Mortgage Loan Origination Activities

Question 1

What is the minimum down payment percentage on an FHA loan?

Answer 1

3.5%

Question 2

If Larry wants to buy a house for $105,000, with an appraised value of $112,000, how much will he have to pay down on an FHA loan?

Answer 2

$105,000 X .035 = $3,675
Based on the value that is less

Question 3

What are the DTI ratios on an FHA loan?

Answer 3

31/43

Question 4

T/F: Market value is based on the appraised value of the home.

Answer 4

False, it is based on the most profitable/max selling price.

Question 5

Of these, who is responsible for the accurate accounting of all monies due to and from the parties in a real estate sale?
A. RE Agent
B. Lender
C. Broker
D. Title agent

Answer 5

While the lender and broker are responsible for financial accuracy, only the title agent is responsible for the accuracy of monies to and from all parties.

Question 6

In a VA loan: The maximum guarantee amount that determines how much guarantee assistance a veteran can get on a VA loan.

Answer 6

Entitlement

Question 7

The maximum amount guaranteed for a VA loan..
A. Varies by the amount of entitlement an eligible Veteran has
B. Is set by the lender
C. Cannot exceed $113,275

Answer 7

A. Varies by the amount of entitlement

Question 8

The instrument conveying real property ownership from grantor to grantee is a
A. Note
B. Mortgage
C. Deed
D. Settlement statement

Answer 8

C. Deed
document used by the owner of real property to transfer all or part of his or her interests in the property to another. The deed serves as evidence of title.

Question 9

T/F: Borrowers who meet the income limits in designated rural areas do not need a down payment to get a USDA loan.

Answer 9

TRUE
Min. down payment requirement on a USDA loan= 0%

Question 10

What is the document that may be used by the VA to determine the maximum mortgage amount?
A. Purchase price in Sales Contract
B. Recent Tax Records
C. Certificate of Reasonable Value

Answer 10

C. Certificate of reasonable value

The CRV is issued by the VA & states the value of the subject property based on an approved appraisal. The CRV (or the sale price, whichever is less) may be used to establish the max. mortgage amount that a veteran may have

Question 11

Section 502 loans are a program of which government entity?
A. USDA Rural Development
B. FHA
C. HUD
D. VA

Answer 11

A. USDA Rural Development (Section 502 loan program)

Question 12

The acquisition cost of a property is $100,000 (sale price is $95,000 and the closing costs are $5,000) and the loan amount is $85,000. The seller is paying $2,000 of the closing costs. What is the total amount the borrower will need to bring to closing if the earnest money is $500 and being credited on the Closing Disclosure at closing?

Answer 12

$100,000 - $85,000 - $2,000 - $500 = $12,500

Answer: $12,500
KEY WORD: acquisition cost

Question 13

The loan amount (principal) is $50,000 and the annual interest paid is $5,500. What is the annual interest rate?

Answer 13

11%
To calculate the interest rate, you take the annual interest amount paid ($5,500) and divide by the loan amount ($50,000).

Question 14

Annual interest amount paid divided by loan amount gives you…

Answer 14

Interest rate

Question 15

The document issued by the federal government certifying a veteran’s eligibility for a VA mortgage is known as a(n)

Answer 15

Certificate of Eligibility

Question 16

Lawrence’s stable monthly income is $7,200 and he has the following monthly bills: credit card, $150; car payment, $325; and child support, $500. How much can he afford for a house payment (including PITI), if debt ratios are 28/36?

Answer 16

Monthly income ($7,200) x 28%= $2,016 front end
Total debt service ratio 36%: $7,200 (income) x 0.36= $2,592
From back end of $2,592, you subtract monthly debts (150 + 325 + 500) which leaves $1,617
You must choose the lesser of the two.

Question 17

Jim’s gross monthly income is $4,500 per month and his wife Jan’s is $3,700. They have a car payment for $320 a month and $175 a month in credit card debt. They also have a 401K loan repayment of $475 with eight months remaining. What is the maximum monthly house payment they qualify for, including PITI, with a conforming loan and acceptable ratios of 28/36?

