SAFE - Certified Secure and Fair Enforcement Mortgage Loan Originator Mortgage Products and Calculations Questions and Answers 1 — Questions and Answers
Question 1: A borrower is purchasing a home with a sales price of $450,000. The property is appraised for $440,000. The borrower is approved for a loan of $374,000. What is the loan-to-value (LTV) ratio?
- 83.1%
- 85.0% (Correct answer)
- 87.2%
- 84.0%
Correct answer: 85.0%
The loan-to-value (LTV) ratio is calculated by dividing the loan amount by the lesser of the appraised value or the purchase price. In this case, the appraised value ($440,000) is less than the sales price ($450,000). Therefore, the calculation is $374,000 ÷ $440,000 = 0.85, or 85%.
Question 2: A borrower has an adjustable-rate mortgage (ARM) tied to the 30-day Average SOFR index. The margin on the loan is 2.50%. If the SOFR index is currently at 3.15%, what is the fully indexed rate?
- 0.65%
- 2.50%
- 5.65% (Correct answer)
- 3.15%
Correct answer: 5.65%
The fully indexed rate for an ARM is calculated by adding the margin to the current index value. In this scenario, the calculation is: 3.15% (Index) + 2.50% (Margin) = 5.65%. This is the rate the borrower would pay after the initial fixed period, assuming the index remains the same.
Question 3: A first-time homebuyer with a credit score of 610 has saved $10,000 for a down payment on a home with a purchase price of $275,000. Which of the following loan programs is the most likely option for this borrower?
- A conventional loan requiring 5% down
- A VA loan
- An FHA loan (Correct answer)
- A conventional loan requiring 3% down
Correct answer: An FHA loan
An FHA loan requires a minimum down payment of 3.5% for borrowers with a credit score of 580 or higher. In this case, 3.5% of $275,000 is $9,625. Since the borrower has $10,000 saved, they meet the minimum down payment requirement for an FHA loan. Conventional loans typically require higher credit scores, and a VA loan is restricted to eligible veterans and service members.
Question 4: Which of the following charges on a Closing Disclosure is considered a prepaid item?
- Lender's title insurance premium
- Loan origination fee
- Appraisal fee
- First year's homeowners insurance premium (Correct answer)
Correct answer: First year's homeowners insurance premium
Prepaid items are expenses paid at closing that will recur during the life of the loan. The first year's homeowners insurance premium is a classic example of a prepaid item because it covers the first year of the policy. Origination fees, appraisal fees, and title insurance are considered non-recurring closing costs associated with the transaction itself.
Question 5: A mortgage loan has a term of 7 years, but its payment schedule is calculated as if it were a 30-year loan. This results in relatively low monthly payments, but a very large single payment of the remaining principal balance is due at the end of the 7-year term. What is this type of loan called?
- Graduated Payment Mortgage
- Reverse Mortgage
- Balloon Mortgage (Correct answer)
- Interest-Only Mortgage
Correct answer: Balloon Mortgage
This describes a balloon mortgage. These loans have a shorter term than their amortization schedule, which means the regular payments do not fully pay off the principal by the end of the term. This necessitates a large, final 'balloon' payment to cover the outstanding balance.
Question 6: A loan applicant has a gross monthly income of $7,500. Their proposed monthly housing payment (PITI) is $2,100. What is the applicant's housing expense ratio (front-end ratio)?
- 32%
- 28% (Correct answer)
- 25%
- 35.7%
Correct answer: 28%
The housing expense ratio, or front-end DTI, is calculated by dividing the total monthly housing payment (PITI) by the gross monthly income. The calculation is: $2,100 (PITI) ÷ $7,500 (Gross Monthly Income) = 0.28, which is 28%.
SAFE - Certified Secure and Fair Enforcement Mortgage Loan Originator Mortgage Products and Calculations Questions and Answers 1
A borrower is purchasing a home with a sales price of $450,000.
The property is appraised for $440,000.
The borrower is approved for a loan of $374,000.
What is the loan-to-value (LTV) ratio?