Application Documents

Question 1

What is a Uniform Residential Loan Application and what is it also known as?

Answer 1

The loan application for a residential mortgage loan is known as the 1003

Question 2

When did the new URLA take effect?

Answer 2

A redesigned URLA took effect on January 1, 2021.

Question 3

What does the Uniform Underwriting and Transmittal Summary contain?

Answer 3

It contains a summary of the loan including, among other things, borrower information, LTV ratio, credit score, appraised value, and loan type.

Question 4

What is the Uniform Underwriting and Transmittal Summary also known as?

Answer 4

the Uniform Underwriting and Transmittal Summary, or the 1008

Question 5

When is the Uniform Underwriting and Transmittal Summary submitted with the file?

Answer 5

When the entire loan package is ready for transmitting to underwriting,

Question 6

What 3 approaches do appraisers use to determine the value of a property?

Answer 6

Cost approach, Income approach, and Market approach

Question 7

What is the cost approach?

Answer 7

The cost approach is based upon the cost that would be necessary to rebuild the property. This approach is often used on new construction, special use properties, and other properties that are difficult to appraise using other methods. The appraiser adds together the value of the land and the depreciated value (i.e., the cost to replace or reproduce the improvements, less depreciation) of the improvements to come up with a value.

Question 8

What is the income approach?

Answer 8

The income approach is typically used on rental and investment properties. It uses capitalization rates and income in order to estimate value. It bases value on the net income that the owner will receive and the rate of return (capitalization rate) sought by the owner.

Question 9

What is the market approach?

Answer 9

The market approach, or sales comparison approach, compares the subject property with sales data for comparable properties in the same area to establish value. This is the preferred and most common appraisal method for valuing single-family residential properties. The method compares the subject property with comparable properties and makes adjustments for differences between the properties. The term “predominant value” refers to the most common sales price in a specific area.

Question 10

How do underwriters calculate self employment?

Answer 10

If the adjusted gross income is used, voluntary contributions claimed must be added back to total income. Non-cash-flow items, such as depreciation, should also be added back to total income.

Question 11

When are business taxes from an individual required?

Answer 11

If a borrower owns 25% or more of a business, business tax returns are required.

Question 12

How do you calculate the income for commision borrowers?

Answer 12

When calculating the income for commissioned borrowers, use the W-2 income and subtract non-reimbursed business expenses (IRS form 2106).

Question 13

When are personal tax returns from a commission earning individual required?

Answer 13

If 25% or more of the borrower’s income is from commissions, two years of personal tax returns may be required.

Question 14

For qualification purposes, what can be done to fixed types of income?

Answer 14

Social Security, disability, or other fixed types of income may be grossed up 25%. For example, $1,000 in Social Security income could be counted as $1,250 for qualification purposes ($1,000 x 1.25).

Question 15

What percentage of gross monthly rental income can be used?

Answer 15

If a borrower has rental properties, usually 75% of the gross monthly rental income may be used.

Question 16

What are the income ratios for manual underwriting?

Answer 16

• FHA: 31%/43%
• Conventional: 28%/36%
• USDA: 29%/41%
• The VA uses a 41% ratio as a general guideline, but also considers residual income and exceptions are possible.

Question 17

What is Fannie Mae’s Dektop Underwriter?

Answer 17

Fannie Mae’s automated underwriting system (AUS) is Desktop Underwriter (DU). Freddie Mac’s AUS is known as Loan Product Advisor. This name was recently changed - the system was previously known as Loan Prospector.

Question 18

What are acceptable sources of down payments?

Answer 18

Acceptable sources for down payments include the following:

• Savings and checking accounts
• Liquid investment accounts
• Gifts from relatives
• Gifts from domestic partners
• Grants from nonprofit organizations
• Bonuses
• Secured loans
• Sale of personal property
• Trade equity

Question 19

What are unacceptable sources of down payments?

Answer 19

Unacceptable sources for down payments include:

• Unsecured loans
• Credit cards
• Undocumented cash on hand
• Gifts from the seller

Question 20

What does an owner’s title insurance policy protect?

Answer 20

The owner’s policy protects the owner of the property against ownership disputes, covenant (CC&R) issues, or undetected liens or encumbrances on the property. The standard owner’s policy does not cover survey issues and mechanic’s liens. Extended policies may be available to cover additional title issues.

