NMLS Mortgage Finance and Calculations 2 — Questions and Answers
Question 1: A borrower has a gross monthly income of $6,000 and a proposed PITI payment of $1,500. What is the front-end DTI ratio?
- 20%
- 25% (Correct answer)
- 28%
- 33%
Correct answer: 25%
Front-end DTI = $1,500 / $6,000 = 25%.
Question 2: Which loan component is included in PITI but NOT in the principal and interest payment?
- Origination fee
- Discount points
- Hazard insurance escrow (Correct answer)
- Prepaid interest
Correct answer: Hazard insurance escrow
PITI stands for Principal, Interest, Taxes, and Insurance — escrow items added on top of P&I.
Question 3: A $200,000 mortgage at 6% annual interest has a first-month interest charge of how much?
- $1,000 (Correct answer)
- $1,200
- $833
- $600
Correct answer: $1,000
$200,000 × 0.06 / 12 = $1,000 in interest for the first month.
Question 4: What does a loan's Annual Percentage Rate (APR) represent compared to the note rate?
- The rate after the first adjustment period
- The cost of credit expressed as a yearly rate including fees (Correct answer)
- The rate charged on the unpaid balance only
- The rate used to calculate the monthly payment
Correct answer: The cost of credit expressed as a yearly rate including fees
APR includes the interest rate plus fees and costs, providing a broader measure of borrowing cost.
Question 5: On a $300,000 loan with 2 discount points, how much does the borrower pay upfront for the points?
- $3,000
- $6,000 (Correct answer)
- $2,000
- $600
Correct answer: $6,000
Each point equals 1% of the loan amount; 2 points × $300,000 = $6,000.
Question 6: A borrower's loan has a LTV of 85%. If the appraised value is $400,000, what is the loan amount?
- $340,000 (Correct answer)
- $360,000
- $380,000
- $320,000
Correct answer: $340,000
$400,000 × 0.85 = $340,000.
Question 7: Which amortization type results in the borrower owing more than the original loan balance after making scheduled payments?
- Fully amortizing
- Interest-only
- Negative amortization (Correct answer)
- Balloon
Correct answer: Negative amortization
Negative amortization occurs when payments are less than the interest due, causing the balance to increase.
NMLS Mortgage Finance and Calculations 2
A borrower has a gross monthly income of $6,000 and a proposed PITI payment of $1,500.
What is the front-end DTI ratio?