise, so does the popularity of adjustable-rate mortgages.
A home equity line of credit tends to provide borrowers with all the following benefits EXCEPT the benefit of a) a potential interest rate tax deduction. b) flexible payoff terms. c) borrowing the amount of funds needed when needed. d) a fixed interest rate.
Home equity loans have a fixed interest rate and HELOCs have an adjustable interest rate. So HELOCs tend to have a lower interest rate and lower initial cost but the interest rate may increase over time. With a HELOC, interest payments are deductible if they are used to buy, build or substantially improve the taxpayer's home that secures the loan, funds can be used in the amount and time needed, and payoff terms tend to be flexible lasting up to 30 years.
If a borrower exercises his right to change from an adjustable-rate mortgage to a fixed-rate mortgage one time during the loan term, provided certain conditions are met, he has what type of mortgage? a) hybrid ARM b) fixed ARM c) hybrid fixed d) convertible ARM
If a borrower exercises his right to change from an ARM to a fixed-rate mortgage, he has a convertible adjustable-rate mortgage.
Construction to permanent loans a) are a form of temporary financing used until the borrower's existing home sells. b) are to build the home only. c) allow for a cash-out in a one-time close. d) allow for a cash-out in a two-time close if the equity exists.
In a two-time close, since the home is finished and another appraisal may be required, FNMA allows a cash-out, if there is sufficient equity.
A limit on the amount the interest rate can increase for an adjustable-rate mortgage is its a) margin. b) cap. c) index. d) floor.
Interest rate caps are used with ARMs to protect a borrower from large interest rate increases.
With a conforming conventional mortgage loan, borrowers may request PMI cancellation per the Homeowners Protection Act when they have paid down their loan to an a) 80% LTV. b) 78% LTV. c) 77% LTV. d) Borrowers cannot request PMI cancelation.
Lenders must drop private mortgage insurance (PMI) coverage at a borrower's request when a new lender-approved appraisal shows that the loan has been paid down to 80% or less or has attained 20% equity based on the home's original value, the borrower shows a history of timely repayment over the past 12 months, and certification that the equity of the mortgagor in the residence securing the mortgage is unencumbered by a subordinate lien. Whether through automatic or borrower-requested PMI cancellation, the lender terminates the policy and reduces the monthly mortgage payment by the PMI amount.
A(n) _____ is specifically required within three business days of a complete application for an adjustable-rate mortgage loan. a) CHARM Booklet b) GFE Form c) Your Home Loan Toolkit Booklet d) AfBA Disclosure Form
Lenders offering residential financing, including ARMs, must comply with federal guidelines under Regulation Z of the Truth in Lending Act that require certain disclosures to borrowers (12 CFR §1026.19). In compliance with TILA, a lender is required to give the loan applicant the Consumer Handbook on Adjustable Rate Mortgages (CHARM Booklet), prepared by the Federal Reserve Board, within three business days of loan application.
Lenders that originate qualified mortgages will be presumed to have met the ATR/QM Rule mandated by the Dodd-Frank Act. The ATR/QM Rule applies to all of the following loan types EXCEPT a) home equity lines of credit. b) fixed-rate mortgage loans. c) home equity loans. d) adjustable-rate mortgage loans.
Lenders that originate qualified mortgages (QMs) will be presumed to have met the Ability to Repay/Qualified Mortgage (ATR/QM) Rule mandated by the Dodd-Frank Act, thereby providing the lender with protection against potential legal challenges by borrowers and the CFPB as to the fairness of the loan. The ATR/QM Rule applies to almost all closed-end borrower credit transactions secured by a one- to four-unit dwelling, including condominium units, cooperative units, mobile homes, and trailers. It does not apply to open-end credit plans (e.g. home equity lines of credit), timeshares, reverse mortgages, bridge loans or construction loans (less than 12 months), vacant land, loan modifications, and certain government programs.
Loans that combine construction and permanent financing cannot be pooled or delivered to Fannie Mae until a) all construction is complete and the terms of the construction loan have converted to permanent financing. b) all plans have been approved and zoning permits have been obtained. c) the property title is held in the name of a homeowner. d) the draw request inspection is acceptable to the lender and the borrower has approved the draw request.
Loans that combine construction and permanent financing into a single transaction cannot be pooled or delivered to Fannie Mae until the construction is completed and the terms of the construction loan have converted to the permanent financing.