Answer 17

$2,296
Add monthly incomes together: $4,500 + $3,700 = $8,200. The lender allows a 28% housing ratio: $8,200 x 28% = $2,296. Now, the lender allows a 36% debt service ratio: $8,200 x 36% = $2,952. Let’s subtract the debt (do not include the 401K payment since 401k loans are not included in the debt ratio): $2,952 - $320 - $175 = $2,457.
They must qualify under both ratios, so the lower figure is the maximum they can qualify for. Jim and his wife qualify for a maximum monthly mortgage payment of $2,296.

Question 18

How do you find monthly income for a borrower that is paid bi weekly

Answer 18

Bi-weekly income x 26 weeks (bi weekly pay in a year) / 12 months= Monthly income

Question 19

Lucy has just signed a sale contract on a purchase for $180,000. She has $27,000 cash to provide at closing. Her closing costs are $3,200 and the seller is paying $1,000 of the closing costs. She qualifies for a 90% LTV mortgage. How much money does she have left over, or how much is she short, for closing?

Answer 19

To calculate the money Lucy needs for closing, remember she qualifies for a 90% LTV, so she needs to bring 10% of the sale price to closing ($180,000 x 10% = $18,000). The closing costs are $3,200 and the seller is paying $1,000 of it, so: $3,200 - $1,000 = $2,200. Therefore, Lucy needs to bring a total of ($18,000 + $2,200) $20,200 to closing. Lucy has $27,000 in available funds, so: $27,000 - $20,200 = $6,800 left over.

Question 20

Phil’s property appraises for $191,000. His first mortgage rate is 4.75% and his second mortgage rate is 15%. He has decided that he wants to leave his $55,000 first alone and refinance his second and get cash to finish the basement. He qualifies for an 85% CLTV. What is the maximum second mortgage loan amount if his closing costs are $1,500 and are financed?

Answer 20

If the appraised value of the property is $191,000, and he’s approved for 85% loan-to-value, you need to multiply the value by 85% (191,000 x .85 = 162,350) and then subtract the amount of the first mortgage and closing costs to find the maximum loan amount of the new second (162,350 - 55,000 - $1,500 = $105,850).

Question 21

The calculation for figuring a loan-to-value ratio is
1. Loan amount x appraised value
2. Loan amount / by appraised value
3. Appraised value x by loan amount

Answer 21

2.) Loan amount divided by appraised value

Question 22

The value of an improvement is equal to…
1.) What it actually cost to make the improvement in both materials and labor
2.) What it actually contributes in bona fide value to the piece of real estate
3.) Only what the owner spent on the materials necessary to make the improvement

Answer 22

2.) What it actually contributes in bona fide value to the piece of real estate

A particular item or feature of a property is only worth what it actually contributes in value to that piece of real estate.

Question 23

What entity created the Uniform Residential Loan Application, form 1003?
1.) HUD
2.) Freddie Mac
3.) Frannie Mae

Answer 23

Fannie Mae created Form 1003, which is used nationally for all types of loan

Question 24

The title insurance protects a title and the process of the closing against risk of defects, forgeries, and errors that occur during what time period?

Answer 24

From the time the land was first registered until the time of closing. It covers the title exam from defects, and the closing from errors.

Question 25

The sales contract in Joe’s file states the agreed purchase price is $227,000. The closing costs are $5,200. The seller is paying $1,000 in closing costs on a $175,000 loan amount. What is the acquisition cost?

Answer 25

The acquisition cost includes the sale price plus the buyer’s closing costs. From that, you can subtract any of the closing costs the seller will pick up: $227,000 + $5,200 - $1,000 = $231,200

Question 26

What is the basic entitlement available to veterans for a VA loan?
1.) $78,000
2.) $144,000
3.) $55,000
4.) $36,000

Answer 26

4.) $36,000
All eligible veterans receive $36,000 of basic entitlement, or maximum guarantee amount.

Question 27

VA loans allow for a maximum LTV of what percent?
1.) 90%
2.) 85%
3.) 85%
4.) 100%

Answer 27

4.) 100%
VA loans allow 100% financing (no down payment), and also allow the seller to pay the borrower’s closing costs.

