CRU Residential Mortgage Products & Guidelines 3 — Questions and Answers
Question 1: A VA loan's funding fee for a first-time use, active-duty veteran with a 5% down payment on a purchase transaction is:
- 2.15%
- 1.65% (Correct answer)
- 3.30%
- 0.50%
Correct answer: 1.65%
For a first-time VA borrower putting 5% to 9.99% down on a purchase, the funding fee is 1.65% of the loan amount.
Question 2: Under USDA Rural Development guidelines, which of the following income types must be included when calculating the household income threshold for eligibility?
- Only the borrower's base salary
- Income of all adult household members, whether or not they are on the loan (Correct answer)
- Only co-borrowers who appear on the note
- Social Security income of minor dependents
Correct answer: Income of all adult household members, whether or not they are on the loan
USDA uses total household income from all adult members (18+) to determine eligibility against the area median income limit, regardless of who signs the note.
Question 3: Which scenario would most likely require a borrower to use the lesser of purchase price or appraised value when calculating LTV?
- A refinance with cash-out
- A rate-and-term refinance
- A purchase where the appraisal exceeds the purchase price (Correct answer)
- A purchase where the purchase price exceeds the appraisal
Correct answer: A purchase where the appraisal exceeds the purchase price
On a purchase transaction, LTV is calculated on the lesser of the appraised value or purchase price; if the appraisal exceeds the purchase price, the purchase price is used.
Question 4: A Jumbo loan differs from a conforming loan primarily because it:
- Must have a fixed interest rate
- Exceeds the FHFA conforming loan limits and cannot be purchased by Fannie Mae or Freddie Mac (Correct answer)
- Is only available for investment properties
- Requires a minimum 20% down payment by law
Correct answer: Exceeds the FHFA conforming loan limits and cannot be purchased by Fannie Mae or Freddie Mac
Jumbo loans exceed the conforming loan limits set by the FHFA and therefore cannot be sold to Fannie Mae or Freddie Mac without special agreements.
Question 5: A borrower is purchasing a home under an FHA loan. The property appraises at $300,000 and the purchase price is $295,000. The maximum base loan amount FHA will insure is based on:
- $300,000
- $295,000 (Correct answer)
- The average of both values ($297,500)
- The median area home price
Correct answer: $295,000
FHA calculates the maximum insurable loan amount using the lesser of the appraised value or purchase price, which in this case is $295,000.
Question 6: A 3/2/1 temporary buydown reduces the borrower's note rate by how much in the first year?
- 1%
- 2%
- 3% (Correct answer)
- 0.5%
Correct answer: 3%
In a 3/2/1 buydown, the rate is reduced by 3% in year one, 2% in year two, and 1% in year three before reverting to the full note rate.
Question 7: Which of the following is a key underwriting difference between a Rate-and-Term refinance and a Cash-Out refinance under conventional guidelines?
- Cash-out refis require a higher minimum credit score only on FHA loans
- Cash-out refinances typically have lower maximum LTV limits than rate-and-term refinances (Correct answer)
- Rate-and-term refinances require 12 months of reserve funds
- Cash-out refinances are not subject to DTI requirements
Correct answer: Cash-out refinances typically have lower maximum LTV limits than rate-and-term refinances
Conventional guidelines set lower maximum LTV limits for cash-out refinances compared to rate-and-term refinances due to the increased risk associated with equity extraction.
CRU Residential Mortgage Products & Guidelines 3
A VA loan's funding fee for a first-time use, active-duty veteran with a 5% down payment on a purchase transaction is: