Ch 9

Question 1

Preapproval

Answer 1

The process is essentially the same as if the buyer had already selected a house; the only difference is that there isn’t property for the lender to appraise.

Question 2

Prequalified vs preapproved

Answer 2

Prequalified:

Preapproved:

Question 3

loan underwriting standards aka _______

Answer 3

Qualifying standards

Question 4

Qualifying standards / loan underwriting standards

Answer 4

Criteria that a lender will use to qualified buyer for a loan

Question 5

Loan underwriters a.k.a. ____

Answer 5

Credit underwriters

Question 6

Loan underwriting is the process a _____ goes through to evaluate the buyer and the property to determine whether the proposed loan would be a good risk

Answer 6

Lender

Question 7

The lender has employees called ____ (aka ____) who carry out the underwriting process and decide whether to except or reject the loan application

Answer 7

Loan underwriters;

Credit underwriters

Question 8

2 risks the lender assumes every time a loan is made:

1) The risk that the _____ will not pay off the loan as agreed; and
2) The risk that, if the loan is defaulted on, the property will be worth __(more or less)__ than what the ____ owes the ____

Answer 8

1) Borrower
2) less;
Borrower;
Lender

Question 9

To evaluate the lenders risk, the underwriter tries to answer two questions during the underwriting process:

1) Can the borrower be expected to make the ___ loan payments on time, based on his _____ financial situation
2) If the borrower defaults will the _____ property generate enough money in a _____ sale to pay off the loan balance?

Answer 9

1) monthly;
Overall

2) security;
Foreclosure

Question 10

The underwriters evaluation of the property is based on a(n) ____

Answer 10

Appraisal

Question 11

T/F: The appraisal process is Similar to the process used to price property, but it’s also more rigorous

Answer 11

True

Question 12

T/F: Lenders me establish their own qualifying standards

Answer 12

True

Question 13

What are the major secondary market agencies

Answer 13

Fannie May and Freddie Mac

Question 14

Conventional loans that don’t meet the standards set by Fannie Mae and Freddie Mac are referred to as ____ loans

Answer 14

Nonconforming

Question 15

T/F: Lenders want to be able to sell their loans on the secondary market

Answer 15

True

Question 16

Why are nonconforming loans more difficult to sell?

Answer 16

Non-conforming loans don’t need the standards set by it’s major secondary market agencies (Fannie Mae and Freddie Mac)

Question 17

While 1)_____ vary/varies, the 2)____ is/are basically the same no matter what type of loan the buyer has applied for

a) Underwriting process
b) Qualifying standards

Answer 17

1) Qualifying standards

2) Underwriting process

Question 18

An ____ can analyze the borrowers loan application and credit report and provide a recommendation for or against approval

Answer 18

Automated Underwriting System

Question 19

AUS is an acronym for ____

Answer 19

Automated Underwriting System

Question 20

T/F: Then ounces of a loan application can be completely automated

Answer 20

False

Question 21

The information or lender uses to evaluate the buyers complete financial situation can be broken down into the following three basic categories:
1)
2)
3)

Answer 21

1) Income
2) Net worth
3) Credit History

Question 22

borrower’s gross employment income plus other income that is reliable and likely to endure = _____

Answer 22

Stable monthly income

Question 23

To be considered stable monthly income, alone applicants income must be of a high ____, and it must also be ___

Answer 23

Quality;

Durable

Question 24

T/F: Government agencies are considered a very dependable source of income

Answer 24

True

Question 25

Income is considered ___ if it can be expected to continue for a long period of time

Answer 25

Durable

Question 26

Durable income typically includes:

Answer 26

1) Wages from permanent employment;
2) Disability benefits; and
3) Interest on established investments

Question 27

As a general rule, a loan application should have continuous employment for at least ___ years in the same field

Answer 27

2

Question 28

T/F: Special training or education can make up for minor weaknesses in job history

Answer 28

True

Ex: Recently finishing college or leaving the Armed Forces

Question 29

T/F: Changing jobs to advance ones career as a good sign; Changing jobs persistently without any advancement will likely be seen as a problem by the lender

Answer 29

True

Question 30

T/F: Self-employment income is considered as durable and dependable as other types of employment income

Answer 30

False

Lenders are more reluctant to count self employment income as stable monthly income

Question 31

When will a lender count the income of a self-employed buyer who has been in business for a short time

Answer 31

1) If the buyer has a history of employment in the same field; and
2) If the buyer can document a reasonable chance for success based on market feasibility studies and pro forma financial statements

Question 32

When can bonuses, commissions and part-time earnings be considered stable monthly income?

Answer 32

If they’ve been a regular part of a loan applicant’s overall earning pattern for at least 1 year (Preferably 2 years)

Question 33

Preapproval letter

Answer 33

The lender will issue a preapproval letter that commits the lender to loaning the buyer up to a specified maximum amount once the buyer has selected a house.

Question 34

T/F: A real estate agent can pre-approve a buyer

Answer 34

False

Only a lender can preapprove a buyer

Question 35

T/F: The maximum loan amount is the maximum amount that a buyer may spend on a property.

Answer 35

False

To determine the maximum a buyer may spend, add the amount the buyer has available for a downpayment to the maximum loan amount available.

