CRU Financial Analysis & Planning 2 — Questions and Answers
Question 1: A borrower's gross monthly income is $7,500 and total monthly debt obligations are $2,850. What is the total debt-to-income (DTI) ratio?
- 38% (Correct answer)
- 42%
- 45%
- 32%
Correct answer: 38%
DTI = $2,850 / $7,500 = 0.38, or 38%.
Question 2: Which document is the primary source used to verify a self-employed borrower's net income for underwriting purposes?
- Federal tax returns (Form 1040) (Correct answer)
- Bank statements
- Profit and loss statement only
- Letter from the borrower's accountant
Correct answer: Federal tax returns (Form 1040)
Federal tax returns are the standard documentation used to verify self-employed income because they reflect IRS-reported figures.
Question 3: What is 'compensating factors' in residential underwriting?
- Positive elements that offset risk when a borrower exceeds standard guidelines (Correct answer)
- Adjustments made to the appraised value
- Additional collateral pledged by the borrower
- Income verification methods for non-traditional borrowers
Correct answer: Positive elements that offset risk when a borrower exceeds standard guidelines
Compensating factors are strengths such as large reserves or low LTV that allow approval despite guideline exceptions.
Question 4: When calculating qualifying income for a salaried borrower who also receives overtime, underwriters typically require overtime to be documented for at least how long?
- Two years (Correct answer)
- Six months
- One year
- Three years
Correct answer: Two years
Fannie Mae and Freddie Mac generally require a two-year history of overtime before it can be counted as qualifying income.
Question 5: A property's net operating income (NOI) is $18,000 per year and the annual debt service is $15,000. What is the debt service coverage ratio (DSCR)?
- 1.20 (Correct answer)
- 0.83
- 1.50
- 0.60
Correct answer: 1.20
DSCR = NOI / Debt Service = $18,000 / $15,000 = 1.20.
Question 6: In the context of residential mortgage underwriting, what does 'liquid assets' refer to?
- Cash and assets easily convertible to cash within a short period (Correct answer)
- Investment properties owned by the borrower
- Equity in the subject property
- All retirement accounts regardless of accessibility
Correct answer: Cash and assets easily convertible to cash within a short period
Liquid assets are funds in checking, savings, or money market accounts readily available without penalty.
Question 7: Which of the following best describes 'gift funds' in residential mortgage underwriting?
- Money given to the borrower with no expectation of repayment, used toward down payment (Correct answer)
- Seller concessions toward closing costs
- Employer bonuses included in income calculation
- Funds from a 401(k) loan
Correct answer: Money given to the borrower with no expectation of repayment, used toward down payment
Gift funds are non-repayable monetary contributions from acceptable donors that borrowers may use for down payment or closing costs.
CRU Financial Analysis & Planning 2
A borrower's gross monthly income is $7,500 and total monthly debt obligations are $2,850.
What is the total debt-to-income (DTI) ratio?