Loan and Property Qualification

Question 1

What are the four critical procedures for processing a loan?

Answer 1

Determine the ability of the borrower to repay the loan
Estimate the value of the property that is collateral for the loan
Research and analyze the marketability of the title.
Prepare the documents necessary to approve the loan and close the transaction.

Question 2

Define underwriting

Answer 2

The evaluation process used to determine the borrower’s ability to repay a loan and estimating the value of the property being used as collateral.

Question 3

Who usually performs the underwriting tasks?

Answer 3

The loan officer at the financial institution

Question 4

What is detailed in the Assets and Liabilities section of the loan application?

Answer 4

All things of value that are owned by the borrower, including cash, stocks, bonds, life insurance policies, value of real estate owned, value of businesses, and value of automobiles and other personal property are detailed in the assets section.
What the borrower owes, including auto loans, charge accounts, real estate loans, medical bills, insurance premiums and any long-term liabilities such as alimony and child support payments are detailed in the liabilities section.

Question 5

What is the Request for Verification of Deposit form?

Answer 5

A verification form that allows the bank to give the lender information about current balances in the borrower’s accounts.

Question 6

What kinds of information does an employer provide on the Verification of Employment form?

Answer 6

The information includes the borrower’s wages and length of employment, an opinion of the borrower’s attitude on the job, the probability of continued employment and a prediction of what the borrower’s prospects are for pay increases or promotions.

Question 7

What is the most important part of the credit report?

Answer 7

The borrower’s payment history

Question 8

Name two red flags that might appear on a borrower’s credit report. (See other correct answers on screen 17.)

Answer 8

The employment or residence data on the credit report is different from the application.
There are several recent inquiries from credit card companies or other mortgage lenders

Question 9

Explain the difference between market value and market price.

Answer 9

Market value is an opinion of the value of a property based on analyzing data collected about the property. The market price of a property is the actual sales price.

Question 10

What does the term anticipation mean as it relates to property value?

Answer 10

The benefits a buyer expects to receive over the period of time he or she holds the property.

Question 11

What are the four levels of appraiser licensing?

Answer 11

Trainee License
State Licensed Appraiser License
Certified Residential License
Certified General License

Question 12

What are the three approaches to estimating a property’s value?

Answer 12

Sales comparison approach
Cost approach
Income approach

Question 13

When a lender is processing a loan, there are four critical procedures involved.

The lender or its designee must:

Answer 13

Determine the ability of the borrower to repay the loan.
Estimate the value of the property that is collateral for the loan.
Research and analyze the marketability of the title.
Prepare the documents necessary to approve the loan and close the transaction.

Question 14

The evaluation process used to determine the borrower’s ability to repay a loan and estimating the value of the property being used as collateral is called

Answer 14

Underwriting

Question 15

Underwriting is usually performed by

Answer 15

a loan officer at a financial institution and is based on information contained in the borrower’s loan application and an appraisal of the property. Underwriting is the most important and last approval step in the loan process before the loan is forwarded to the loan department to draw up the actual loan documents.

Question 16

The loan process starts

Answer 16

when a borrower completes a loan application and gives it to a lender for evaluation

Question 17

Most lenders use some version of the

Answer 17

Uniform Residential Loan Application published by Fannie Mae. Once the borrower has submitted the loan application to the lender, the actual underwriting process begins. The underwriter must evaluate the borrower’s ability to repay the loan.

Question 18

To qualify for a mortgage loan, a borrower must meet the lender’s qualifications in terms of

Answer 18

income, debt, cash, and net worth. In addition, the borrower must demonstrate sufficient creditworthiness to be an acceptable risk.

Question 19

The loan officer who will be doing the underwriting will verify

Answer 19

all of the information included on the application by actually contacting the references given. The underwriter will check the banks where the borrower has deposits and will check with the borrower’s employer or employers.

Question 20

At the same time the underwriter is reviewing financial and employment information

Answer 20

the underwriter will also send a request for a borrower’s credit reports to the three reporting agencies. The credit report indicates the status of current and past accounts. It indicates the dates that payments were made and how regularly they were made, whether or not they were delinquent or if there are any outstanding balances. The borrower’s payment history is the most important part of the report.

Question 21

Once the loan processor has reviewed all of the information provided with the application, in addition to all other information that was collected

Answer 21

he or she will decide either to approve or reject the loan application.

Question 22

Once the lender has determined that the borrower is qualified to receive a loan

Answer 22

the lender will move on to the job of qualifying the property to determine if the property is a good risk.

Question 23

It is important for the lender to determine the market value of a particular piece of property at any given point in time

Answer 23

The Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) of 1989 requires that real estate appraisals be in writing and be performed by competent individuals in accordance with a set of uniform standards.

Question 24

There are three approaches to estimating the value of a property:

Answer 24

Sales comparison approach
Cost approach
Income approach

Question 25

The Uniform Residential Appraisal Report (URAR), referred to as the 1004 Form, has become the standard in the industry. This report requires the appraiser to do all of the following tasks:

Answer 25

Perform a visual inspection of the interior and exterior areas of the subject property.
Inspect the neighborhood.
Inspect each of the comparable sale properties (at least from the street).
Collect, confirm and analyze data from reliable public or private sources.
Submit his or her analysis, opinions and conclusions in the report.

Question 26

After the underwriting process is complete and after the lender and borrower have negotiated, if the loan is approved

Answer 26

the lender will issue a loan commitment.