Mortgage General Mortgage Knowledge 3

Question 1

What is a home equity line of credit (HELOC)?

Accepted Answer

A revolving credit line secured by the borrower's home equity

Answer

A fixed-rate second mortgage for a lump sum

Answer

A government program for first-time buyers

Answer

A loan used exclusively for home renovations

Question 2

What is the debt-to-income (DTI) ratio used for in mortgage underwriting?

Accepted Answer

To assess the borrower's ability to manage monthly payments relative to gross income

Answer

To determine the home's market value

Answer

To calculate the loan origination fee

Answer

To set the property tax escrow amount

Question 3

What is the difference between a rate lock and a float-down option?

Accepted Answer

A rate lock fixes the rate; a float-down allows the rate to decrease if market rates fall before closing

Answer

A rate lock adjusts monthly; a float-down freezes the rate at application

Answer

Both lock the rate but for different durations

Answer

A rate lock applies to FHA loans only; float-down is for conventional loans

Question 4

What is a 'jumbo loan'?

Accepted Answer

A loan that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac

Answer

A mortgage with an adjustable rate above 10%

Answer

A FHA loan for luxury properties

Answer

A loan requiring a 50% down payment

Question 5

What happens during the mortgage underwriting process?

Accepted Answer

The lender evaluates the borrower's creditworthiness and the property's value to approve the loan

Answer

The title company searches for liens on the property

Answer

The borrower signs the final loan documents

Answer

The escrow company disburses funds to the seller

Question 6

What is a 'points' in mortgage terminology?

Accepted Answer

Upfront fees paid to the lender equal to 1% of the loan amount, often to reduce the interest rate

Answer

Credit score thresholds set by lenders

Answer

Monthly charges added to the principal

Answer

Penalty fees for late payments

Question 7

What is the purpose of a title search in a real estate transaction?

Accepted Answer

To verify that the seller has clear ownership and there are no outstanding liens or encumbrances

Answer

To confirm the property's square footage

Answer

To appraise the home's current market value

Answer

To inspect the property for structural defects