CeMAP Credit Assessment and Affordability 2

Question 1

What is the purpose of a Debt-to-Income (DTI) ratio in mortgage underwriting?

Accepted Answer

To measure total monthly debt obligations against gross monthly income

Answer

The DTI ratio compares a borrower's total monthly debt obligations to their gross monthly income to assess repayment capacity.

Question 2

Which of the following would most likely IMPROVE a mortgage applicant's credit score?

Accepted Answer

Being registered on the electoral roll

Answer

Being registered on the electoral roll confirms address history and identity, which positively impacts credit scoring.

Question 3

Under MMR rules, what must a mortgage adviser document to demonstrate compliance with affordability requirements?

Accepted Answer

Evidence of income verification and expenditure assessment

Answer

Advisers must document income evidence and a thorough expenditure assessment to show the mortgage is affordable under MMR rules.

Question 4

A borrower has a County Court Judgment (CCJ) registered three years ago. How is this likely to affect their mortgage application?

Accepted Answer

It may restrict lender choice and increase the rate offered

Answer

A CCJ restricts the choice of lenders available and typically results in higher interest rates due to increased perceived risk.

Question 5

What is 'income multiples' methodology in mortgage lending?

Accepted Answer

Using a set multiple of annual income to determine the maximum loan size

Answer

Income multiples methodology sets a maximum loan amount as a fixed multiple of the borrower's annual gross income.

CeMAP - Certificate in Mortgage Advice and Practice Practice Test