Financial Analysis & Loan Documentation Flashcards
7 cards from real SAFE practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Analysis & Loan Documentation flashcards as text
A borrower has a retirement account valued at $200,000 and wants to use it for reserves. How much can typically be counted?
Answer: 70% of the vested balance ($140,000)
Most conventional guidelines allow 70% of vested retirement account balances to account for taxes and early withdrawal penalties.
What is the purpose of verifying employment (VOE) in the mortgage process?
Answer: To verify that the borrower is still employed and confirm their income at the time of closing
A verbal VOE is typically required within 10 business days of closing to confirm the borrower remains employed and their income has not changed.
A borrower's bank statement shows regular monthly transfers from another account. What must the lender verify?
Answer: The source of the transferred funds to confirm they are not borrowed money
Lenders must trace the origin of transferred funds to ensure they are not undisclosed borrowed funds that would affect the borrower's DTI.
Under RESPA, what is a 'kickback' in the context of mortgage transactions?
Answer: A payment given in exchange for referring settlement service business
RESPA Section 8 prohibits kickbacks, which are payments, fees, or anything of value exchanged for referrals of settlement service business.
Which type of income documentation would a lender use to verify commission-based income for a borrower who earns 35% of their pay from commissions?
Answer: Two years of W-2s, tax returns, and year-to-date pay stubs
When commission income exceeds 25% of total income, lenders require two years of W-2s, tax returns, and current pay stubs to establish stability.
What does the term 'cash-out refinance' mean in mortgage lending documentation?
Answer: A refinance where the new loan amount exceeds the existing mortgage payoff, and the borrower receives the difference in cash
In a cash-out refinance, the new loan exceeds the balance of the existing mortgage, and the borrower receives the difference as cash proceeds.
A lender notices that the borrower's tax returns show significantly less income than their pay stubs. What should the lender do?
Answer: Request a written explanation and use the lower of the two figures per guidelines
When documented income sources conflict, lenders must obtain a written explanation and typically use the lower, more conservative figure per ATR and underwriting guidelines.