Question 28

What is the maximum seller concession for a VA loan?
1.) Sellers are not allowed to pay any closing costs
2.) 3% and 2 discount points
3.) 4% and reasonable (2) discount points
4.) 2% and no discount points

Answer 28

3.) The Veterans Administration allows the seller to pay 4% of the closing costs plus reasonable discount points (2%).

Question 29

To determine net worth, subtract ________ from ________

Answer 29

Subtract liabilities from total assests

Question 30

When applying for a VA loan, an inactive veteran needs to supply the DD-214 as proof of….

Answer 30

Discharge

Question 31

A lender will not consider debt when there are less than ______ payments left

Answer 31

Less than 10 payments remaining except for leases which are always counted regardless of how many months remain

Question 32

The minimum investment for an FHA loan when the FICO score is between 500 and 579 is ________
A.) 5%
B.) 3.5%
C.) 10%

Answer 32

C.) 10%

Question 33

The VA loan programs include terms of all of the following, EXCEPT…
A. 10 years
B. 15 years
C. 20 years
D. 25 years
E. 30 years
F. 40 years

Answer 33

F. 40 years

Question 34

What is the monthly mortgage insurance payment on an $180,000 loan using a multiplier of 0.65%?

Answer 34

$97.50

Question 35

Susan has a FICO score of 620. What is the minimum down payment (cash investment) contribution for her to get an FHA loan on a $75,000 home?

Answer 35

$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.

Question 36

When filling out the loan application, a borrower that has ownership interest in the business that employs her should be marked as self employed when that interest reaches what percentage?
A. 20%
B. 25%
C. 50%

Answer 36

B. 25%

Question 36

When filling out the loan application, a borrower that has ownership interest in the business that employs her should be marked as self employed when that interest reaches what percentage?
A. 20%
B. 25%
C. 50%

Answer 36

B. 25%

Question 37

What is the minimum number of comps required by most secondary lenders to ensure an accurate estimate of value when performing the sales comparison approach?

Answer 37

A minimum of THREE comparables are required by most secondary market lenders to ensure an accurate appraisal from sufficient data.

Question 38

Chapter ____ bankruptcy is also known as a liquidation proceeding.

Answer 38

Chapter 7
The debtor turns over all non-exempt property to the bankruptcy trustee, who then converts it to cash for distribution to the creditors. The debtor receives a discharge of all dischargeable debts.

Question 39

Threshold to resending Closing Disclosures if APR increases by ….

Answer 39

1/8th or .125
Lender must redisclose and wait another 3 days to close

Question 40

What is the biggest component of a credit score?

Answer 40

Payment History
35% of a FICO score is based on payment history.

Question 41

T/F: Homeowner’s Association fees are not required to be included on the 1003 loan app

Answer 41

FALSE
The association fees must always be disclosed on the application as a monthly obligation in order for the debt ratios to be calculated properly

Question 42

Which would the FHA NOT allow for a purchase price addition?
1.) Solar energy systems
2.) Hot tubs
3.) Financeable repairs

Answer 42

2.) Hot tubs
Some FHA loan programs allow financing of energy efficient renovations or repairs. A hot tub would not be an allowable price addition.

Question 43

T/F: FHA loan cannot contain a prepayment penalty.

Answer 43

TRUE

Question 44

Which information is NOT relevant in determining comparables for an appraisal?
1.) Similarity to the subject
2.) Location
3.) Sales in the same market area
4.) Sales from five years previous

Answer 44

4.) Sales from five years previous
A sale that occurred five years ago could not be considered a comparable sale when conducting an appraisal. Typically, only the previous 12 months market history is considered.

Question 45

Which element would be considered part of the gross living area? (sq ft)
1.) Unheated sun porch
2.) Garage
3.) Bedroom’s walk-in closet
4.) Finished basement

Answer 45

3.) Bedroom’s walk-in closet
Only heated, finished living areas above grade are considered in the square footage for the gross living area.

Question 46

Appraisal Approach: Income Approach is..

Answer 46

An appraisal method used to determine value of investment property based on the income it is expected to generate.

