Mortgage Underwriting Principles 2

Question 1

A borrower has a back-end DTI of 48% and is applying for a conventional loan. What is the most likely outcome?

Accepted Answer

Denial unless compensating factors exist

Answer

Conventional loans typically require a back-end DTI of 43-45%; 48% requires strong compensating factors or DU/LP approval.

Question 2

Which asset type is generally NOT acceptable as reserves for mortgage qualification purposes?

Accepted Answer

Borrowed funds from a personal loan

Answer

Borrowed funds cannot be counted as reserves because they create an additional liability rather than representing owned assets.

Question 3

An underwriter is reviewing a self-employed borrower's income. Which document is the primary source for calculating qualifying income?

Accepted Answer

Two years of federal tax returns (1040s)

Answer

Two years of federal tax returns are the standard requirement for self-employed borrowers to establish stable, ongoing income.

Question 4

What is the purpose of the 4506-C form in the underwriting process?

Accepted Answer

To request tax transcripts directly from the IRS

Answer

Form 4506-C authorizes lenders to obtain tax transcripts from the IRS to verify the income reported on a borrower's application.

Question 5

When calculating qualifying income for a salaried borrower with regular overtime, what documentation is typically required?

Accepted Answer

Two-year history and evidence the overtime is likely to continue

Answer

Overtime income requires a two-year history and a reasonable expectation of continuance to be included in qualifying income.

Mortgage Practice Test