CMA Client Communication & Financial Advice 3 — Questions and Answers
Question 1: A client is emotionally attached to a home priced above their pre-approval limit. What is the best communication strategy for the advisor?
- Approve the client for more than their documented income supports to avoid losing the deal
- Acknowledge the client's feelings, clearly explain the financial risks of overextending, and present alternative options within their budget (Correct answer)
- Encourage the client to proceed and hope their income increases before closing
- Refer the client to a different lender who may have less strict guidelines
Correct answer: Acknowledge the client's feelings, clearly explain the financial risks of overextending, and present alternative options within their budget
Empathetic but honest communication that outlines risks and alternatives protects the client and upholds the advisor's ethical duty.
Question 2: A client asks why their credit score matters for mortgage approval. Which explanation is most accurate?
- Credit scores determine the property value the lender is willing to finance
- Credit scores help lenders assess the likelihood of timely repayment and influence the interest rate offered (Correct answer)
- Credit scores only affect the down payment requirement, not the interest rate
- Credit scores are used solely to verify the borrower's identity
Correct answer: Credit scores help lenders assess the likelihood of timely repayment and influence the interest rate offered
Lenders use credit scores as a risk indicator, and higher scores typically qualify borrowers for lower interest rates and better loan terms.
Question 3: When a client asks about an escrow account, what should the mortgage advisor explain?
- An escrow account holds funds for property taxes and homeowners insurance, disbursed by the servicer on the borrower's behalf (Correct answer)
- An escrow account is a savings account the borrower controls independently from the mortgage
- Escrow accounts are only required for FHA loans and not conventional mortgages
- An escrow account is used to hold the seller's proceeds until closing
Correct answer: An escrow account holds funds for property taxes and homeowners insurance, disbursed by the servicer on the borrower's behalf
Escrow accounts held by the loan servicer collect monthly contributions for taxes and insurance to ensure timely payment of those obligations.
Question 4: A client who recently changed jobs is concerned about qualifying for a mortgage. What guidance should the advisor provide?
- Any job change within the past two years automatically disqualifies the borrower
- A job change in the same field with equal or higher pay is generally acceptable; lenders assess employment stability and income continuity (Correct answer)
- The client must wait exactly two years before applying regardless of circumstances
- The client should ask their new employer to backdate the start date on employment verification
Correct answer: A job change in the same field with equal or higher pay is generally acceptable; lenders assess employment stability and income continuity
Lenders evaluate whether the job change represents career continuity; lateral or upward moves in the same field are generally accepted.
Question 5: A client wants to understand the difference between pre-qualification and pre-approval. Which is the most accurate explanation?
- They are interchangeable terms that mean the same thing to all lenders
- Pre-qualification is an informal estimate based on self-reported data, while pre-approval involves verified documentation and a credit pull (Correct answer)
- Pre-approval is only available for FHA loans
- Pre-qualification requires a full underwriting review before issuance
Correct answer: Pre-qualification is an informal estimate based on self-reported data, while pre-approval involves verified documentation and a credit pull
Pre-qualification is a preliminary estimate, while pre-approval carries more weight because it is based on verified income, assets, and credit.
Question 6: A client is asking about private mortgage insurance (PMI). When should the advisor explain that PMI can be removed?
- PMI is permanent and cannot be removed on conventional loans
- PMI can be requested for removal when the loan-to-value ratio reaches 80% based on original value or a new appraisal (Correct answer)
- PMI is automatically removed after 5 years of payments regardless of equity
- PMI can only be removed by refinancing into a new loan
Correct answer: PMI can be requested for removal when the loan-to-value ratio reaches 80% based on original value or a new appraisal
Under the Homeowners Protection Act, borrowers can request PMI cancellation at 80% LTV, and it must be terminated automatically at 78% LTV.
Question 7: A borrower asks how gift funds from a family member affect their mortgage application. What should the advisor explain?
- Gift funds are never allowed under any loan program
- Gift funds must be documented with a gift letter confirming no repayment is required, and lenders verify the transfer in bank statements (Correct answer)
- Gift funds are only acceptable if the donor is a co-borrower on the loan
- Gift funds are treated as a loan and added to the borrower's liabilities
Correct answer: Gift funds must be documented with a gift letter confirming no repayment is required, and lenders verify the transfer in bank statements
Lenders require a gift letter stating the funds are not a loan plus bank statements showing the transfer to verify eligible gift funds.
CMA Client Communication & Financial Advice 3
A client is emotionally attached to a home priced above their pre-approval limit.
What is the best communication strategy for the advisor?