Question 47

Appraisal Approach: Sales comparison approach…

Answer 47

Estimated value of subject property in comparison to similar properties that have recently sold in the area and same market

Question 48

Appraisal Approach: Cost approach…

Answer 48

Buyers will not pay any more for a product than they would for the cost of producing a similar product that has the same level of utility. Useful for special use properties or properties with unique components

Property’s value should equal the cost of building an equivalent building, taking into account the cost of the land and construction expenses, less depreciation.

Question 49

Discount points are 1% of the….

Answer 49

Loan amount NOT Purchase price

Question 50

T/F: An example of economic obsolescence is a property with termites

Answer 50

TRUE
Economic obsolescence refers to the loss of value of a real estate property due to factors that are external to the property.

Question 51

Red Flags Rule deals with…

Answer 51

Identity- required by the Fair and Accurate Credit Transactions Act of 2003 (FACT Act)

Question 52

Your borrower has a property that appraises for $200,000. Her existing first mortgage has a payoff amount of $95,000. What is the maximum loan amount available if she can borrow up to 85% CLTV on a second mortgage?

Answer 52

$200,000 X 85% - $95,000 = $75,000

Question 53

A mortgage loan originator’s obligation is over when the loan is ___________.

Answer 53

FUNDED (*not closed or consummated)

Question 54

_____________ gives borrower a 3-day cooling off period after receipt of the disclosures
A. RESPA
B. TILA
C. HOPEA
D. HUD

Answer 54

HOEPA (Home Ownership and Equity Protection Act)
gives borrowers with high-cost loans a three day right of rescission.
3-day cooling off period after receipt of HOEPA disclosures

Question 55

What is the loan-to-value ratio if the loan amount is $100,000, the appraised value is $125,000 and the sales price is $127,000?

Answer 55

80% LTV
$100,000 divided by $125,000 (the lowest of the sales price or appraised value) equals 80%.

Question 56

The document that creates a lien against real property as security for promise to repay a loan is called a
A. Deed
B. Promissory note
C. Mortgage

Answer 56

C. Mortgage
A mortgage creates a lien against real property as security for the payment of a note

Question 57

T/F: VA-guaranteed loans are for primary residences only

Answer 57

TRUE
No purchase of rental property or vacation homes (unless they get conv.)

Question 58

If you use this calculation while evaluating income, “PITI divided by Gross Monthly Income,” you have just determined what?

Answer 58

Housing expense ratio (Front end)

Question 59

Which agency is responsible for enforcement of the Ability to Repay rules?

Answer 59

CFPB enforces ATR rules

Question 60

What are some Automated Underwriting Systems (AUS) ?

Answer 60

1.) Desktop Underwriter
2.) Loan prospector
3.)

Question 61

Which federal agency is responsible for seeing the guidelines and requirements for a Qualified Mortgage are followed by mortgage loan originators?

Answer 61

CFPB

Question 62

A loan applicant is relocating from the northeast to the mid-south for work, and her house is under contract. She plans on using the sales proceeds for her down payment and closing costs on her new house. How should those funds be listed on the 1003?
1.) Equity from pending sale
2.) Bridge loan
3.) Proceeds from sale of home

Answer 62

1.) Equity from pending sale
The home has not sold yet, therefore cannot be counted as current proceeds.

Question 63

Robby has a house that appraises for $125,000. Robby qualifies for an 85% LTV. He owes $63,000 on his first mortgage and $5,000 on his second mortgage. He would like to refinance his house into one mortgage loan and receive additional cash to pay off other debt. How much cash would be available if his closing costs are $4,200 and are financed in the loan?

Answer 63

First, determine the maximum loan amount Robby qualifies for: $125,000 x 85% = $106,250. Now, subtract the current debt and closing costs: $106,250 - $63,000 - $5,000 - $4,200 = $34,050 cash available

Question 64

A Loan Estimate must be received at least how many days prior to closing a mortgage loan?
A. 1
B. 3
C. 4

Answer 64

C. 4
CD = received 3 days prior. LE = received 4 days prior.

Question 65

A borrower may request to review their Final Closing Disclosure or HUD-1 Settlement Statement, as appropriate at least ____ business days prior to closing.
A. 3
B. 1
C. 5
D. 7

Answer 65

B. 1
A borrower may review their Final Closing Disclosure (or HUD-1 if a HELOC) on the business day prior to closing (24 hours beforehand). This is different than the requirement that a borrower receive a Closing Disclosure (not “Final”) a full 3 business days before closing.

