General Mortgage Knowledge Flashcards
What type of loan would commonly use an extended rate lock?
new construction
Construction to permanent loans
allow for a cash-out in a two-time close if the equity exists.
A conforming loan
follows the secondary market criteria set by Fannie Mae/Freddie Mac.
Conforming loans follow the underwriting guidelines of
Fannie Mae and Freddie Mac.
The income housing expense and total debt-to-income ratios for conventional conforming loans are
28% and 36%.
Mortgage loans offered through FHA, VA, and USDA Section 502 programs are referred to as what type of loan?
non-conventional
When construction is complete, the appraiser verifies that plans and specifications have been met and the original opinion of value is valid; the loan is then replaced by a permanent amortizing loan, often called a
take-out loan.
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?
The buyer cannot hold the veteran who sells the property secondarily liable.
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?
3
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?
28%
The difference between the index value and the fully indexed rate on an adjustable-rate mortgage (ARM) is called a
margin.
What formula is used to determine how much lenders are willing to loan on a given property based on the value of the property?
Loan Amount / Lesser of Sale Price or Appraised Value
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)
trust deed.
Which of the following loan provides a “safe harbor” for mortgage lenders from liability if the loans are not also higher-priced?
qualified
The Federal National Mortgage Association is also known as
Fannie Mae.
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
Fannie Mae.
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
home equity line of credit.
The relationship between the cost of borrowing and the total amount financed, represented as a percentage, is known as
the APR.
All of the following statements are TRUE about an interest-only mortgage EXCEPT
Borrowers are not free to make payments toward the principal balance at any time during the mortgage term
A loan that is amortized over 30 years with the balance due in 15 years is known as a(n)
Balloon Mortgage
With a(n) ____ mortgage, a borrower only pays the interest on the loan for a certain period of time or throughout the duration of the loan.
Interest only
What term is best described as when a seller extends credit to a buyer to finance the purchase of the property?
Seller financing
What is the type of loan where a seller may finance all or part of the sale of property for the buyer?
Purchase money mortgage
Under a one-time construction close that has taken more than ___ to be completed, FNMA will require that the borrower pay a rate lock extension fee.
4 months
Funding for a construction loan is usually made
Periodically, as the building is constructed
A home equity line of credit tends to provide borrowers with all the following benefits EXCEPT the benefit of
A fixed interest rate
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.
Land contract
___________, the HECM program requires prospective borrowers to participate in a consumer counseling session given by an approved counselor.
Before they can apply for the loan
______ loans are secondary loans that are paid after all first liens have been paid in the event of a default.
Subordinate
To protect themselves, lenders use plans for disbursing construction loan proceeds to guard against overspending by the borrower. With the _____, the lender directly pays bills presented by the various suppliers and laborers on a project.
Warranty System
What is NOT an advantage of a fixed-rate balloon mortgage for a borrower when compared to a traditional fixed-rate mortgage loan?
Faster approval process
A mortgage loan that is secured by real estate that allows the borrower to obtain multiple advances of funds up to an approved amount is known as a(n)
Home equity line of credit
Under a land contract, who holds title to the land?
The vendor (seller)
Which of the following is NOT a reason that a typical reverse mortgage becomes due?
No withdrawals are made in a consecutive 12 month timeframe
When a mortgage broker closes a mortgage loan with funds from XYZ lender and then assigns the loan to XYZ lender, this process is called
Table funding
Which of the following allows a borrower to make a tradeoff between paying more upfront costs and receiving a lower interest?
Discount points
The loan-to-value ratio is used by lenders to determine
The amount they are willing to loan on a given property based on its value
A ____ is money a lender gives to a borrower to offset closing costs when, in exchange, the borrower pays a higher interest rate.
Lender credit
In terms of a mortgage loan closing, conveyance is best described as
The transfer of title through the deed
A mortgage based on the calculation of interest daily is called a(n)
Simple interest mortgage
A ____ is the compensation paid to a mortgage broker for giving a borrower an interest rate above the lender’s par rate on a loan in exchange for lower upfront costs.
