Mortgage General Mortgage Knowledge Questions and Answers

Question 1

A borrower is purchasing a home for $350,000 and the property appraises for $360,000. They are making a down payment of $70,000. What is the loan-to-value (LTV) ratio for this transaction?

Accepted Answer

80%

Answer

To calculate the Loan-to-Value (LTV) ratio, the loan amount is divided by the lesser of the property's appraised value or the purchase price. In this case, the purchase price of $350,000 is lower. The loan amount is the purchase price minus the down payment ($350,000 - $70,000 = $280,000). Therefore, the LTV is $280,000 / $350,000, which equals 0.80 or 80%.

Question 2

Which of the following is a key characteristic of a Qualified Mortgage (QM)?

Accepted Answer

The borrower's total debt-to-income (DTI) ratio generally cannot exceed 43%.

Answer

A primary feature of a Qualified Mortgage (QM) under the Ability-to-Repay rule is that it generally requires the borrower's total monthly debt-to-income (DTI) ratio to be no more than 43%. QMs also prohibit risky features like interest-only payments, negative amortization, terms exceeding 30 years, and have limits on points and fees.

Question 3

A first-time homebuyer is using an FHA loan and makes a down payment of 3.5%. How long will they be required to pay the annual Mortgage Insurance Premium (MIP)?

Accepted Answer

For the entire duration of the loan term

Answer

For FHA loans with a down payment of less than 10%, the borrower is required to pay the annual Mortgage Insurance Premium (MIP) for the entire life of the loan. If the down payment were 10% or more, the MIP would be paid for 11 years.

Question 4

Under Regulation X, which implements RESPA, a mortgage servicer is prohibited from 'force-placing' insurance unless certain conditions are met. What is force-placed insurance?

Accepted Answer

Hazard insurance obtained by a servicer on behalf of the borrower when the borrower's own policy has lapsed.

Answer

Force-placed insurance, also known as lender-placed insurance, is hazard insurance that a mortgage servicer obtains to protect the property when the borrower has failed to maintain the required coverage. Regulation X has specific rules and notice requirements servicers must follow before they can charge a borrower for this type of insurance.

Question 5

A veteran is using their VA loan benefit for the second time to purchase a home with no down payment. Which of the following statements regarding the VA funding fee is TRUE?

Accepted Answer

The funding fee percentage for a subsequent use with no down payment is typically higher than for a first-time use.

Answer

The VA funding fee percentage varies based on several factors, including whether it is a first-time or subsequent use and the amount of the down payment. For a subsequent use with zero down payment, the funding fee is higher than it is for a first-time use with zero down payment. Certain veterans, such as those receiving VA disability compensation, may be exempt from the fee.

Mortgage Practice Test

Mortgage Practice Test

Mortgage General Mortgage Knowledge Questions and Answers