Question 21

What does a lender’s title insurance policy protect?

Answer 21

The lender’s policy protects the lender’s title position on the property and covers survey issues and mechanic’s liens.

Question 22

What is a reconveyance?

Answer 22

Reconveyance is the process of releasing a lien on a property after it has been satisfied.

Question 23

What is a lien?

Answer 23

A lien is a claim on the title of the property which usually must be paid off at closing.

Question 24

What is an encumbrance?

Answer 24

An encumbrance is a claim or liability on the title to a property, such as a lien or a mortgage.

Question 25

What is a mortgage rider?

Answer 25

A mortgage rider is simply an appendix to the mortgage document. It’s main purpose is to include special terms, conditions and situations affecting the loan that are not present in the main mortgage document.

Question 26

What kind of riders can be attached to a deed of trust and mortgage?

Answer 26

A deed of trust and mortgage are both used to secure a note. Both can carry a rider, or an addendum, which may include any of the following:

• Adjustable-rate rider
• Balloon rider
• VA rider
• Condominium rider
• PUD rider
• Bi-weekly payment rider
• Second-home rider
• One- to four-family rider
• Prepayment penalty rider

Question 27

What so security instruments contain?

Answer 27

Both security instruments (deed of trust/mortgage) contain the following:

• A due-on-sale clause which requires that the loan be paid off if the property is sold
• If the loan is assumable, the new borrowers must qualify with the lender and the due-on-sale clause would be excluded from the instrument
• A property description
• Loan amount
• The borrower’s name
• The order in which payments will be applied:
• Interest
• Principal
• Escrow account, and
• Late charges
• A defeasance clause, which provides for the release of the lien when the borrower pays off the debt.​

Question 28

What’s the difference between a warranty deed vs. a deed of trust?

Answer 28

A warranty deed conveys a property. A deed of trust encumbers a property.

Question 29

What does the promissory note contain?

Answer 29

The promissory note contains:

• The borrower’s name
• Loan amount
• Interest rate
• Loan terms, and
• A provision requiring notices in writing

Question 30

What is Joint tenancy?

Answer 30

Joint tenancy, which allows for the property to automatically transfer to the surviving owner(s) upon the death of one and provides for undivided ownership by two or more parties. All owners must be natural persons(i.e., no companies, partnerships, etc.). If one owner transfers interest, the joint tenancy is severed and the ownership becomes tenancy in common.

Question 31

What is Tenancy in common?

Answer 31

Tenancy in common, which allows for disproportionate ownership. An owner’s share in the property may pass to his or her heirs. If ownership is not specified in the deed, it is assumed to be equal among all of the owners.

Question 32

What is Subordination?

Answer 32

Subordination is the process of allowing a newer lien to take priority over an older lien. For example, if a new first mortgage was being placed on a property which already had a second mortgage, the second mortgage would be subordinated to the new first mortgage.

Question 33

What is Funding?

Answer 33

Funding is the process by which the lender transfers the loan proceeds to the title or escrow company. Normally, the lender on the closing documents wires the funds. However, in the case of table funding, the loan originator will originate, process, and close the loan in its own name and then assign the loan immediately to the lender purchasing the loan.

Question 34

Is hazard insurance required by the lender?

Answer 34

A lender will require a borrower to maintain hazard insurance on the property securing the borrower’s residential mortgage loan, and if it is not maintained, the lender may force-place a policy to protect its interests.

Question 35

How is the cost of the policy determined?

Answer 35

The cost of the policy is determined by the replacement cost of the property. The amount of coverage is determined by the lesser of:

• 100% of the insurable value of the improvements as established by the insurer, or
• The unpaid principal balance of the loan, as long as it equals the minimum amount necessary (i.e., 80% of the insurable value of the improvements) to compensate for damage or loss on a replacement-cost basis

Question 36

Do lenders require flood insurance?

Answer 36

A lender will require that flood insurance be maintained if Federal Emergency Management Agency (FEMA) maps show that any improvements on the property are in a flood zone.

Question 37

What is the amount of flood coverage?

Answer 37

The amount of flood coverage must equal the lower of 100% of the replacement cost or the principal balance and must remain in place for the entire term of the loan.