NMLS SAFE MLO — Mortgage Loan Originator — All Questions

A buyer purchases a home for $400,000 with a $80,000 down payment and a $320,000 loan. What is the loan-to-value (LTV) ratio?

• a.20%
• b.75%
• c.80%✓
• d.25%

LTV = loan amount / value = $320,000 / $400,000 = 80%. The 20% figure is the down payment ratio, not the LTV. 25% and 75% do not match the loan divided by the purchase price.

A property is worth $500,000. It has a first mortgage of $350,000 and a HELOC balance of $50,000. What is the combined loan-to-value (CLTV)?

• a.70%
• b.75%
• c.90%
• d.80%✓

CLTV = (all liens) / value = ($350,000 + $50,000) / $500,000 = 80%. 70% ignores the HELOC. 90% and 75% do not match the summed liens over value.

A borrower has gross monthly income of $6,000 and a total PITI payment of $1,500. What is the front-end (housing) DTI ratio?

• a.25%✓
• b.22%
• c.20%
• d.30%

Front-end DTI = PITI / gross monthly income = $1,500 / $6,000 = 25%. The other choices do not equal the housing payment divided by income.

A borrower earns $8,000 gross per month. PITI is $2,000, and other monthly debts total $800 (car $400, cards $200, student loan $200). What is the back-end DTI?

• a.28%
• b.25%
• c.30%
• d.35%✓

Back-end DTI = (PITI + other debts) / income = ($2,000 + $800) / $8,000 = 35%. 25% is the front-end ratio (2,000/8,000); the others omit part of the debt.

Principal and interest is $1,200/month. Annual property taxes are $3,600, annual homeowner's insurance is $1,200, and monthly PMI is $50. What is the total monthly PITI?

• a.$1,600
• b.$1,650✓
• c.$1,500
• d.$1,550

PITI = P&I + taxes/12 + insurance/12 + PMI = $1,200 + $300 + $100 + $50 = $1,650. The other answers omit one or more escrow components.

On a $250,000 loan, the borrower pays 2 discount points. How much do the points cost at closing?

• a.$2,500
• b.$500
• c.$5,000✓
• d.$7,500

One point equals 1% of the loan amount, so 2 points = 2% x $250,000 = $5,000. $2,500 is only one point; $500 and $7,500 do not match 2% of the loan.TILA / Regulation Z

An ARM has an index of 3.50% and a margin of 2.25%. Ignoring caps, what is the fully indexed rate?

• a.3.50%
• b.2.25%
• c.5.75%✓
• d.5.50%

Fully indexed rate = index + margin = 3.50% + 2.25% = 5.75%. The margin (2.25%) and index (3.50%) alone are not the rate, and 5.50% miscalculates the sum.

An ARM currently at 4.00% reaches its first adjustment. The fully indexed rate is 7.00%, but the initial adjustment cap is 2%. What is the new rate?

• a.5.00%
• b.7.00%
• c.4.00%
• d.6.00%✓

The initial cap limits the increase to 2%, so the new rate = 4.00% + 2% = 6.00%, even though the fully indexed rate is 7.00%. It cannot jump to 7.00% because of the cap, and it does rise above 4.00%.

A loan has a note rate of 6.00% with a 2-1 temporary buydown. What is the interest rate the borrower pays in year one?

• a.6.00%
• b.5.00%
• c.4.00%✓
• d.3.00%

In a 2-1 buydown, the rate is reduced 2% in year one and 1% in year two. Year one = 6.00% - 2% = 4.00%. 5.00% is year two, and 6.00% is the permanent note rate after the buydown ends.

An FHA borrower buys a home for $300,000 with the minimum required down payment. What is the maximum FHA base loan amount?

• a.$289,500✓
• b.$300,000
• c.$290,000
• d.$279,000

FHA requires a minimum 3.5% down payment, so max financing is 96.5% x $300,000 = $289,500 (down payment $10,500). $279,000 reflects a 7% down payment, not the FHA minimum.FHA

A loan has a current balance of $200,000 at a 6.00% annual interest rate. How much of the next monthly payment goes to interest?

• a.$500
• b.$12,000
• c.$1,200
• d.$1,000✓

Monthly interest = balance x (annual rate / 12) = $200,000 x (0.06/12) = $200,000 x 0.005 = $1,000. $12,000 is the full year's interest, not one month.

On a $350,000 conventional purchase, how much down payment is required to avoid private mortgage insurance (PMI)?

• a.$12,250
• b.$17,500
• c.$70,000✓
• d.$35,000

PMI is generally required when LTV exceeds 80%, so a 20% down payment avoids it: 20% x $350,000 = $70,000. $35,000 is 10%, $17,500 is 5%, and $12,250 is 3.5% — all leave LTV above 80%.

