Mortgage Underwriting and Qualification

Question 1

A borrower has a front-end DTI of 31% and a back-end DTI of 45%. Which conventional loan guideline does this violate?

Accepted Answer

Back-end limit of 43%

Answer

Standard conventional loans typically cap the back-end (total) DTI at 43%, so 45% exceeds this threshold.

Question 2

Which income type requires a two-year self-employment history to be considered stable by most underwriters?

Accepted Answer

Self-employment income

Answer

Underwriters typically require a two-year self-employment history documented by tax returns to verify stability and consistency.

Question 3

What is 'compensating factors' in mortgage underwriting?

Accepted Answer

Positive attributes that offset a borrower's weak credit profile

Answer

Compensating factors are strengths such as large reserves or low DTI that can offset weaknesses like a borderline credit score.

Question 4

A property appraisal comes in $15,000 below the purchase price. What typically happens to the loan amount?

Accepted Answer

The loan is based on the appraised value, not the purchase price

Answer

Lenders base the loan on the lower of the appraised value or purchase price, so the borrower must cover the gap or renegotiate.

Question 5

Which document is used to verify a borrower's employment and income directly with their employer?

Accepted Answer

Verification of Employment (VOE)

Answer

A Verification of Employment (VOE) form is sent directly to the employer to confirm job status, tenure, and income.

Mortgage Practice Test