CSLB General Building (B) — All Questions

Under TRID, a mortgage 'application' is legally triggered when the consumer submits which set of information?

• a.Name, income, and a signed purchase contract only
• b.A completed Form 1003 signed by the borrower and co-borrower
• c.Name, Social Security number, and proof of homeowners insurance
• d.Name, income, SSN, property address, estimated property value, and loan amount sought✓

Under TRID an application consists of six specific pieces of information: name, income, Social Security number, property address, an estimate of the property's value, and the loan amount sought. A signed Form 1003 is not required; once the creditor has all six pieces, the Loan Estimate clock starts.TRID

A loan officer receives the borrower's name, income, SSN, subject property address, an estimate of the property's value, and the requested loan amount on Monday. When does the three-business-day Loan Estimate clock begin?

• a.Immediately on Monday, because all six pieces of an application have now been received✓
• b.Only after the borrower signs Form 1003
• c.After the appraisal is completed
• d.After the borrower pays the application fee

The six pieces of information are complete, so an 'application' exists and the LE clock starts the day they are received. The creditor must deliver or mail the Loan Estimate within three business days. No signature or fee payment is needed to start the clock.TRID

Which of the following is NOT one of the six pieces of information that constitute an application under TRID?

• a.The consumer's Social Security number
• b.The consumer's employer's address✓
• c.An estimate of the value of the property
• d.The loan amount sought

The six pieces are name, income, SSN, property address, estimated property value, and loan amount sought. The employer's address is not among them. Collecting it may be part of processing, but it does not affect whether an application exists.TRID

The creditor must deliver or place in the mail the Loan Estimate no later than how many business days after receiving the application?

• a.1 business day
• b.2 business days
• c.3 business days✓
• d.7 business days

The Loan Estimate must be delivered or placed in the mail no later than three business days after the creditor receives the consumer's application. This is a core TRID timing rule.TRID

In addition to being provided within three business days of application, the Loan Estimate must be received by the consumer no later than how many business days before consummation?

• a.1 business day
• b.3 business days
• c.5 business days
• d.7 business days✓

The consumer must receive the Loan Estimate no later than seven business days before consummation. This ensures the borrower has time to review the estimated terms before becoming obligated on the loan.TRID

The consumer must receive the Closing Disclosure at least how long before consummation?

• a.3 business days✓
• b.3 calendar days
• c.7 business days
• d.1 business day

The Closing Disclosure must be received by the consumer at least three business days before consummation. This waiting period gives the borrower time to review the final terms and costs.TRID

For the Closing Disclosure's three-business-day waiting period, 'business day' is defined as:

• a.Any day the creditor's offices are open to the public
• b.All calendar days except Sundays and legal public holidays✓
• c.Monday through Friday only
• d.All calendar days except weekends

For the CD waiting period and other precise timing rules, 'business day' uses the more specific definition: all calendar days except Sundays and legal public holidays. That means Saturdays generally count as business days.TRID

For counting the three days to deliver the Loan Estimate, 'business day' means:

• a.All calendar days except Sundays and federal holidays
• b.Monday through Saturday, always
• c.A day the creditor is open to the public for carrying out substantially all of its business functions✓
• d.Any day the Federal Reserve is open

The three-day LE delivery period uses the general definition of 'business day': a day on which the creditor's offices are open to the public for carrying out substantially all of its business functions. This differs from the more precise definition used for the CD waiting period.TRID

Before the consumer has received the Loan Estimate and communicated intent to proceed, the creditor may collect which fee?

• a.A loan application fee
• b.An appraisal fee
• c.A processing fee
• d.A bona fide and reasonable fee for obtaining the consumer's credit report✓

The only fee a creditor may collect before the consumer receives the LE and indicates intent to proceed is a bona fide and reasonable charge for obtaining the consumer's credit report. All other fees must wait until intent to proceed is communicated.TRID

Which of the following qualifies as the consumer's 'intent to proceed' with the transaction?

• a.Any affirmative oral or written communication from the consumer that they wish to move forward, after receiving the LE✓
• b.The consumer's silence for seven business days
• c.Signing the initial Form 1003
• d.The consumer simply providing the six pieces of information

Intent to proceed is any affirmative act, oral or written, by which the consumer communicates a desire to move forward after receiving the Loan Estimate. Silence does not constitute intent to proceed, and it cannot occur before the LE is received.TRID

When a valid changed circumstance justifies a revised Loan Estimate, the creditor must deliver or mail it within how many business days of receiving information sufficient to establish the change?

• a.1 business day
• b.3 business days✓
• c.7 business days
• d.4 business days

After a valid changed circumstance, the creditor must provide a revised Loan Estimate within three business days of receiving information sufficient to establish that the changed circumstance occurred. This resets the applicable tolerance baseline for the affected charges.TRID

A revised Loan Estimate must be received by the consumer no later than how many business days before consummation?