After mortgage banks sell mortgages to third-party investors in the secondary market, these lenders may continue to generate income by: a) repurchasing the loans from the secondary markets at a lower interest rate. b) servicing the loans for the investors who have purchased the loans. c) charging investors interest rates which are higher than state minimum requirements. d) adjusting the interest rates charged according to a standard index.
Mortgage banks often sell mortgages to third-party investors in the secondary market but may generate income by continuing to service the loans for the investors who have purchased the loans.
What type of loan would commonly use an extended rate lock? a) refinance b) home equity loan c) purchase d) new construction
New construction New construction can take as long as a year to complete, and requires extended rate locks in most cases
Under the conditions for a loan to be a general qualified mortgage, lenders must verify that the borrower has the ability to repay the loan and must retain the information used in the ability to repay analysis for how many years after loan consummation? a) 4 b) 2 c) 5 d) 3
One feature that must be present for a loan to fall under the definition of a General Qualified Mortgage is that the lender must make a reasonable, good-faith determination that a borrower has the ability to meet the financial obligations of a mortgage loan before it can be made. This includes verifying the information relied upon and retaining that information for at least three years after consummation of the loan.
Which statement about VA-guaranteed loans is FALSE? a) A veteran needs a Certificate of Eligibility. b) A veteran may pay points on a purchase. c) A veteran's parent may co-sign. d) Property is appraised and a CRV is issued.
Only a veteran's spouse is allowed to co-sign on a VA-guaranteed loan.
Private mortgage insurance applies to a) non-conventional loans. b) conventional loans. c) second mortgage loans. D) HECMs.
Private mortgage insurance (PMI) is for conventional loans. MIP is for non-conventional loans including FHA's Home Equity Conversion Mortgage (HECM). Second mortgage loans do not require PMI.
To avoid having the cost of PMI included in the monthly payment of a fixed-rate mortgage loan, typically an LTV of ____ or higher is required when financing the purchase of a new home. a) 80% b) 50% c) 60% d) 75%
Recurring costs, such as PMI and property taxes, are included in the monthly payment amount. Both Fannie Mae and Freddie Mac require private mortgage insurance (PMI) on home loans with less than 20% down. To avoid having PMI including in a monthly payment amount, an LTV ratio of at least 80% is typically required.
With a fixed-rate mortgage loan, an increase in what item may increase the monthly payment amount? a) interest rate b) property taxes c) property value d) delinquent payment
Recurring costs, such as PMI and property taxes, are included in the monthly payment amount. Changes in property taxes or a homeowner's insurance premium may raise or lower the monthly payment amount of a fixed-rate loan.
Which of the following is NOT a feature of a Section 502 Direct Loan offered by the USDA? a) 3.5% down payment b) up to 33, and in some cases 38, year payback period c) fixed interest rate based on current market rates at loan approval or loan closing, whichever is lower d) interest rate when modified by payment assistance, can be as low as 1%
Section 502 Direct Loans offered by the U.S. Department of Agriculture (USDA) have a fixed interest rate based on current market rates at loan approval or loan closing, whichever is lower. Interest rates when modified by payment assistance can be as low as 1%. The payback period generally is up to 33 years; however, a 38 year payback period may be extended to very low income applicants who can't afford the 33 year loan term. No down payment is typically required; however, applicants with assets higher than the asset limits may be required to use a portion of those assets.
Which type of mortgage is most likely to cause payment shock, according to the Interagency Statement on Subprime Mortgage Lending? a) adjustable-rate mortgage b) jumbo mortgage c) fixed-rate mortgage d) construction mortgage
Since payments for adjustable-rate mortgages will change periodically, a consumer could be faced with unexpected increases, leading to dangerous payment shock.
What entity specializes in helping persons who live in rural areas with a population of less than 35,000 with obtaining mortgage loans? a) Department of Agriculture b) Office of Thrift Supervisors c) Department of Housing and Urban Development d) Federal Housing Administration
Single Family Direct Home Loans, also known as the Section 502 Direct Loan Program, offered by the U.S. Department of Agriculture (USDA) assist low- and very-low-income applicants in obtaining decent, safe, and sanitary housing in eligible rural areas by providing payment assistance to increase an applicant's repayment ability.