Yield spread premium
A popular way to reduce a buyer’s payment amount when interest rates are high is a
Temporary buydown
A _____ plan is where payment subsidies, usually from a seller or developer, in the early years of the loan keep payments low but payments increase each year until they are sufficient to fully amortize the loan.
2/1 buydown
The succession of conveyances of the title to real property is known as the
Chain of title
A ____ is the cost of consumer credit as a dollar amount.
Finance charge
What is the name of the account that a lender maintains to hold a borrower’s monthly payments for property insurance and property tax until those bills are due?
Escrow account
What is the term used to describe interest on a loan that has accumulated since the principal investment or since the previous coupon payment if there has been one already?
Accrued interest
As defined by Regulation X, which loan type does NOT fall under the definition of a federally-related mortgage loan?
Temporary construction loan
A _____ is a written or electronically transmitted agreement between a lender and an applicant for a mortgage loan which, subject to the terms outlined in the agreement, obligates the lender to make a mortgage loan at a specified rate and a specific time period.
Rate Lock Agreement
The term “par rate” is best described as
A rate that requires no discount points and pays no yield spread premium
The act of voluntarily allowing another lender to take senior lien position is called
Subordination
Which item is NOT included in the calculation that determines the annual percentage rate?
Purchaser’s title insurance premium
What is the name of the market that is BEST defined as the place borrowers and MLOs come together to negotiate terms and close mortgage loan transactions?
Primary mortgage market
If a customer wants to refinance his first mortgage and leave an existing second mortgage in place, the second lender must sign a(n)
Subordination agreement
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
May buy the home, but only borrow up to the maximum FHA loan amount from the FHA approved lender
What mortgage clause prevents someone from assuming a loan without lender permission?
Alienation clause
A 10% overage may be calculated as part of the final loan amount determination when underwriting a construction loan to account for
Cost overruns
What do you call a deed that carries guarantees of clear title and the grantor’s right to convey?
Warranty deed
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
Reverse mortgage
What is described as the act of one party taking over primary liability for the loan of another party, usually implying no change in loan terms?
Assumption
With a trust deed, an independent third party, called the ____, holds the trust deed.
Trustee
After mortgage banks sell mortgages to third-party investors in the secondary market, these lenders may continue to generate income by
Servicing the loans for the investors who have purchased the loans
Which characteristic distinguishes an FHA-insured loan from a conventional loan?
FHA loans cannot have prepayment penalties
Total cost of financing a loan in percentage terms is the
Annual percentage rate
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
Land contract
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
Negative amortization
A partially amortized mortgage requires a
Balloon payment
What is the maximum seller concession for a VA-guaranteed loan?
4% and reasonable discount points
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?
Subprime
Which is used to allow access to funds from the construction loan?
Draw process
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?
Convertible ARM
Which statement is TRUE about interest rate buydowns on FHA loans?
A borrower must qualify at the note rate
Which borrower would be the best candidate for a reverse equity mortgage?
A borrower who is age 62 or older who owns their home free and clear
The loan type which limits the LTV to 96.5% for credit scores of 580 or higher after all allowable financed items is
FHA insured
An A-minus loan is
Riskier than a prime loan and less risky than subprime loan
What type of loan has a minimum down payment requirement of 3.5% in most circumstances?
FHA Insured
Loans that combine construction and permanent financing cannot be pooled or delivered to Fannie Mae until
All construction is complete and the terms of the construction loan have converted to permanent financing
Which statement about VA-guaranteed loans is FALSE?
A veteran’s parent may co-sign
On the Loan Estimate, a permanent buydown of the interest rate by the borrower will show as a
Charge to the borrower
Which statement about a reverse mortgage is FALSE?
The borrower needs to be at least 50 years old to qualify
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 balloon loan
When the lender loans money to a borrower and the borrower gives the lender a mortgage, this relationship is referred to as the
Primary mortgage market
With a fixed-rate loan,
Principal and interest payments remain constant
A home equity conversion mortgage and an adjustable-rate mortgage are both examples of
Nontraditional loans
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.