Which loan program is guaranteed by the federal government, is available to eligible veterans, and generally allows 100% financing with no down payment?

• a.USDA loan
• b.Conventional loan
• c.VA loan✓
• d.FHA loan

VA loans are guaranteed by the Department of Veterans Affairs for eligible service members and veterans and typically require no down payment. USDA is for rural borrowers, FHA requires 3.5% down, and conventional loans are not government-guaranteed.VA

A borrower buys in a designated rural area, has moderate income within program limits, and wants no down payment. Which program best fits?

• a.VA loan
• b.Jumbo loan
• c.FHA loan
• d.USDA loan✓

USDA (Rural Development) loans allow 100% financing in eligible rural areas subject to household income limits. VA requires military eligibility, FHA requires a down payment, and jumbo loans are large, non-government loans.USDA

A 68-year-old homeowner wants to convert home equity into payments without making monthly mortgage payments. Which product applies?

• a.Reverse mortgage (HECM)✓
• b.Balloon mortgage
• c.Interest-only ARM
• d.Bridge loan

A Home Equity Conversion Mortgage (HECM), the FHA reverse mortgage, lets borrowers age 62+ tap equity with no required monthly payments; the loan is repaid when the home is sold or the borrower leaves. The other products all require ongoing payments.FHA / HECM

A loan amount that exceeds the conforming loan limit set for Fannie Mae and Freddie Mac is called what?

• a.A conforming loan
• b.An FHA loan
• c.A jumbo loan✓
• d.A subprime loan

A jumbo loan exceeds the conforming loan limit and cannot be purchased by Fannie Mae or Freddie Mac. A conforming loan is at or below the limit; FHA and subprime describe different features, not the size threshold.

A borrower wants a payment that never changes for the full 30-year term regardless of market rates. Which loan feature guarantees this?

• a.Interest-only loan
• b.Balloon loan
• c.5/1 ARM
• d.Fixed-rate mortgage✓

A fixed-rate mortgage keeps the same interest rate and principal-and-interest payment for the entire term. A 5/1 ARM adjusts after five years, interest-only payments change when the interest-only period ends, and a balloon requires a large lump sum at maturity.

On an adjustable-rate mortgage, the published economic benchmark that moves the interest rate up or down at each adjustment is called the:

• a.Index✓
• b.Cap
• c.Note rate
• d.Margin

The index is the market benchmark (such as SOFR) that fluctuates; the lender adds a fixed margin to it. Caps limit how much the rate can change, and the note rate is the rate actually charged on the note.

On an ARM, the fixed percentage the lender adds to the index to determine the interest rate is the:

• a.Margin✓
• b.APR
• c.Index
• d.Cap

The margin is the lender's fixed markup added to the index; it stays constant for the life of the loan. The index varies, caps limit changes, and APR reflects total borrowing cost expressed as a yearly rate.

During the initial period of an interest-only loan, what happens to the principal balance if the borrower pays only the required payment?

• a.It stays the same✓
• b.It increases
• c.It is forgiven
• d.It decreases quickly

With an interest-only payment, no principal is paid, so the balance stays the same during the interest-only period. It does not amortize down, is not forgiven, and does not grow (that would be negative amortization).

A balloon mortgage is best described by which feature?

• a.A large lump-sum payment is due at the end of the term✓
• b.Payments are interest-only for 30 years
• c.No payments are due until sale
• d.The rate adjusts every year

A balloon loan has smaller periodic payments but requires a large lump-sum payoff (the balloon) at maturity. Annual adjustment describes an ARM, and the other options describe interest-only and reverse-mortgage features.

Why is the annual percentage rate (APR) usually higher than the note rate on the same loan?

• a.It includes certain finance charges and fees, not just interest✓
• b.It excludes interest
• c.It ignores the loan term
• d.It is set by the state

APR reflects the note interest plus certain finance charges (points, some fees) expressed as a yearly rate, so it is typically higher than the note rate. It does not exclude interest, is not set by the state, and does account for the loan term.TILA / Regulation Z

What is the primary purpose of paying discount points at closing?

• a.To lower the loan's interest rate✓
• b.To fund the escrow account
• c.To pay the appraiser
• d.To increase the loan amount

Discount points are prepaid interest that buy down (lower) the note rate, reducing the monthly payment over time. They do not increase the loan, pay the appraiser, or fund escrow reserves.TILA / Regulation Z

Which statement correctly distinguishes PMI from MIP?

• a.MIP is on conventional loans; PMI is on FHA loans
• b.Both are only on VA loans
• c.PMI is on conventional loans; MIP is on FHA loans✓
• d.Neither can ever be removed

Private mortgage insurance (PMI) applies to conventional loans with less than 20% down, while the mortgage insurance premium (MIP) applies to FHA loans. VA loans use a funding fee instead, and PMI can generally be removed at 78–80% LTV.FHA

What is the main purpose of an escrow (impound) account on a mortgage?

