SAFE Financial Analysis & Loan Documentation 2 — Questions and Answers
Question 1: A borrower has a gross monthly income of $6,000 and total monthly debt obligations of $1,800. What is their debt-to-income (DTI) ratio?
- 25%
- 30% (Correct answer)
- 33%
- 40%
Correct answer: 30%
DTI is calculated by dividing total monthly debts ($1,800) by gross monthly income ($6,000), resulting in 30%.
Question 2: Which document is used to disclose the final loan terms and closing costs to a borrower at least three business days before closing?
- Good Faith Estimate
- Loan Estimate
- Closing Disclosure (Correct answer)
- HUD-1 Settlement Statement
Correct answer: Closing Disclosure
The Closing Disclosure must be provided at least three business days before consummation under TRID rules.
Question 3: When verifying a self-employed borrower's income, which two years of tax documents are typically required?
- W-2s for two years
- 1099s and pay stubs
- Personal and business tax returns for two years (Correct answer)
- Bank statements for 24 months only
Correct answer: Personal and business tax returns for two years
Self-employed borrowers must provide two years of personal and business tax returns to establish a reliable income history.
Question 4: A borrower's asset account shows a large unexplained deposit two months before closing. What must the lender do?
- Ignore it if the funds are sufficient
- Require a letter of explanation and documentation of the source (Correct answer)
- Count it as a gift automatically
- Exclude the deposit from asset calculations
Correct answer: Require a letter of explanation and documentation of the source
Large unexplained deposits must be sourced; the borrower must provide a letter of explanation and supporting documentation per underwriting guidelines.
Question 5: Which ratio is used to determine if a borrower can afford the housing payment relative to their gross income?
- Back-end DTI ratio
- Loan-to-value ratio
- Front-end (housing) ratio (Correct answer)
- Combined LTV ratio
Correct answer: Front-end (housing) ratio
The front-end or housing ratio compares the total housing payment (PITI) to the borrower's gross monthly income.
Question 6: On the Loan Estimate, what does the 'In 5 Years' section disclose?
- The total interest paid over 5 years and the principal balance remaining (Correct answer)
- The expected property value after 5 years
- The number of payments due in 5 years
- The APR adjusted for a 5-year term
Correct answer: The total interest paid over 5 years and the principal balance remaining
The 'In 5 Years' section shows the total amount paid (principal + interest + fees) and the remaining principal balance after 60 payments.
Question 7: A borrower received a $10,000 gift from a relative to be used for a down payment. What documentation is required?
- Only a bank statement showing the deposit
- A gift letter stating no repayment is required, plus proof of transfer (Correct answer)
- A promissory note from the relative
- Nothing if the amount is under $15,000
Correct answer: A gift letter stating no repayment is required, plus proof of transfer
Gift funds require a signed gift letter stating no repayment is expected and documentation showing the transfer of funds.
SAFE Financial Analysis & Loan Documentation 2
A borrower has a gross monthly income of $6,000 and total monthly debt obligations of $1,800.
What is their debt-to-income (DTI) ratio?