Qualified
All of these fall under the category of a qualified mortgage (QM) EXCEPT
Any loan with a term of more than 30 years
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
80% LTV
Private mortgage insurance applies to
Conventional loans
What is considered a toxic loan feature under the Ability to Repay/Qualified Mortgage (ATR/QM) Rule?
Negative amortization
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?
Conventional
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
Home equity lines of credit
Which of the following is a traditional conventional loan?
30 year fixed rate mortgage
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.
Fully amortizing
With a conventional 97% LTV loan that conforms to Fannie Mae standards, what is the down payment requirement?
3%
Federal Housing Administration loans are insured by the federal government through the
Department of Housing And Urban Development
GNMA insures what type of mortgage-backed securities?
FHA
Fannie Mae requires private mortgage insurance on home loans with less than
20% Down
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
DD-214
When applying for a VA-guaranteed loan, an inactive veteran needs to supply the DD-214 as proof of
Discharge
Which borrower is eligible for a VA-guaranteed loan?
A veteran who has been issued a certificate of eligibility
What type of income calculation is used for VA-guaranteed loans?
Residual income
Who is the target borrower for a VA-guaranteed loan?
Veterans
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?
$2,625
(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.)
What two agencies provide traditional government agency-backed mortgage products?
FHA and VA
Veterans can generally purchase a home priced up to ____ times the amount of their entitlement with no down payment.
4
What is the basic entitlement available to veterans for a VA-guaranteed loan?
$36,000
(All eligible veterans receive $36,000 of basic entitlement or maximum guarantee amount.)
Lenders who are authorized to underwrite their own FHA-insured loan applications have what type of underwriters in their office?
Direct endorsers
What program uses a Certificate of Reasonable Value to determine the value of the property?
VA-guaranteed
The federal government insures what type of loan?
FHA
What entity specializes in helping persons who live in rural areas with a population of less than 35,000 with obtaining mortgage loans?
Department of Agriculture
Subprime loans are
Loans with a generally higher interest rate than prime loans
The interest rate of a fixed-rate loan
Remains constant for the duration of the loan
Which would the FHA NOT allow for a purchase price addition?
Hot tubs
A nonconforming loan refers to a loan that does NOT
Follow Fannie Mae/Freddie Mac criteria
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
35,000
With a fixed-rate mortgage loan, an increase in what item may increase the monthly payment amount?
Property taxes
For a lower-income buyer with high debt ratios, a preferred loan choice might be a(n)
FHA insured loan
Which is TRUE about nonconforming loans?
They may cost a homeowner more in fees
A jumbo loan is a type of
Nonconforming loan
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.
Alt-A
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.
80%
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.
60
Which type of mortgage is most likely to cause payment shock, according to the Interagency Statement on Subprime Mortgage Lending?
Adjustable rate mortgage
A disadvantage of a 15-year fixed-rate loan versus a 30-year fixed-rate loan is
Monthly payments are usually higher
The property value acceptable to the FHA as loan collateral is determined by the
Lesser of the appraised value or purchase price
Which of the following is NOT a feature of a Section 502 Direct Loan offered by the USDA?
3.5% down payment
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?
Fixed rate mortgage
DeDe got a mortgage loan where she pays only interest for the first five years, then begins paying both interest and principal for the next 25 years. This arrangement could best be referred to as a(n)
Hybrid loan
A limit on the amount the interest rate can increase for an adjustable-rate mortgage is its
Cap
With an ARM, the margin is added to the selected index to determine the
Fully indexed rate
To determine the fully indexed rate of an ARM, the margin is added to the
Index
The interest rate of an adjustable-rate loan
Fluctuates according to a standard predetermined index
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%?
3/1 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.)
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)
Adjustable rate mortgage
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.
60
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?
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).)
A(n) _____ is specifically required within three business days of a complete application for an adjustable-rate mortgage loan.
CHARM Booklet
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)
Adjustable rate loan