• a.To pay the loan officer's commission
• b.To hold the borrower's down payment
• c.To reduce the interest rate
• d.To collect and pay property taxes and insurance✓

An escrow/impound account collects a portion of taxes and insurance each month so the servicer can pay those bills when due. It is not for the down payment, commissions, or lowering the rate.RESPA / Regulation X

A typical FICO credit score ranges between which of the following?

• a.500 to 900
• b.300 to 850✓
• c.0 to 100
• d.100 to 1000

FICO scores range from 300 to 850, with higher scores indicating lower credit risk. The other ranges do not match the standard FICO scale.

A $700,000 loan is at or below the baseline conforming limit and meets underwriting guidelines. Which entities can purchase it on the secondary market?

• a.Only the FHA
• b.Only Ginnie Mae
• c.No secondary buyers
• d.Fannie Mae and Freddie Mac✓

Conforming loans that meet the limit and guidelines are eligible for purchase by Fannie Mae and Freddie Mac. FHA insures but does not buy loans, Ginnie Mae securitizes government loans, and secondary buyers do exist for conforming loans.

On most FHA loans, the borrower pays an upfront mortgage insurance premium plus what?

• a.An annual MIP paid monthly✓
• b.A VA funding fee
• c.Nothing further
• d.A one-time PMI charge

FHA borrowers pay upfront MIP (often financed) and an annual MIP collected in monthly installments. The VA funding fee applies to VA loans, and FHA does not use PMI.FHA

A home appraises at $250,000 and the borrower takes a loan of $187,500. What is the LTV?

• a.80%
• b.75%✓
• c.85%
• d.70%

LTV = $187,500 / $250,000 = 75%. The other percentages do not equal the loan divided by the appraised value.

A home is worth $400,000. The first mortgage is $280,000 and a second mortgage is $40,000. What is the CLTV?

• a.85%
• b.80%✓
• c.75%
• d.70%

CLTV = ($280,000 + $40,000) / $400,000 = $320,000 / $400,000 = 80%. 70% counts only the first mortgage; the others do not match the total liens over value.

A borrower's gross monthly income is $10,000 and the proposed PITI is $2,800. What is the front-end (housing) ratio?

• a.28%✓
• b.35%
• c.25%
• d.30%

Front-end ratio = $2,800 / $10,000 = 28%. The other percentages do not equal PITI divided by gross income.

Gross monthly income is $5,000. PITI is $1,300 and other monthly debts are $700. What is the back-end DTI?

• a.36%
• b.26%
• c.30%
• d.40%✓

Back-end DTI = ($1,300 + $700) / $5,000 = $2,000 / $5,000 = 40%. 26% is the front-end ratio; the other figures omit part of the debt.

P&I is $1,500/month, annual taxes are $4,800, and annual insurance is $1,800. There is no mortgage insurance. What is the monthly PITI?

• a.$1,500
• b.$1,950
• c.$2,050✓
• d.$2,100

PITI = $1,500 + ($4,800/12) + ($1,800/12) = $1,500 + $400 + $150 = $2,050. The other totals miscount the monthly tax or insurance escrow.

A borrower pays 1.5 discount points on a $320,000 loan. What is the dollar cost of the points?

• a.$4,800✓
• b.$4,000
• c.$6,400
• d.$3,200

Points cost = 1.5% x $320,000 = $4,800. $3,200 is one point, $6,400 is two points, and $4,000 does not match 1.5% of the loan.TILA / Regulation Z

An ARM's index is 4.75% and the margin is 3.00%. What is the fully indexed rate before applying any caps?

• a.7.75%✓
• b.4.75%
• c.6.75%
• d.3.00%

Fully indexed rate = 4.75% + 3.00% = 7.75%. The index and margin alone are not the rate, and 6.75% adds them incorrectly.

An ARM has a start rate of 3.00% and a lifetime cap of 5%. What is the highest interest rate the loan can ever reach?

• a.5.00%
• b.8.00%✓
• c.10.00%
• d.3.00%

The lifetime cap limits total increase over the start rate: 3.00% + 5% = 8.00% maximum. 5.00% confuses the cap with the ceiling, and 10.00% double-counts.

A loan has a note rate of 7.00% with a 3-2-1 temporary buydown. What rate does the borrower pay in the first year?

• a.5.00%
• b.6.00%
• c.4.00%✓
• d.7.00%

A 3-2-1 buydown reduces the rate 3% in year one, 2% in year two, and 1% in year three. Year one = 7.00% - 3% = 4.00%. 5.00% is year two and 6.00% is year three.