Question 66

Which of the following is a valid change which would allow the disclosure of a new Closing Disclosure in good faith, thus re-establishing the good faith tolerances of the loan transaction?
1.) A prepayment penalty is added to the loan
2.) The APR increases by .2%
3.) An MLO adds a standardized origination fee
4.) The borrower chooses to lock the rate

Answer 66

4.) The borrower chooses to lock the rate

Question 67

According to the Mailbox Rule, a document can be considered received on the ___ business day after mailing

Answer 67

3 Business Days

Question 68

When must an initial escrow statement be given to a borrower when consummating a mortgage loan transaction?

Answer 68

Within 45 days of closing

Question 69

How many days prior to loan consummation must a registered mortgage loan originator send a loan estimate to a qualified borrower?

Answer 69

Within 7 business days

Question 70

A loan with a 2/1 buydown, a current market rate of 6.5%, and a start rate of 4.5% would have a payment based on what rate in month 30?

Answer 70

6.5%
This 2/1 buydown starts at 2% below the end rate for year one, adjusts in year two, and reverts to the end rate for years three through 30 (4.5 + 2 = 6.5%).

Question 71

A customer has excellent credit, job stability, and sufficient income. She has a sales contract to purchase a property for $200,000 and is able to put $7,000 down. The best type of loan she should apply for is a(n)
1.) FHA loan
2.) Conforming
3.) Non Conforming

Answer 71

1.) FHA because she only has the 3.5% for down

Question 72

A Chapter 7 bankruptcy could show on a credit report for a maximum of how many years?
A. 8
B. 7
C. 10

Answer 72

A Chapter 7 bankruptcy stays on a credit report for ten years.

Question 73

Underwriter Stan sends the loan package back to MLO Joe because it is missing Form 4506T. The lender needs that form in order to obtain transcripts of the borrower’s
1.) W-2s
2.) Income Tax Returns
3.) Bank reports
3.) Credit report

Answer 73

Form 4506T gives the lender permission to get transcripts of the borrower’s income tax returns.

Question 74

A written statement made under oath by the title holder certifying there have not been any judgments, bankruptcies, or divorces since the title exam is known as a(n)
A.) Title commitment
B.) Promise of Title
C.) Affidavit of title

Answer 74

C.) Affidavit of title
A written affidavit of title states that nothing in the title holder’s life has happened that could change the status of title. This protects the title company from liens that could have been filed prior to the closing but after the last title search.

Question 75

LOs should keep CDs and SAR(Suspicious Activity Reports) for how long?

Answer 75

5 years

Question 76

LOs should keep LEs for how long? Everything else should be kept for?

Answer 76

3 years for LEs, LAR and LOG
Everything else 2 years
ECOA 25 months

Question 77

What are the protected classes under FHA and not ECOA?

Answer 77

Familial status and disability

Question 78

What are the protected classes under ECOA but not FHA?

Answer 78

1.) Marital status
2.) Age
3.) Public assistance

Question 79

URLA 1003 is for?

Answer 79

The uniform residential application

Question 80

What do the following forms cover?
URLA 1004
1005
1006
1008

Answer 80

URLA 1004- appraisals
1005- VOE
1006- Verif of deposits
1008- summary

Question 81

Ellen calls to ask what an interest only payment would be with a loan amount of $575,000, an interest rate of 8.625% for 30 years. What payment would you give her?

Answer 81

$4,132.81
To find the interest payment, multiply the loan amount by the rate to find the annual interest, then divide by 12 to find the monthly interest amount: 575,000 x .08625 / 12 = 4132.81

Question 82

Which of the following is true of FHA loans?

A) Borrowers must put pay property taxes directly to the municipality .
B) Homeowners insurance is not required.
C) Mortgage insurance is not required.
D) Mortgage insurance is required throughout the life of the loan if the beginning loan balance is higher than 90% of its appraised value.