Section 502 Direct Loans offered by the USDA are generally available to persons who live in a rural area with a population of less than a) 35,000. b) 20,000. c) 10,000. d) 25,000.
Single Family Direct Home Loans, also known as the Section 502 Direct Loan Program, offered by the U.S. Department of Agriculture (USDA) assist low- and very-low-income applicants in obtaining decent, safe, and sanitary housing in eligible rural areas by providing payment assistance to increase an applicant's repayment ability. Section 502 Direct Loans are generally available to persons who live in a rural area with a population of less than 35,000.
Which would the FHA NOT allow for a purchase price addition? a) energy-related weatherization items b) financeable repairs c) solar energy systems d) hot tubs
Some FHA-insured loan programs allow financing of energy efficient renovations or repairs. A hot tub would not be an allowable price addition.
Subprime loans are a) the result of illegal predatory lending schemes. b) less risk to lenders than mainstream loans. c) given only to borrowers with good credit. d) loans with a generally higher interest rate than prime loans.
Subprime loans carry higher interest rates and fees to compensate for the borrower's increased risk, which is typically due to poor credit history.
A borrower with bad credit or other risk factors such as high debt, low credit scores, and other creditworthiness issues may qualify most easily for what type of loan? a) VA-guaranteed b) conforming c) FHA-insured d) subprime
Subprime loans fill a need for those with problem credit who want to own a home. Some lenders and investors are willing to make these riskier loans because they can get much higher interest rates and fees than they can with other real estate loans.
Which of the following describes a mortgage loan that starts at a 3% interest rate, goes to 5% after 3 years, 6% in year 4, and never goes above 8%? a) 3/1 ARM with caps of 1/5 b) 3/1 ARM with caps of 2/5 c) 5/1 ARM with caps of 2/1/5 d) 5/1 ARM with caps of 2/5
The ARM would be labeled as 3/1 due to the fixed interest rate for three years. The loan has a cap of 2%, which is the most the rate can change the year after the fixed rate expires. We know the loan must have a cap of 2/5 instead of 1/5 because the interest rate increased by more than 1% the year the fixed rate expired.
A buyer offers to purchase a home for $350,000 with an FHA-insured mortgage. The maximum FHA loan amount for that county is $341,250. The home appraised for $345,000. The buyer a) must complete the purchase next year after FHA increases the limits. b)can withdraw the offer if he pays a 1% penalty. c) may buy the home, but only borrow up to the maximum FHA loan amount from the FHA-approved lender. d) will not be allowed to buy the home.
The FHA limits the maximum loan amount it will insure in a given community. A buyer would have to make up the difference in sales price and the FHA maximum.
Which statement is TRUE about interest rate buydowns on FHA loans? a) A borrower may qualify at the buydown rate. b) The FHA does not allow builder-paid buydowns. c) A borrower must qualify at the note rate. d) The FHA does not allow seller-paid buydowns.
The FHA will only allow a borrower who utilizes a temporary buydown to qualify at the higher note rate and payment, not the temporary rate and payment.
The Federal National Mortgage Association is also known as a) Fannie Mae. b) Freddie Mac. c) Ginnie Mae. d) Sallie Mae.
The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, is a government-sponsored entity regulated by the Federal Housing Finance Agency. It is the largest buyer of existing mortgages in the secondary mortgage market providing a place for banks and other lenders to sell loans and allow banks to get more money to make the additional loans.
GNMA insures what type of mortgage-backed securities? a) conforming b) fixed rate c) subprime d) FHA
The Government National Mortgage Association (GNMA or Ginnie Mae) guarantees investors the timely payment of principal and interest on MBS-backed by federally insured or guaranteed loans. Most loans backed by Ginnie Mae are insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA). Other guarantors or issuers of loans eligible for Ginnie Mae include the Department of Agriculture's Rural Development (RD) and the Department of Housing and Urban Development's Office of Public and Indian Housing (PIH).
According to the Interagency Guidance on Nontraditional Mortgage Products, simultaneous second lien loans with minimal owner equity should generally not have a payment structure that allows for a) refinancing. b) bi-weekly payments. c) accelerated amortization. d) negative amortization.
The Guidance indicates that payment structures resulting in negative or delayed amortization should be avoided when there is minimal owner equity.
