NMLS Loan Application and Qualification 3 — Questions and Answers
Question 1: Under the Ability-to-Repay (ATR) rule, which of the following is NOT one of the eight factors a lender must consider?
- Current income or assets
- Credit history
- Borrower's investment portfolio performance (Correct answer)
- Monthly payment on the covered transaction
Correct answer: Borrower's investment portfolio performance
The ATR rule requires consideration of eight specific factors including income, debts, and employment, but a borrower's investment portfolio performance is not one of them.
Question 2: A borrower applies for a $300,000 loan on a property appraised at $375,000. What is the loan-to-value (LTV) ratio?
- 75%
- 80% (Correct answer)
- 85%
- 90%
Correct answer: 80%
$300,000 divided by $375,000 equals 0.80, or an 80% LTV ratio.
Question 3: Which type of income is typically averaged over 24 months for qualifying purposes on a mortgage application?
- Hourly wage income
- Overtime and bonus income (Correct answer)
- Fixed salary income
- Social Security income
Correct answer: Overtime and bonus income
Variable income types such as overtime, bonuses, and commissions are averaged over 24 months to determine a stable qualifying figure.
Question 4: What is the purpose of the Uniform Residential Loan Application (URLA), also known as Fannie Mae Form 1003?
- To authorize a credit report pull
- To collect standardized borrower financial and property information (Correct answer)
- To disclose all loan fees and costs
- To document the property appraisal results
Correct answer: To collect standardized borrower financial and property information
The URLA (Form 1003) is the standardized application used to collect borrower income, asset, liability, and property information needed for underwriting.
Question 5: For FHA loans, what is the maximum allowable back-end DTI ratio under standard guidelines?
- 36%
- 41%
- 43%
- 50% (Correct answer)
Correct answer: 50%
FHA guidelines allow a back-end DTI up to 50% with compensating factors, though 43% is the standard threshold without compensating factors.
Question 6: What does 'seasoning' refer to in the context of mortgage lending?
- Adding discount points to lower the interest rate
- The length of time an asset or credit event has been in place (Correct answer)
- Adjusting an appraisal for seasonal market fluctuations
- The time between rate lock and closing
Correct answer: The length of time an asset or credit event has been in place
Seasoning refers to the amount of time that has passed since a specific event (e.g., bankruptcy discharge, down payment deposit) to ensure stability or eligibility.
Question 7: Which of the following is considered an 'open-end' credit obligation that must be included in a borrower's monthly debt for DTI calculation?
- Auto loan with 3 payments remaining
- Credit card with a revolving balance (Correct answer)
- Student loan in deferment
- Medical collection under $500
Correct answer: Credit card with a revolving balance
Revolving credit card balances are open-end obligations that must be included in DTI calculations using the minimum payment shown on the credit report.
NMLS Loan Application and Qualification 3
Under the Ability-to-Repay (ATR) rule, which of the following is NOT one of the eight factors a lender must consider?