Mortgage Products & Financial Strategies Flashcards

A married couple plans to use the equity in their current home for a down payment before selling. Which bridge financing strategy is most appropriate?

Answer: Bridge loan secured by the departing residence

A bridge loan provides short-term financing secured by the departing residence, allowing borrowers to access equity for a down payment before the old home sells.

Under USDA Rural Development loan guidelines, which of the following borrower income rules applies?

Answer: Qualifying income cannot exceed 115% of the area median income

USDA Guaranteed loans require that the borrower's household income does not exceed 115% of the area median income for their county.

Which of the following describes a 'jumbo' mortgage?

Answer: A loan that exceeds the conforming loan limits set by FHFA

A jumbo mortgage is any loan that exceeds the conforming loan limits established annually by the FHFA, making it ineligible for purchase by Fannie Mae or Freddie Mac.

What is the primary financial benefit of an interest-only mortgage during the initial IO period?

Answer: Monthly cash flow is maximized because no principal is paid during the IO period

During the interest-only period, borrowers pay only accrued interest, resulting in lower monthly payments and improved cash flow, though no equity is built through amortization.

A client wants to compare the true cost of two loans with different rates and fees. Which metric standardizes the comparison by including both interest and fees?

Answer: Annual Percentage Rate (APR)

APR includes the interest rate plus lender fees and other costs expressed as an annual rate, enabling an apples-to-apples comparison between loan offers.

For a conventional loan with PMI, automatic cancellation of PMI is required by the Homeowners Protection Act when the LTV reaches which level based on the original amortization schedule?

Answer: 78%

The Homeowners Protection Act mandates automatic PMI cancellation when the loan balance reaches 78% of the original purchase price based on scheduled amortization.

Which mortgage product allows a homeowner to draw principal balance down as equity accumulates, then redraw it later, functioning like a line of credit tied to home equity?

Answer: Home equity line of credit (HELOC)

A HELOC functions as a revolving line of credit where borrowers can draw, repay, and redraw funds up to their credit limit during the draw period.