On a $250,000 FHA purchase, what is the minimum required down payment?

• a.$25,000
• b.$12,500
• c.$8,750✓
• d.$7,500

FHA's minimum down payment is 3.5%: 0.035 x $250,000 = $8,750. $12,500 is 5%, $25,000 is 10%, and $7,500 is 3%.FHA

A loan payment of principal and interest is $1,600. The balance is $180,000 at 6.00% annual interest. How much of this payment goes to principal?

• a.$1,000
• b.$600
• c.$900
• d.$700✓

Monthly interest = $180,000 x (0.06/12) = $900. Principal = payment - interest = $1,600 - $900 = $700. $900 is the interest portion, not principal.

A borrower needs to finance $820,000 in an area where the baseline conforming limit applies. What type of loan will this most likely be?

• a.A jumbo loan✓
• b.A conforming loan
• c.An FHA loan
• d.A USDA loan

Because $820,000 exceeds the baseline conforming limit, the loan is classified as a jumbo (non-conforming) loan. It cannot be a standard conforming loan, and it exceeds typical FHA and USDA limits as well.

A borrower makes a 15% down payment on a purchase. What is the LTV of the resulting loan?

• a.15%
• b.85%✓
• c.90%
• d.80%

LTV = 100% - down payment percentage = 100% - 15% = 85%. 15% is the down payment, not the LTV, and the others do not match.

A home is valued at $600,000 with a first mortgage of $420,000 and a home equity loan of $60,000. What is the CLTV?

• a.75%
• b.90%
• c.80%✓
• d.70%

CLTV = ($420,000 + $60,000) / $600,000 = $480,000 / $600,000 = 80%. 70% counts only the first mortgage; the others do not match.

A borrower earns $7,200 gross monthly. The lender's maximum housing (front-end) ratio is 28%. What is the largest PITI the borrower can qualify for on that ratio?

• a.$1,800
• b.$2,016✓
• c.$2,160
• d.$2,304

Max PITI = 28% x $7,200 = $2,016. $2,304 uses 32%, $2,160 uses 30%, and $1,800 uses 25% — none match the stated 28%.

A borrower earns $9,000 gross monthly with a maximum back-end ratio of 43%. Existing monthly debts are $1,000. What is the largest PITI allowed?

• a.$2,000
• b.$2,870✓
• c.$3,000
• d.$3,870

Max total debt = 43% x $9,000 = $3,870. Subtract existing debts: $3,870 - $1,000 = $2,870 maximum PITI. $3,870 forgets to subtract the other debts.

P&I is $1,100/month, monthly taxes are $250, monthly insurance is $90, and monthly PMI is $60. What is the total PITI payment?

• a.$1,410
• b.$1,350
• c.$1,440
• d.$1,500✓

PITI = $1,100 + $250 + $90 + $60 = $1,500. $1,440 omits PMI, $1,410 omits insurance, and $1,350 omits both partially.

A lender offers to lower the rate for 3 discount points on a $200,000 loan. What is the total cost of buying the rate down?

• a.$3,000
• b.$4,000
• c.$2,000
• d.$6,000✓

3 points = 3% x $200,000 = $6,000. $2,000 is one point, $4,000 is two points, and $3,000 does not match 3% of the loan.TILA / Regulation Z

An ARM is at 5.00% and the fully indexed rate at adjustment is 9.00%, but the periodic (subsequent) cap is 2%. What is the new rate?

• a.8.00%
• b.5.00%
• c.9.00%
• d.7.00%✓

The periodic cap limits each adjustment to 2%: 5.00% + 2% = 7.00%, even though the fully indexed rate is 9.00%. It cannot rise to 9.00% this period and does increase above 5.00%.

An ARM is described with caps of 2/2/5. What does the final number (5) represent?

• a.The margin
• b.The periodic cap
• c.The lifetime cap✓
• d.The initial adjustment cap

In the 2/2/5 caps structure, the numbers are the initial cap, the periodic cap, and the lifetime cap; the 5 is the lifetime cap limiting total increase over the start rate. It is not the margin or the initial/periodic cap.

What is negative amortization?

• a.The loan balance grows because payments don't cover the interest due✓
• b.The loan is paid off early
• c.Principal is paid before interest
• d.Interest is waived

Negative amortization occurs when the scheduled payment is less than the interest owed, so the unpaid interest is added to the principal and the balance grows. It is the opposite of early payoff or waived interest.

A fully amortizing loan is one in which:

• a.The balance grows over time
• b.A balloon is due at maturity
• c.Scheduled payments pay off the entire balance by the end of the term✓
• d.Only interest is paid each month

A fully amortizing loan has payments structured so the balance reaches zero at the end of the term. Interest-only, balloon, and negatively amortizing loans do not fully pay down the balance through scheduled payments.