Mortgage Underwriting Principles 3

Question 1

What does a loan-to-value (LTV) ratio of 80% indicate?

Accepted Answer

The loan amount is 80% of the property's value

Answer

The borrower is putting 80% down

Answer

The borrower's credit score meets 80% of requirements

Answer

The property value increased 80% since purchase

Question 2

An underwriter applies risk layering analysis. What does this concept primarily address?

Accepted Answer

The cumulative risk of multiple weaknesses in a single file

Answer

Stacking multiple loan programs together

Answer

Verifying multiple sources of income simultaneously

Answer

Reviewing both the borrower and co-borrower credit profiles

Question 3

Under Fannie Mae guidelines, how many months of reserves are typically required for a second home purchase?

Accepted Answer

Two months

Answer

No reserves required

Answer

Six months

Answer

Twelve months

Question 4

A borrower receives a gift from a parent for the down payment on a primary residence. Which statement is accurate?

Accepted Answer

Gift funds are acceptable if properly documented with a gift letter

Answer

Gift funds are never allowed on conventional loans

Answer

The gift must be repaid within 12 months

Answer

The gift reduces the seller's concession limit

Question 5

What is the primary purpose of requiring mortgage insurance (MI) on loans with LTV above 80%?

Accepted Answer

To compensate the lender if the borrower defaults

Answer

To protect the borrower against job loss

Answer

To ensure the property value does not decline

Answer

To satisfy FHA minimum loan requirements

Question 6

A borrower's employment gap of 6 months occurred two years ago. How should the underwriter treat this?

Accepted Answer

Evaluate the reason for the gap and current employment stability

Answer

Automatically deny the application

Answer

Exclude all income earned before the gap

Answer

Require a co-borrower regardless of current income

Question 7

Which of the following is considered a compensating factor that may allow approval above standard DTI limits?

Accepted Answer

Twelve or more months of reserves after closing

Answer

A recent job change to a higher-paying role

Answer

A history of making large discretionary purchases

Answer

A purchase price below the appraised value