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

An 80% LTV means the mortgage represents 80% of the property's value, implying a 20% down payment or equity stake.

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

Risk layering refers to the combined impact of multiple risk factors (e.g., high LTV + low credit score + high DTI) that together increase default probability.

Question 3

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

Accepted Answer

Two months

Answer

Fannie Mae typically requires two months of PITI reserves for second home purchases under standard guidelines.

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 from an acceptable donor are allowed on conventional loans when accompanied by a gift letter stating no repayment is required.

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

Mortgage insurance protects the lender (not the borrower) against losses in the event of borrower default and foreclosure.

Mortgage Practice Test

Mortgage Practice Test

Mortgage Underwriting Principles 3