CRU Residential Mortgage Products & Guidelines

Question 1

What is a fixed-rate mortgage?

Accepted Answer

A loan with fixed interest and consistent payments

Answer

A fixed-rate mortgage is characterized by an interest rate that remains constant throughout the entire loan term. This stability ensures that the borrower's monthly principal and interest payments also stay the same, providing predictable housing costs and protection against rising interest rates. This predictability is a key benefit for homeowners.

Question 2

Which type of mortgage typically starts with a lower interest rate?

Accepted Answer

Adjustable-rate mortgage

Answer

An Adjustable-Rate Mortgage (ARM) typically offers a lower initial interest rate compared to a fixed-rate mortgage for a set period, often 3, 5, or 7 years. After this introductory period, the interest rate adjusts periodically based on a chosen index, meaning future payments can increase or decrease. This initial lower rate can make ARMs attractive to borrowers planning to sell or refinance before the adjustment period.

Question 3

What is a conventional mortgage?

Accepted Answer

A non-government backed mortgage

Answer

A conventional mortgage is a home loan that is not insured or guaranteed by a government agency, such as the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), or the U.S. Department of Agriculture (USDA). These loans are typically offered by private lenders and adhere to lending guidelines set by Fannie Mae and Freddie Mac, making them the most common type of mortgage.

Question 4

What is the purpose of private mortgage insurance (PMI)?

Accepted Answer

To protect the lender from borrower default

Answer

Private Mortgage Insurance (PMI) is required on conventional loans when a borrower makes a down payment of less than 20% of the home's purchase price. Its sole purpose is to protect the mortgage lender in case the borrower defaults on the loan, reducing the lender's risk exposure. PMI does not protect the borrower and is typically paid monthly until sufficient equity is built.

Question 5

What defines a jumbo loan?

Accepted Answer

A loan that exceeds conforming loan limits

Answer

A jumbo loan is a type of mortgage that exceeds the conforming loan limits set by government-sponsored enterprises like Fannie Mae and Freddie Mac. These limits vary by region and are updated annually. Because jumbo loans are larger and cannot be sold to these agencies, they often come with stricter underwriting requirements and may have slightly higher interest rates due to increased risk for lenders.

(CRU) Certified Residential Underwriter Practice Test

(CRU) Certified Residential Underwriter Practice Test

CRU Residential Mortgage Products & Guidelines