NMLS SAFE MLO — Mortgage Loan Originator — All Questions

A prepayment penalty is a fee charged when a borrower:

• a.Refinances into an FHA loan
• b.Misses a payment
• c.Requests an escrow waiver
• d.Pays the loan off or pays down a large amount early✓

A prepayment penalty applies when the borrower pays off or substantially pays down the loan ahead of schedule, compensating the lender for lost interest. It is not a late fee, escrow item, or refinance requirement.

A rate lock primarily protects the borrower against what?

• a.Appraisal shortfalls
• b.Property damage
• c.Interest rate increases before closing✓
• d.Default

A rate lock guarantees a specific interest rate for a set period, protecting the borrower if market rates rise before closing. It does not cover property damage, default, or appraisal value.TILA / Regulation Z

During an annual escrow analysis, the servicer discovers a shortage. What typically happens?

• a.The interest rate rises
• b.The monthly escrow portion is increased to cover the shortage✓
• c.The loan is called due
• d.PMI is added

When taxes or insurance rise, an escrow shortage occurs and the servicer raises the monthly escrow payment (and may allow a lump-sum option) to replenish the account. It does not accelerate the loan, change the rate, or add PMI.RESPA / Regulation X

Under the Homeowners Protection Act, borrower-paid PMI on many conventional loans must automatically terminate when the LTV reaches what level (based on original value and scheduled amortization)?

• a.90%
• b.75%
• c.80%
• d.78%✓

PMI must automatically terminate at 78% LTV of the original value when payments are current. Borrowers may request cancellation at 80%, but automatic termination is at 78%; 75% and 90% are not the statutory thresholds.Homeowners Protection Act (PMI)

On an FHA loan, the upfront mortgage insurance premium (UFMIP) is most often handled how?

• a.Financed into the loan amount✓
• b.Paid to the appraiser
• c.Waived for first-time buyers
• d.Paid by the seller only

FHA borrowers commonly finance the UFMIP by adding it to the base loan amount, though it can be paid in cash. It is not automatically waived, seller-only, or paid to the appraiser.FHA

The VA funding fee is best described as:

• a.A one-time fee that helps sustain the VA loan program✓
• b.A monthly mortgage insurance premium
• c.A property tax
• d.A discount point

The VA funding fee is a one-time charge (often financed) that offsets taxpayer cost and can be waived for certain disabled veterans; VA loans have no monthly mortgage insurance. It is not a discount point or a property tax.VA

A conventional 97 program allows financing up to 97% LTV. On a $300,000 home, what is the minimum down payment under this program?

• a.$10,500
• b.$15,000
• c.$9,000✓
• d.$3,000

At 97% LTV the borrower puts down 3%: 3% x $300,000 = $9,000. $10,500 is 3.5% (FHA), $15,000 is 5%, and $3,000 is only 1%.

A common conventional qualifying guideline is a 28/36 ratio. For a borrower earning $6,000 gross monthly, what is the maximum total monthly debt (including PITI) under the 36 figure?

• a.$2,520
• b.$1,680
• c.$2,000
• d.$2,160✓

The 36 refers to a 36% back-end ratio: 36% x $6,000 = $2,160 maximum total debt. $1,680 is the 28% housing figure, not the total-debt limit.

The three main national consumer credit reporting bureaus used in mortgage lending are:

• a.Equifax, Experian, and TransUnion✓
• b.HUD, CFPB, and FTC
• c.FHA, VA, and USDA
• d.Fannie, Freddie, and Ginnie

Equifax, Experian, and TransUnion are the three major credit bureaus that produce the reports and scores used in underwriting. The other lists are loan programs, secondary-market entities, or regulators — not credit bureaus.

Loan-to-value (LTV) is calculated as:

• a.Loan amount divided by the lesser of purchase price or appraised value✓
• b.Down payment divided by loan
• c.Value minus loan
• d.Income divided by debt

LTV = loan amount / (the lesser of the sales price or appraised value), expressed as a percentage. The other formulas describe DTI or unrelated relationships.

A borrower buys a $525,000 home and finances $420,000. What is the LTV?

• a.80%✓
• b.75%
• c.90%
• d.85%

LTV = $420,000 / $525,000 = 80%. The other percentages do not equal the loan divided by the price.

A property appraises at $250,000. The borrower has a first mortgage of $150,000 and wants a second mortgage of $37,500. What is the resulting CLTV?

• a.80%
• b.75%✓
• c.70%
• d.60%

CLTV = ($150,000 + $37,500) / $250,000 = $187,500 / $250,000 = 75%. 60% counts only the first mortgage; the others do not match.

A borrower's gross monthly income is $4,000 and the proposed PITI is $1,200. What is the front-end ratio?

• a.33%
• b.28%
• c.30%✓
• d.25%

Front-end ratio = $1,200 / $4,000 = 30%. The other percentages do not equal PITI divided by gross income.

Gross monthly income is $12,000. PITI is $3,000 and other monthly debts are $1,800. What is the back-end DTI?

• a.40%✓
• b.36%
• c.25%
• d.30%

Back-end DTI = ($3,000 + $1,800) / $12,000 = $4,800 / $12,000 = 40%. 25% is the front-end ratio; the others omit part of the debt.

P&I is $900/month, annual taxes are $2,400, annual insurance is $1,200, and there is no PMI. What is the monthly PITI?

• a.$1,200✓
• b.$1,300
• c.$1,100
• d.$900

PITI = $900 + ($2,400/12) + ($1,200/12) = $900 + $200 + $100 = $1,200. The other totals miscount the monthly escrow.

On a $180,000 loan, a borrower pays 2.5 discount points. What is the cost?