Which of the following is a traditional conventional loan? a) 30-year ARM b) 5/1 hybrid ARM c) 15-year fixed-rate loan d) 30-year fixed-rate mortgage
The SAFE Act defines a nontraditional loan as any loan other than a 30-year fixed-rate fully amortizing loan. Therefore, a traditional loan is a 30-year fixed-rate fully amortizing loan.
Veterans can generally purchase a home priced up to ____ times the amount of their entitlement with no down payment. a)4.5 b) 4 c) 3 d) 3.5
The VA doesn't limit the price a veteran can pay for a house (as long as the house appraises for the loan amount) but does limit the amount it will guarantee in the event of default to 25% of the purchase price or the established reasonable value, whichever is less. A veteran's maximum guaranty amount, known as entitlement, represents the portion of the loan that the VA guarantees in the event of default by the borrowing veteran. Veterans can generally purchase a home priced up to four times the amount of their entitlement with no down payment.
What is the maximum seller concession for a VA-guaranteed loan? a) 4% and reasonable discount points b) 2% and no discount points c) Sellers cannot pay any of the buyers' closing costs for a VA loan. d) 3% and 2 discount points
The Veterans Administration allows the seller to pay 4% of the closing costs plus reasonable discount points.
The property value acceptable to the FHA as loan collateral is determined by the a) opinion of the loan underwriter. b) lesser of the appraised value or purchase price. c) amount of MIP commitment. d) certified appraiser.
The amount of an FHA-insured loan is based on the home's purchase price or appraised value, whichever is less.
When applying for a VA-guaranteed loan, an inactive veteran needs to supply the DD-214 as proof of a) entitlement. b) discharge. c) financial stability. d) appraised value.
The borrower needs to provide to the underwriter the DD-214, which is the proof of military discharge. Current service members will provide a Statement of Service.
What is considered a toxic loan feature under the Ability to Repay/Qualified Mortgage (ATR/QM) Rule? a) acceleration clause b) full amortization c) partial amortization d) negative amortization
The following toxic loan features/types are prohibited when making a qualified mortgage: Loans where the borrower defers the repayment of principal and pays only the interest (interest-only loan); loans where the principal amount borrowed increases over time (negative amortization loan), and loans with terms beyond 30 years. In most cases, a large lump sum payment at the end of the repayment term (balloon loan) is prohibited with a qualified mortgage; however, an exception exists for smaller lenders.
The federal government insures what type of loan? a) conventional b) subprime c) VA d) FHA
The government insures only FHA loans. The VA and USDA loans are guaranteed by the government. Subprime and conventional loans are neither government-backed nor government-insured.
A mortgage loan, typically a second mortgage, that has a predetermined maximum loan amount, has an adjustable rate, can be borrowed against and paid off as needed, and has an interest-only minimum monthly payment, is known as a a) home equity loan. b) home equity line of credit. c) purchase money mortgage. d) reverse mortgage.
The home equity line of credit (HELOC) is just like a credit card, it can be used and paid off as needed. The main difference is the HELOC uses real estate as collateral and the credit card does not.
The interest rate of a fixed-rate loan a) fluctuates according to a standard index. b) remains constant for the duration of the loan. c) starts lower in early years of the loan and increases in later years. d) is usually lower than the rate for an adjustable-rate loan.
The interest rate of a fixed-rate loan remains constant.
The interest rate of an adjustable-rate loan a) remains constant for the duration of the loan. b) is usually the same as for a fixed-rate loan. c) starts lower in early years of the loan and increases in later years. d) fluctuates according to a standard predetermined index.
The interest rate of an adjustable-rate loan may fluctuate up or down based on a standard index.
The difference between the index value and the fully indexed rate on an adjustable-rate mortgage (ARM) is called a a) discount. b) margin. c) return. d) cap.
The margin, which is also sometimes referred to as a spread, is added to the selected index to determine the fully indexed rate on an ARM.
Susan has a FICO score of 620. What is the minimum down payment (cash investment) contribution for her to get an FHA-insured loan on a $75,000 home? a) $750 b) $2,250 c) $2,625 d) $1,500
The minimum down payment required on an FHA loan is 3.5% when the borrower's FICO score is 580 or above. $75,000 X .035 = $2,625.