• a.1 business day
• b.3 business days
• c.4 business days✓
• d.7 business days

A revised Loan Estimate must be received by the consumer no later than four business days before consummation. Because the consumer must also receive the Closing Disclosure three business days before consummation, a revised LE cannot be issued on or after the CD is provided.TRID

Which charge is subject to a zero percent tolerance (cannot increase from the LE to the CD)?

• a.Prepaid interest
• b.Homeowners insurance premium
• c.A recording fee
• d.The loan origination fee charged by the creditor✓

Fees paid to the creditor, mortgage broker, or an affiliate, and charges for services the consumer cannot shop for provided by an affiliate, are subject to zero tolerance. The creditor's own origination fee cannot increase from the LE to the CD.TRID

Which fee falls under the 10 percent cumulative tolerance category?

• a.Recording fees✓
• b.The creditor's underwriting fee
• c.Transfer taxes
• d.Prepaid interest

Recording fees, along with charges for third-party services the consumer can shop for when the consumer selects a provider from the creditor's written list, fall under the 10 percent cumulative tolerance. These charges may rise, but only up to 10 percent in the aggregate.TRID

Which of the following is generally subject to NO tolerance limitation (may change without violating good faith)?

• a.Transfer taxes
• b.Prepaid interest (per-diem interest)✓
• c.The lender's origination charge
• d.Recording fees

Prepaid (per-diem) interest is in the 'no tolerance' category, meaning it may change from the LE to the CD without violating good faith. Also in this category are property insurance premiums, escrow amounts, and services the consumer shops for using a provider not on the creditor's list.TRID

A borrower chooses a title company that is NOT on the creditor's written list of providers. Into which tolerance category does that title service fee fall?

• a.Zero tolerance
• b.10 percent cumulative tolerance
• c.No tolerance✓
• d.A separate transfer-tax tolerance

When the consumer shops for a service and selects a provider that is not on the creditor's written list, that charge is in the 'no tolerance' category. Because the consumer went off-list, the creditor's estimate is not held to a strict tolerance for that charge.TRID

A borrower selects a pest-inspection provider FROM the creditor's written list of service providers. That charge is subject to which tolerance?

• a.Zero tolerance
• b.No tolerance
• c.A separate 25 percent tolerance
• d.10 percent cumulative tolerance✓

When the consumer can shop for a service and selects a provider from the creditor's written list, the charge falls in the 10 percent cumulative tolerance category. Staying on the list keeps the charge within the aggregate 10 percent limit.TRID

Transfer taxes disclosed on the Loan Estimate are subject to which tolerance?

• a.Zero tolerance✓
• b.10 percent tolerance
• c.No tolerance
• d.15 percent tolerance

Transfer taxes are in the zero tolerance category, meaning the amount charged at closing generally cannot exceed the amount disclosed on the Loan Estimate. Transfer tax rates are set by law, so the creditor is expected to disclose them accurately.TRID

After the Closing Disclosure is issued, which change requires a new three-business-day waiting period before consummation?

• a.A $50 decrease in the recording fee
• b.A change from a fixed-rate to an adjustable-rate loan✓
• c.A typo in the loan officer's phone number
• d.A $30 increase in a third-party fee

Only three changes after the CD trigger a new three-business-day waiting period: the APR becomes inaccurate (increases beyond tolerance), the loan product changes, or a prepayment penalty is added. Switching from a fixed to an adjustable rate is a loan-product change, so a new waiting period is required.TRID

Which post-CD change does NOT trigger a new three-business-day waiting period?

• a.Adding a prepayment penalty
• b.The APR increases above the applicable tolerance
• c.A minor decrease in the seller's closing costs✓
• d.The loan product changes from fixed to adjustable

A minor decrease in the seller's closing costs does not affect the three triggers for a new waiting period. Only an inaccurate APR, a changed loan product, or the addition of a prepayment penalty requires the consumer to receive a corrected CD and wait three more business days.TRID

A new three-business-day waiting period after the Closing Disclosure is required in all of the following EXCEPT:

• a.The APR becomes inaccurate (increases beyond tolerance)
• b.A prepayment penalty is added
• c.The loan product changes
• d.The consumer's homeowners insurance premium decreases by $20✓

The three events that trigger a new three-business-day waiting period are an inaccurate APR, the addition of a prepayment penalty, and a change in the loan product. A small decrease in the homeowners insurance premium is not one of them, so no new waiting period is required.TRID

If the Closing Disclosure is placed in the mail, when is the consumer presumed to have received it (absent evidence of earlier receipt)?

• a.Three business days after it is mailed✓
• b.The day it is mailed
• c.One business day after mailing
• d.Seven business days after mailing

Under the mailbox rule, if the CD is mailed, the consumer is presumed to receive it three business days after it is placed in the mail, unless the creditor has evidence of earlier receipt. The three-business-day waiting period then runs from the presumed receipt date.TRID

Which of the following is disclosed on the Loan Estimate?

