CRU Residential Mortgage Products & Guidelines 2 — Questions and Answers
Question 1: A borrower wants a loan that allows interest-only payments for the first 10 years, then amortizes fully over the remaining 20 years. This structure is best described as a:
- Balloon mortgage
- Interest-only ARM
- Interest-only fixed-rate mortgage (Correct answer)
- Graduated payment mortgage
Correct answer: Interest-only fixed-rate mortgage
An interest-only fixed-rate mortgage features an initial interest-only period followed by fully amortizing principal-and-interest payments for the remaining term.
Question 2: Under Fannie Mae guidelines, what is the maximum allowable seller concession for a conventional loan with an LTV between 75.01% and 90%?
- 3%
- 6% (Correct answer)
- 9%
- No limit
Correct answer: 6%
Fannie Mae limits seller concessions to 6% of the sales price for conventional loans with LTVs between 75.01% and 90%.
Question 3: Which loan type requires the borrower to pay both an upfront mortgage insurance premium (UFMIP) and annual mortgage insurance premiums regardless of LTV?
- Conventional loan
- VA loan
- FHA loan (Correct answer)
- USDA loan
Correct answer: FHA loan
FHA loans require UFMIP at closing plus ongoing annual MIP for the life of the loan (for most loan terms and LTVs).
Question 4: A 5/1 ARM has a 2/2/5 cap structure. If the initial rate is 4.5%, the maximum rate at the first adjustment is:
- 6.5% (Correct answer)
- 9.5%
- 7.5%
- 5.5%
Correct answer: 6.5%
The periodic cap of 2% limits the first adjustment to a maximum increase of 2%, so 4.5% + 2% = 6.5%.
Question 5: A HomeReady loan allows non-borrower household income to be used in which of the following ways?
- Added directly to the borrower's qualifying income
- Used as a compensating factor only (Correct answer)
- Applied as a gift fund to the down payment
- Used to offset the borrower's monthly debt obligations
Correct answer: Used as a compensating factor only
Under HomeReady, non-borrower household income may be considered as a compensating factor to allow a DTI above 45%, but it cannot be added to qualifying income.
Question 6: Which of the following best describes a piggyback loan structure used to avoid PMI?
- A single loan at 80% LTV with lender-paid MI
- An 80% first mortgage combined with a 10% second mortgage and 10% down payment (Correct answer)
- A loan with a temporary buydown reducing the first-year rate
- A HELOC used after closing to replace an existing first mortgage
Correct answer: An 80% first mortgage combined with a 10% second mortgage and 10% down payment
An 80-10-10 piggyback structure uses an 80% first mortgage and 10% second mortgage so the first lien stays at 80% LTV, avoiding PMI.
Question 7: Freddie Mac's Home Possible program requires a minimum borrower own contribution from personal funds when the LTV exceeds 80% for a:
- 1-unit primary residence
- 2-unit primary residence (Correct answer)
- Second home
- Investment property
Correct answer: 2-unit primary residence
For 2-4 unit properties under Home Possible, borrowers must contribute at least 3-5% from their own funds when LTV exceeds 80%.
CRU Residential Mortgage Products & Guidelines 2
A borrower wants a loan that allows interest-only payments for the first 10 years, then amortizes fully over the remaining 20 years.
This structure is best described as a: