CRU Financial Analysis & Planning 3 — Questions and Answers
Question 1: A borrower has $120,000 in total assets and $85,000 in total liabilities. What is the borrower's net worth?
- $35,000 (Correct answer)
- $205,000
- $42,500
- $14,100
Correct answer: $35,000
Net worth = Total assets − Total liabilities = $120,000 − $85,000 = $35,000.
Question 2: Which loan scenario would most likely require the borrower to have reserves equal to six months of PITI?
- Investment property purchase with a high LTV (Correct answer)
- Primary residence refinance with 30% equity
- FHA loan on an owner-occupied single-family home
- VA loan for a primary residence
Correct answer: Investment property purchase with a high LTV
Investment properties and higher-risk transactions typically require greater reserves — often six months of PITI — compared to primary residences.
Question 3: When evaluating a borrower's income from rental properties, what percentage of gross rental income may typically be used after applying a vacancy factor under standard guidelines?
- 75% (Correct answer)
- 90%
- 100%
- 50%
Correct answer: 75%
Standard agency guidelines allow 75% of gross rental income to account for vacancy and maintenance expenses.
Question 4: What is the purpose of analyzing a borrower's payment shock in residential underwriting?
- To assess whether the borrower can afford the increase from current housing expense to the proposed payment (Correct answer)
- To determine if the property value will increase
- To verify the accuracy of the appraisal
- To calculate the correct interest rate
Correct answer: To assess whether the borrower can afford the increase from current housing expense to the proposed payment
Payment shock measures how much the proposed housing cost exceeds the borrower's current expense, indicating potential repayment stress.
Question 5: A borrower applies for a $300,000 loan on a property appraised at $375,000. What is the loan-to-value (LTV) ratio?
- 80% (Correct answer)
- 75%
- 125%
- 25%
Correct answer: 80%
LTV = Loan Amount / Appraised Value = $300,000 / $375,000 = 80%.
Question 6: In underwriting, which of the following is considered an acceptable source of closing cost funds?
- Verified gift from a family member with a signed gift letter (Correct answer)
- Unsecured personal loan taken out the week before closing
- Cash on hand not deposited in any account
- Credit card advance used for down payment
Correct answer: Verified gift from a family member with a signed gift letter
Gift funds from acceptable donors accompanied by a signed gift letter are an approved source of closing funds under most agency guidelines.
Question 7: How is 'adjusted gross income' most commonly used in residential mortgage underwriting?
- As the starting point for calculating self-employed borrower qualifying income (Correct answer)
- To determine the maximum loan amount for conforming loans
- To verify W-2 income for salaried employees
- To calculate the debt-to-income ratio for investment properties only
Correct answer: As the starting point for calculating self-employed borrower qualifying income
Underwriters use adjusted gross income from tax returns as the baseline from which add-backs and deductions are applied to determine self-employed qualifying income.
CRU Financial Analysis & Planning 3
A borrower has $120,000 in total assets and $85,000 in total liabilities.
What is the borrower's net worth?