All of these fall under the category of a qualified mortgage (QM) EXCEPT a) any VA-guaranteed loan. B) any loan with a term of more than 30 years. c) any loan with regular periodic payments which are substantially equal. d) any FHA-insured loan.
To be considered a qualified mortgage, the loan term cannot exceed 30 years. Any loan eligible for GSE (Fannie Mae and Freddie Mac), FHA, VA, USDA is considered a qualified mortgage loan. The ability to repay needs to be documented for all qualified mortgages.
Funding for a construction loan is usually made a) periodically, as the building is constructed. b) in full, at the time the note and mortgage are signed. c) after the filing period for liens has expired. d) after all construction is complete and approved by the lender.
To protect themselves against overspending by the borrower, lenders most often use plans for disbursing construction loan proceeds periodically. Three common disbursement plans are the Fixed Disbursement Plan, Voucher System, and Warrant System. With a fixed disbursement plan, the lender pays the borrower a percentage of funds at a set time. With the Voucher System, the contractor or borrower must pay her own bills, and then submit the receipts to the lender for reimbursement. With the Warrant System, the lender directly pays bills presented by the various suppliers and laborers on a project.
The type of mortgage that requires regular payment of principal and interest calculated to pay off the entire balance by the end of the loan term is called a _____ loan. a) partially amortizing b) fully amortizing c) conforming d) fixed-rate
Traditional conventional loans are typically long-term, fully amortizing, fixed-rate real estate loans. A fully amortized mortgage requires regular payment of principal and interest calculated to pay off the entire balance by the end of the loan term.
A home equity conversion mortgage and an adjustable-rate mortgage are both examples of a) conventional loans. b) nontraditional loans. c) government agency loans. d) nonconforming loans.
Traditional conventional loans are typically long-term, fully amortizing, fixed-rate real estate loans. The SAFE Act defines a nontraditional loan as any loan other than a 30-year fixed-rate fully amortizing loan. Therefore, a nontraditional loan is anything other than a 30-year fixed-rate fully amortizing loan. Nontraditional loans may still conform to secondary market standards.
A security instrument that places into the hands of a disinterested third party a specific financial interest in the title to real property as security for the payment of a note is a(n) a) mortgage. b) trust deed. c) equitable title. d) promissory note.
Trust deed is a security instrument placing into the hands of a disinterested third party a specific financial interest in the title to real property as security for the payment of a note.
What two agencies provide traditional government agency-backed mortgage products? a) VA and HUD b) FHA and VA c) FHA and HUD d) HUD and USDA
Two traditional government agency loan programs are loans insured by the Federal Housing Administration (FHA) and loans guaranteed by the Veterans Benefits Administration of the Department of Veterans Affairs (VA).
What type of income calculation is used for VA-guaranteed loans? a) housing income b) residual income c) financial statement d) balance sheet
Underwriters on VA loans do not consider the housing expense ratio, also called the front-end ratio. Instead, underwriters start with the total debt-to-income (DTI) ratio and generally looking for a total DTI that does not exceed 41%. In addition to the debt-to-income ratio, an underwriter must ensure that an eligible borrower has the appropriate balance of cash flow remaining for family support. This is determined by looking at residual income, which is the amount of income remaining after subtracting taxes, housing expenses, and all recurring debts and obligations. Residual income uses net effective income in its calculation, not gross income.
Which borrower is eligible for a VA-guaranteed loan? a) a veteran who has been issued a certificate of eligibility b) a borrower with income below the adjusted median income level c) a remarried spouse of a veteran who died on active duty d) a borrower who cannot qualify for an FHA-insured loan
VA loans are available to eligible veterans for the purchase of owner-occupied single-family homes and for multi-family dwellings up to four units if the veteran intends to occupy one of the units as the primary residence. Eligibility for VA-guaranteed loans is based on the length of continuous active service in the U.S. armed forces and must be validated by the discharge papers.
Who is the target borrower for a VA-guaranteed loan? a) veterans b) low-income borrowers c) borrowers 62 years or older d) first-time homebuyers
VA-guaranteed loans are guaranteed by the federal government through the Veterans Benefits Administration, which is part of the Department of Veterans Affairs (VA). The VA's main purpose in guaranteeing loans is to help meet the housing needs of eligible veterans who have served or are currently serving on active duty in the U.S. Armed Forces, which includes the Army, Navy, Air Force, Marine Corps, Coast Guard, Reserves, or National Guard.