Answer 82

D) Mortgage insurance is required throughout the life of the loan if the beginning loan balance is higher than 90% of its appraised value.

If the beginning loan balance is higher than 90% LTV, then annual MIP will exist for the life of the loan.

Question 83

During the closing, the transfer of title or interest from the seller to the buyer through a written instrument, such as a deed, is known as a
1.) conveyance.
2.) quit claim.
3.) deed transfer
4.) dower.

Answer 83

Signing the deed at the closing, which as a result causes the title to transfer from one party or parties to another party or parties, is called conveyance.

Question 84

According to RESPA, at what point does working with a prospect change from an inquiry to an application?

Answer 84

An inquiry changes to an application once the borrower submits financial information in anticipation of a credit decision, according to RESPA. NOT when credit has been pulled.

Question 85

Bruce is purchasing a duplex for $275,000. He has given $2,000 in earnest money and the closing costs are $3,750. The lender has agreed to a 75% LTV. The seller has agreed to pay $2,000 in closing costs. How much does Bruce need to bring to closing?

Answer 85

First, calculate the down payment: $275,000 x 25% = $68,750. He has $3,750 in closing costs, so: $68,750 + $3750 = 72,500 total needed for closing. However, credited to Bruce is $4,000 (earnest money and seller paid closing): $72,500 - $4,000 = $68,500 total amount Bruce needs to bring to closing

Question 86

The appraisal approach that is most appropriate for commercial real estate is the…

Answer 86

Income value approach
The income approach arrives at an opinion of value by evaluating the money-making potential of the property, which is important for commercial property.

Question 87

T/F: Only a veteran’s spouse is allowed to co-sign on a VA loan.

Answer 87

TRUE

Question 88

Which law prohibits discrimination based on sex, race, age, national origin, marital status, and source of income?
1.) ECOA
2.) RESPA
3.) TILA
4.) FHA

Answer 88

1.) ECOA
Why? FHA only provides additional protection of Familial status and disability. Not marital status, age and public assistance as ECOA does.

Question 89

In a month with 30 days and a purchase closing on the 15th day of the month, how many days of interest would the title agent be required to collect?
1.) None
2.) 15 days
3.) 16 days
4.) 30 days

Answer 89

3.) 16 days
Since interest is paid in arrears and no payment is made the first of the following month, interest must be collected for the number of days left in the month (including the day the loan was funded).

Question 90

Jill has a property that appraises for $189,000. Her first mortgage rate is 4.75% and her second mortgage rate is 15%. She has decided that she wants to leave her $53,000 first mortgage alone and just refinance the second. She qualifies for an 85% CLTV. Her second mortgage is for $25,000 but she wants cash to finish her basement. She has $81,150 available as cash. What is her new second mortgage loan amount if the closing costs are $1,500 and Jill would like to finance them?

Answer 90

First, find the maximum loan amount if the LTV is 85%: $189,000 x 85% = $160,650. Then subtract the amount of her first mortgage to maintain that 85% LTV and subtract out closing costs: $160,650 - $53,000 = $107,650 - $1,500 = $106,150.

Question 91

In reference to a loan closing, per diem interest is…

Answer 91

interest from the day of closing to the end of the month.

Question 92

To calculate the CLTV…

Answer 92

divide the total loan amounts by the appraised value

Question 93

Mary, a single mother, applies for a first mortgage. Which of the following documents are not necessary or applicable to comply with Ability to Repay rules?
1.) Copy of tax bill for home
2.) Copy of appraisal for home
3.) Copy of credit report

Answer 93

2.) An appraisal report
is not required to meet/comply with Ability to repay rules. Income information, credit information, and potential housing expenses are all necessary to consider.

Question 94

You are refinancing a $200,000 mortgage with a prepayment penalty of six months of interest at 6.5%. How much is the prepayment penalty?

Answer 94

Simply multiply the original loan amount by the interest rate for the annual interest, then divide by 2 to get six months’ interest. In this case, $200,000 x 6.5% (0.065) = $13,000; $13,000 / 2 = $6,500.