General Mortgage Knowledge Flashcards

A borrower's gross monthly income is $6,000 and total monthly debt payments are $2,100. What is the DTI ratio?

Answer: 35%

DTI = total monthly debts / gross monthly income = $2,100 / $6,000 = 35%.

Which government agency insures FHA loans?

Answer: The Department of Housing and Urban Development (HUD)

FHA loans are insured by HUD's Federal Housing Administration, which protects lenders against borrower default.

What is the minimum down payment requirement for an FHA loan for a borrower with a credit score of 580 or higher?

Answer: 3.5%

Borrowers with credit scores of 580 or above qualify for the minimum FHA down payment of 3.5% of the purchase price.

What is 'private mortgage insurance' (PMI) designed to protect?

Answer: The lender against borrower default on conventional loans

PMI protects the lender (not the borrower) in the event of default when the borrower has less than 20% equity.

Which of the following loan types does NOT require a down payment from qualifying borrowers?

Answer: VA loan

VA loans, available to eligible veterans and service members, allow 100% financing with no down payment required.

The 'margin' on an adjustable-rate mortgage is best described as:

Answer: A fixed percentage added to the index to determine the interest rate

The margin is the lender's fixed markup added to the index; together they form the fully indexed rate on an ARM.

Under the Homeowners Protection Act, when must a lender automatically cancel PMI?

Answer: When the loan balance reaches 78% of the original value

Lenders must automatically cancel PMI when the loan balance reaches 78% of the original purchase price based on the scheduled amortization.