Question 36

Lender’s risks:
1)
2)

Answer 36

1) Borrower might default

2) Property might not provide adequate security for loan

Question 37

Lenders’ risks are reduced by using ___

Answer 37

Underwriting standards

Question 38

Underwriting standards are applied to both the ___ and the ____

Answer 38

Loan applicant;

Property

Question 39

T/F: Techniques used in the appraisal process or more rigorous than those used in the comparative market analysis process

Answer 39

True

Question 40

For the most part, lenders use uniform underwriting standards established by the two major government-sponsored enterprises that buy loans from lenders, ___ and ___

Answer 40

Fannie Mae

Freddie Mac

Question 41

To evaluate a mortgage loan applicant, the lender examines the information included in the loan application, plus additional information acquired from a ____ and ____

Answer 41

Credit report

Verification forms

Question 42

In looking at a loan applicant’s income, a lender goes through a two-step process:
1)
2)

Answer 42

1) monthly income
2) is the monthly income enough to make the required mortgage payments for the proposed loan
(and still have enough money for the applicant’s other monthly expenses)

Question 43

Two characteristics, ___ and ___, determine whether income is good enough to be considered stable monthly income

Answer 43

Quality

Durability

Question 44

Requirements for analyzing income:
1)
2)
3)

Answer 44

1) quantity
2) quality
3) durability

Question 45

Income ____ refers to the reliability or dependability of the source.

Answer 45

Quality

Question 46

Stable monthly income is income from a ___ source.

Answer 46

reasonably reliable

Question 47

___ = (refers to) reliability

Answer 47

Quality

Question 48

According to Fannie Mae, stable monthly income is ___ years

Answer 48

3

Question 49

Income expected to continue for a reasonable period of time = ____

Answer 49

Durable

Question 50

Examples of ____ income include wages from permanent employment, permanent disability benefits, and interest on established investments.

Answer 50

Durable

Question 51

T/F: Permanent disability benefits does not count as durable income

Answer 51

False

Question 52

The most common source of stable monthly income is income from ____ employment.

Answer 52

Permanent

Question 53

For an applicant to be considered as having stable monthly income, the applicant should be employed in the same field for at least ___ years

Answer 53

2

Fannie Mae = 3

Question 54

Increase in ___ and/or ___ are 2 acceptable reasons for changing jobs in a short period

Answer 54

Salary

Responsibilities

Question 55

A real estate pro forma report details a property’s projected NOI (aka ____) and ____ projections using its current and potential rental income and operating expenses

Answer 55

Net Operating Income

Cash flow

Question 56

a document that helps investors evaluate a property’s potential profit = ____

Answer 56

Pro forma

Question 57

2 main supporting docs for self-employed applicants:
1) 
2)
Other supporting docs:
3)
4)
5)

Answer 57

1) Feasibility studies
2) Pro forma financial statement
3) Client list
4) new contracts
5) tax records

Question 58

Primary employment income = ___ or ___

Answer 58

Regular wages

base salary

Question 59

secondary types of employment income:
1)
2)
3)

Answer 59

1) bonuses
2) commissions
3) part-time employment income

Question 60

When might secondary types of employment and can be used to qualify for a loan?

Answer 60

When they are in established part of an Applicant’s earnings history

Question 61

Income that counts as stable monthly income:
1)
2)
3)
4)
5)
6)
7)
8)

Answer 61

1) Employment income
2) Pensions
3) social security
4) Alimony / spousal maintenance (if the payments are reliable
5) child support
6) public assistance
7) investments
8) rental Income

Question 62

T/F: if alimony payments are made sporadically and the applicant has not taken action to compel the ex-spouse to make the payments, the lender will not count alimony as stable monthly income

Answer 62

True

Question 63

child support constitutes stable monthly income only if:
1)
2)
3)*

Answer 63

1) a court decree requires the payments and
2) payment has been regular
3) the child is not close to the age of majority*

Question 64

T/F: If the child is over the age of 16, the lender probably won’t count the child support payments

Answer 64

True*

The book says 15…???

Question 65

Ex income from public assistance =___ and ____

Answer 65

Welfare

Food stamps

Question 66

The _____ prohibits lenders from discriminating against loan applicants because any of their income is from a public assistance program.

Answer 66

Equal Credit Opportunity Act

Question 67

T/F: If public assistance payments (such as welfare and food stamps) are expected to continue for a sufficient period of time, the lender must consider the payments stable monthly income.

Answer 67

True

Question 68

Income from investments, such as __ or ___, can also be considered stable monthly income.

Answer 68

Stock dividends

Interest on a savings account

Question 69

When will income for investments not be considered as part of the applicant’s income

Answer 69

if the applicant has to sell the stock or use the money in the savings account to make his downpayment or to pay for closing costs

Question 70

Lenders typically follow the practice of only including ___% of an applicant monthly rental income

Answer 70

75%

Question 71

Unacceptable income
1)
2)
3)

Answer 71

1) Unemployment income
2) family members’ earnings
3) temporary employment

Question 72

When might temporary income be considered to be acceptable income by a lender

Answer 72

When a person goes from one temporary job to the next and therefore has work all the time (and has for multiple years)

Question 73

T/F: Long-term temporary employment might be considered acceptable self-employment income

Answer 73

True

Question 74

T/F: lenders only consider the stable monthly income of the loan applicant (and his/her spouse)

Answer 74

True