Mortgage Underwriting and Qualification 5

Question 1

What is a 'letter of explanation' (LOE) commonly used for in mortgage underwriting?

Accepted Answer

To clarify derogatory credit events, large deposits, or gaps in employment to the underwriter

Answer

An LOE provides the underwriter with context for unusual items on the application, such as a credit inquiry, job gap, or large bank deposit.

Question 2

Which loan program allows a debt-to-income ratio above 50% with strong compensating factors via AUS approval?

Accepted Answer

FHA loan approved through TOTAL Scorecard

Answer

FHA's TOTAL Scorecard can issue an 'Accept' finding allowing DTI above 50% when the borrower has strong compensating factors like high credit score or large reserves.

Question 3

What is the LTV ratio on a $280,000 loan for a property appraised at $350,000?

Accepted Answer

80%

Answer

$280,000 ÷ $350,000 = 0.80 = 80% LTV.

Question 4

A borrower is purchasing a rental property. How do conventional guidelines typically treat future rental income from that property?

Accepted Answer

Generally not counted for qualification unless there is a signed lease and rental history

Answer

For a subject investment property, most conventional guidelines require a signed lease and sometimes rental history before counting rental income toward qualification.

Question 5

What is the difference between a 'hard' credit pull and a 'soft' credit inquiry in the mortgage process?

Accepted Answer

Hard pulls affect credit scores and are done with borrower consent; soft pulls do not affect scores

Answer

Hard inquiries, like those in a mortgage application, are recorded on the credit report and can slightly lower the score; soft inquiries do not affect scores.

Mortgage Practice Test

Mortgage Practice Test

Mortgage Underwriting and Qualification 5