SAFE Financial Analysis & Loan Documentation 5

Question 1

A borrower has a retirement account valued at $200,000 and wants to use it for reserves. How much can typically be counted?

Accepted Answer

70% of the vested balance ($140,000)

Answer

Most conventional guidelines allow 70% of vested retirement account balances to account for taxes and early withdrawal penalties.

Question 2

What is the purpose of verifying employment (VOE) in the mortgage process?

Accepted Answer

To verify that the borrower is still employed and confirm their income at the time of closing

Answer

A verbal VOE is typically required within 10 business days of closing to confirm the borrower remains employed and their income has not changed.

Question 3

A borrower's bank statement shows regular monthly transfers from another account. What must the lender verify?

Accepted Answer

The source of the transferred funds to confirm they are not borrowed money

Answer

Lenders must trace the origin of transferred funds to ensure they are not undisclosed borrowed funds that would affect the borrower's DTI.

Question 4

Under RESPA, what is a 'kickback' in the context of mortgage transactions?

Accepted Answer

A payment given in exchange for referring settlement service business

Answer

RESPA Section 8 prohibits kickbacks, which are payments, fees, or anything of value exchanged for referrals of settlement service business.

Question 5

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?

Accepted Answer

Two years of W-2s, tax returns, and year-to-date pay stubs

Answer

When commission income exceeds 25% of total income, lenders require two years of W-2s, tax returns, and current pay stubs to establish stability.

(SAFE) Certified Secure and Fair Enforcement Mortgage Loan Originator Practice Test