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 HELOC is a revolving line of credit secured by home equity, allowing borrowers to draw funds as needed up to a set limit during the draw period.

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

DTI compares a borrower's total monthly debt obligations to gross monthly income, helping lenders evaluate repayment capacity.

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 guarantees a fixed interest rate for a set period, while a float-down option lets the borrower benefit if rates drop before closing.

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

Jumbo loans exceed the conforming loan limits established by the FHFA and cannot be purchased by Fannie Mae or Freddie Mac.

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

Underwriting is the lender's risk assessment process, verifying income, assets, credit history, and the property appraisal before issuing a loan decision.

Mortgage Practice Test

Mortgage Practice Test

Mortgage General Mortgage Knowledge 3