• a.$4,500✓
• b.$5,400
• c.$3,600
• d.$1,800

Cost = 2.5% x $180,000 = $4,500. $3,600 is two points, $1,800 is one point, and $5,400 is three points.TILA / Regulation Z

A 5/1 ARM starts at 3.50%. At the first adjustment the index + margin equals 6.25%, and the initial cap is 2%. What is the new rate?

• a.5.50%✓
• b.6.00%
• c.6.25%
• d.3.50%

The initial 2% cap limits the increase: 3.50% + 2% = 5.50%, which is below the 6.25% fully indexed rate. It cannot reach 6.25% this period and does rise above the 3.50% start.

A note rate is 6.50%. During the first year of a 2-1 buydown, what rate does the borrower pay, and what rate applies in year two?

• a.5.50% then 6.50%
• b.3.50% then 4.50%
• c.6.50% then 5.50%
• d.4.50% then 5.50%✓

A 2-1 buydown lowers the rate 2% in year one and 1% in year two: 6.50% - 2% = 4.50% (year one), then 6.50% - 1% = 5.50% (year two). The note rate 6.50% resumes in year three.

On a $400,000 FHA purchase with the minimum down payment, what is the maximum base loan amount (before financing UFMIP)?

• a.$390,000
• b.$380,000
• c.$386,000✓
• d.$372,000

FHA maximum financing is 96.5%: 0.965 x $400,000 = $386,000 (a 3.5% / $14,000 down payment). $380,000 is 95%, $372,000 is 93%, and $390,000 does not match 96.5%.FHA

A loan balance is $150,000 at an annual rate of 4.8%. How much of the next monthly payment is interest?

• a.$620
• b.$500
• c.$720
• d.$600✓

Monthly interest = $150,000 x (0.048/12) = $150,000 x 0.004 = $600. $720 uses 5.76%/12 incorrectly; the others do not match 0.4% per month.

A home is worth $450,000. A borrower wants a first mortgage of $315,000 and a second of $22,500. What is the CLTV?

• a.80%
• b.70%
• c.72%
• d.75%✓

CLTV = ($315,000 + $22,500) / $450,000 = $337,500 / $450,000 = 75%. 70% counts only the first mortgage; the others do not match.

A borrower earns $6,500 gross monthly. Using a 28% housing ratio, what is the maximum PITI the borrower qualifies for?

• a.$1,625
• b.$1,820✓
• c.$1,950
• d.$2,080

Max PITI = 28% x $6,500 = $1,820. $1,625 uses 25%, $1,950 uses 30%, and $2,080 uses 32% — none match the stated 28%.

USDA guaranteed loans charge an upfront guarantee fee and an annual fee. These fees are most similar in purpose to which of the following?

• a.Homeowner's association dues
• b.Property taxes
• c.FHA's upfront and annual MIP✓
• d.A discount point

Like FHA's upfront and annual MIP, USDA's upfront guarantee fee and annual fee fund the program's insurance against default. They are not discount points, property taxes, or HOA dues.USDA

On many FHA loans with the minimum down payment, the annual MIP generally remains for what duration?

• a.Until 80% LTV only
• b.It never applies
• c.For the life of the loan✓
• d.For exactly 5 years

For FHA loans with less than 10% down, annual MIP typically remains for the life of the loan, unlike conventional PMI, which can cancel around 78–80% LTV. It is not limited to five years and does apply.FHA

Which of the following is an example of an index that can be used to set the rate on an adjustable-rate mortgage?

• a.SOFR (Secured Overnight Financing Rate)✓
• b.The borrower's FICO score
• c.The origination fee
• d.The loan's margin

SOFR is a common market index used to adjust ARM rates. The margin is added to the index (not the index itself), and the FICO score and origination fee are unrelated to the ARM index.

On an ARM, the initial 'start' or 'teaser' rate is best described as:

• a.The permanent rate
• b.The margin
• c.The lifetime cap
• d.A temporarily low introductory rate that later adjusts✓

The teaser (start) rate is a lower introductory rate for the initial fixed period; the rate later adjusts based on index plus margin subject to caps. It is not the cap, the margin, or a permanent rate.

In underwriting, 'reserves' generally refer to:

• a.Unpaid interest
• b.The lender's profit
• c.Liquid assets a borrower has left after closing, often measured in months of PITI✓
• d.Property taxes owed

Reserves are the borrower's remaining liquid assets after down payment and closing costs, commonly expressed as a number of months of PITI, showing ability to keep paying if income is interrupted. They are not lender profit, unpaid interest, or taxes.

When a borrower uses gift funds for a down payment, the lender typically requires:

• a.Nothing, gifts are never allowed
• b.Repayment within one year
• c.A gift letter stating the funds are not a loan✓
• d.That the donor co-sign the loan

Lenders generally allow gift funds from eligible donors but require a gift letter confirming the money need not be repaid, plus documentation of the transfer. Gifts are permitted, need not be repaid, and the donor is not required to co-sign.

How does a permanent buydown differ from a temporary buydown?

• a.Neither changes the payment
• b.A permanent buydown lowers the note rate for the full loan term, while a temporary buydown reduces the rate only for the first years✓
• c.A permanent buydown only lasts one year
• d.A temporary buydown lasts the whole term

A permanent buydown (paying discount points) lowers the note rate for the entire term, whereas a temporary buydown (like 2-1) reduces the effective rate only for the initial years before reverting to the note rate. Both do change the payment.

A convertible ARM gives the borrower the option to:

• a.Increase the loan amount
• b.Convert to a fixed rate during a specified window, often for a fee✓
• c.Skip payments
• d.Remove the property tax escrow

A convertible ARM includes a conversion feature allowing the borrower to switch to a fixed rate during a set period, usually for a fee, without a full refinance. It does not permit skipping payments, removing escrow, or increasing the loan.