SAFE Products and Calculations 3 — Questions and Answers
Question 1: A borrower's gross monthly income is $6,000. Their proposed PITI is $1,500 and monthly debts total $600. What is their back-end DTI ratio?
- 35% (Correct answer)
- 25%
- 40%
- 30%
Correct answer: 35%
Back-end DTI = (PITI + monthly debts) / gross monthly income = ($1,500 + $600) / $6,000 = 35%.
Question 2: One discount point paid on a $200,000 loan equals:
- $2,000 (Correct answer)
- $200
- $20,000
- $2,200
Correct answer: $2,000
One point equals 1% of the loan amount, so 1 point on $200,000 = $2,000.
Question 3: Which of the following best describes a balloon mortgage?
- A loan with small periodic payments and a large lump-sum payment due at maturity (Correct answer)
- A loan with payments that increase over time
- A loan with no payment due at maturity
- A loan where the rate adjusts monthly
Correct answer: A loan with small periodic payments and a large lump-sum payment due at maturity
A balloon mortgage has regular (often interest-only or partially amortizing) payments with the remaining balance due in full at a set end date.
Question 4: VA loans require a funding fee. Which borrower category typically receives a funding fee exemption?
- Veterans receiving VA disability compensation (Correct answer)
- First-time VA loan users
- Active-duty service members
- Surviving spouses without disability benefits
Correct answer: Veterans receiving VA disability compensation
Veterans with service-connected disabilities receiving VA compensation are exempt from the VA funding fee.
Question 5: The index on an ARM is 3.25% and the margin is 2.5%. What is the fully indexed rate?
- 5.75% (Correct answer)
- 3.25%
- 2.50%
- 6.25%
Correct answer: 5.75%
Fully indexed rate = Index + Margin = 3.25% + 2.50% = 5.75%.
Question 6: A USDA Rural Development Guaranteed loan features which of the following?
- 100% financing with no down payment requirement (Correct answer)
- Requires at least 5% down payment
- Maximum LTV of 90%
- Limited to veterans only
Correct answer: 100% financing with no down payment requirement
USDA Guaranteed loans offer 100% financing (zero down payment) for eligible rural properties and borrowers.
Question 7: What is the primary purpose of a Home Equity Line of Credit (HELOC)?
- To provide revolving credit access using home equity as collateral (Correct answer)
- To replace the first mortgage at a lower rate
- To fund new home construction only
- To consolidate student loan debt exclusively
Correct answer: To provide revolving credit access using home equity as collateral
A HELOC is a revolving line of credit secured by the borrower's home equity, allowing draws and repayments during the draw period.
SAFE Products and Calculations 3
A borrower's gross monthly income is $6,000.
Their proposed PITI is $1,500 and monthly debts total $600.
What is their back-end DTI ratio?