On the Loan Estimate, a permanent buydown of the interest rate by the borrower will show as a a) credit to the lender. b) charge to the lender. c) charge to the borrower. d) credit to the borrower.
When a borrower buys down the interest rate, it shows as a charge on the Loan Estimate and it increases the borrower's settlement charges.
When the lender loans money to a borrower and the borrower gives the lender a mortgage, this relationship is referred to as the a) secondary mortgage market. b) primary mortgage market. c) seller's market. d) buyer's market.
When the lender loans money to a borrower and the borrower gives the lender a mortgage, this is called the primary mortgage market.
When the lender loans money to a borrower and the borrower gives the lender a mortgage, this relationship is referred to as the a) secondary mortgage market. b) seller's market. c) buyer's market. d) primary mortgage market.
When the lender loans money to a borrower and the borrower gives the lender a mortgage, this is called the primary mortgage market.
Joe has an ARM with an initial rate of 6% and a rate cap of 2/6. What's the highest his interest rate can be over the life of the loan? a) 8% b) It depends on the index. c) 18% d) 12%
With a 2/6 rate cap, the rate can increase 2% each adjustment period to a maximum of 12% over the life of the loan (6% start plus 6% lifetime cap).
What is the type of loan where a seller may finance all or part of the sale of property for the buyer? a) bridge loan b) graduated payment mortgage c) easy qualifier conventional loan d) purchase money mortgage
With a purchase money mortgage, the seller may finance all or part of the sale of property for the buyer. The seller retains a mortgage as security, and title conveyed passes to the buyer. This is a type of seller or owner financing.
With an adjustable-rate mortgage loan, a loan servicer must provide a borrower with a notice of interest rate change that will result in a new payment amount at least ___ days before the change occurs. a) 60 b) 30 c) 10 d) 7
With an adjustable-rate mortgage loan, a loan servicer must provide a borrower with a notice of interest rate change that will result in a new payment amount at least 60 days before the change occurs.
A 10% overage may be calculated as part of the final loan amount determination when underwriting a construction loan to account for a) loan originator commissions. b) cost overruns. c) errors and omissions. d) insurance and taxes.
Within construction loans, a cost overrun is included in the underwriting decision by adding an overage percentage to the final loan amount determination.
Which statement about a reverse mortgage is FALSE? a) The borrower needs to be at least 50 years old to qualify. b) The loan will impact the equity left behind as an inheritance to their heirs. c) The loan must be paid back at the time of the borrower's death. d) The borrower can receive a monthly check.
a) The borrower needs to be at least 50 years old to qualify. The borrower needs to be 62 years old to qualify.
A VA-guaranteed loan is to be assumed by another eligible veteran and the current borrower released of liability. Which statement about the assuming buyer is FALSE? a) The buyer cannot hold the veteran who sells the property secondarily liable. b) The buyer must also have unused eligibility status if the seller does not transfer entitlement. c) The buyer must be approved by as an acceptable credit risk by VA. d) The buyer agrees in writing to assume the veteran's liability reimbursement obligation.
a) The buyer cannot hold the veteran who sells the property secondarily liable. The veteran who sells the property can be released from secondary liability on the loan only if the loan is current, the buyer is an acceptable credit risk, VA approves the buyer, and the buyer agrees in writing to assume the veteran's liability and reimbursement obligation on the loan.
Which is used to allow access to funds from the construction loan? a) permit process b) modification agreement c) draw process d) construction loan rider
c) draw process A draw process is followed to access funds from the construction loan.
With a conventional 97% LTV loan that conforms to Fannie Mae standards, what is the down payment requirement? a) 8% b) 3% c) 5% d) 10%
he Fannie Mae HomeReady and Freddie Mac Home Possible loan programs are conventional 97% LTV loans designed to offer a low down payment loan option for low-income first-time homebuyers. They require just a 3% down payment, 620 credit score, and allow for up to a 50% DTI ratio. The down payment can be a gift, grant, or a loan from a non-profit organization or an employer. The borrower must be a first-time homebuyer and not exceed the income limit of 80% of the area median income. Note that conventional 97 loans do require private mortgage insurance (PMI) and the interest rate will be higher than a conventional loan with a lower LTV.
