Mortgage Process 5

Question 1

What is a 'subordination agreement' and when is it needed in the mortgage process?

Accepted Answer

A document where a junior lienholder agrees to remain in a lower lien priority position behind a new first mortgage

Answer

An agreement between the buyer and seller to reduce the purchase price

Answer

A lender's commitment to offer the best available rate

Answer

A title company's guarantee of clear title

Question 2

What does 'mortgage commitment letter' signify in the home buying process?

Accepted Answer

A formal written offer of a mortgage loan that is contingent on specified conditions

Answer

The seller's commitment to complete agreed-upon repairs

Answer

The buyer's promise to proceed with the purchase

Answer

The appraiser's certification of the property value

Question 3

What is 'income averaging' in mortgage underwriting, and when is it applied?

Accepted Answer

Using a multi-year average of variable or self-employment income to determine qualifying income

Answer

Splitting income between two co-borrowers to meet qualification standards

Answer

Averaging the interest rate over multiple loan products

Answer

Calculating the mean of multiple appraisal values

Question 4

What is the purpose of a 'verification of deposit' (VOD) in the loan process?

Accepted Answer

To verify the borrower's bank account balances and ownership for down payment and reserve verification

Answer

To confirm the seller's bank account is valid for wire transfer

Answer

To confirm property tax deposits held in escrow

Answer

To authenticate the earnest money deposit received by the title company

Question 5

What is 'recasting' a mortgage and how does it differ from refinancing?

Accepted Answer

Recasting re-amortizes the existing loan after a lump-sum principal payment without changing the rate or terms; refinancing creates a new loan

Answer

Recasting means switching from a fixed rate to an ARM; refinancing means the opposite

Answer

Recasting requires a new credit check; refinancing does not

Answer

Recasting only applies to FHA loans; refinancing applies to conventional loans

Question 6

What is a 'post-closing audit' and why do lenders conduct them?

Accepted Answer

A quality control review of the loan file after closing to ensure compliance, accuracy, and investor salability

Answer

A review of the borrower's payment history after 12 months

Answer

An IRS audit triggered by the mortgage interest deduction

Answer

A title company review of recorded documents for errors

Question 7

What is a 'Notice of Right to Cancel' and when must lenders provide it?

Accepted Answer

A federally required disclosure given to borrowers in certain refinances, informing them of the three-day right to rescind

Answer

A notice given to sellers when a buyer withdraws their offer

Answer

A document the lender uses to cancel a loan after closing if fraud is detected

Answer

A title company notice about outstanding liens found during search