• a.The final, exact amount of cash to close guaranteed at closing
• b.The estimated interest rate, monthly payment, and total closing costs✓
• c.The seller's net proceeds
• d.The real estate agent's commission split

The Loan Estimate discloses key estimated loan terms, including the interest rate, monthly principal and interest payment, and total estimated closing costs. It is an estimate designed to help the consumer understand and compare offers, not a final, guaranteed figure.TRID

The primary purpose of the Loan Estimate is to:

• a.Serve as a binding loan contract
• b.Guarantee the interest rate for 30 days
• c.Help the consumer understand the key loan terms and costs and shop among lenders✓
• d.Replace the promissory note

The Loan Estimate is designed to give consumers clear, comparable information about the key terms and costs of a mortgage so they can shop among lenders. It is not a contract, a rate guarantee, or a substitute for the note.TRID

Under TRID, who is responsible for ensuring the Loan Estimate is provided to the consumer?

• a.Only the mortgage broker
• b.The title company
• c.The real estate agent
• d.The creditor (though a mortgage broker may provide it)✓

The creditor is ultimately responsible for ensuring the Loan Estimate is provided and is accurate. A mortgage broker may deliver the LE on the creditor's behalf, but that does not shift the creditor's compliance responsibility.TRID

A mortgage broker receives a consumer's application. Which statement is correct about the Loan Estimate?

• a.The broker may provide the LE, but the creditor remains responsible for its accuracy and compliance✓
• b.Only the creditor may ever provide the LE
• c.The broker must provide the LE and the creditor bears no responsibility
• d.No LE is required when a broker is involved

When a broker receives the application, the broker may provide the Loan Estimate, but the creditor remains responsible for ensuring the LE complies with TRID. Only one LE should be provided for the transaction.TRID

Before intent to proceed, the fee a creditor charges to obtain the credit report must be:

• a.Any amount the creditor chooses
• b.Bona fide and reasonable in amount✓
• c.At least $500
• d.Waived entirely

The credit-report fee is the only fee that may be collected before intent to proceed, and it must be bona fide and reasonable in amount. It cannot be inflated as a way to collect other costs early.TRID

A loan officer collects a $600 appraisal fee from the borrower one hour after issuing the LE but before the borrower says they want to move forward. This is:

• a.Permitted, because the LE was already issued
• b.Permitted for any third-party fee
• c.A TRID violation, because fees (other than the credit-report fee) may not be collected before intent to proceed✓
• d.Permitted if the borrower is buying a second home

Issuing the LE is not enough; the consumer must also communicate intent to proceed before any fee other than the credit-report fee may be collected. Collecting the appraisal fee before intent to proceed violates TRID.TRID

When a creditor permits the consumer to shop for a settlement service, the creditor must provide:

• a.A guarantee of the lowest price
• b.An appraisal waiver
• c.A signed intent to proceed
• d.A written list identifying at least one available provider for each such service✓

For services the consumer can shop for, the creditor must give the consumer a written list identifying at least one provider for each such service. This helps the consumer shop while keeping listed providers within the 10 percent tolerance.TRID

If the creditor allows the consumer to shop for a service but fails to provide the required written list of providers, the charge for that service is generally treated under which tolerance?

• a.10 percent cumulative tolerance✓
• b.No tolerance
• c.Zero tolerance always
• d.It is exempt from tolerance rules

If the creditor permits shopping but fails to provide the required written list, the charge is generally subject to the 10 percent cumulative tolerance, as if the consumer had not been given the opportunity to shop freely. This protects the consumer from the omission.TRID

Which of the following qualifies as a 'changed circumstance' that permits a revised Loan Estimate?

• a.The consumer decides they want a slightly lower rate
• b.An extraordinary event beyond anyone's control, such as a natural disaster, affecting the transaction✓
• c.The loan officer forgot to include a fee on the original LE
• d.The creditor wants to increase its origination fee for more profit

A changed circumstance includes an extraordinary event beyond the control of any interested party, such as a natural disaster. A creditor's own error or a desire for more profit is not a valid changed circumstance and does not justify resetting tolerances.TRID

A revised Loan Estimate is also permitted when:

• a.The creditor simply wants to reset tolerances
• b.The consumer's credit score stays the same
• c.Information specific to the consumer relied on at application later turns out to be inaccurate, such as income differing from what was stated✓
• d.More than 10 business days have passed for any reason

A changed circumstance also covers information specific to the consumer that was relied upon at application and later proves inaccurate or changes, such as stated income not matching verified income. This can justify a revised Loan Estimate and reset the tolerance for affected charges.TRID

When a consumer locks an interest rate after the initial Loan Estimate, the creditor must provide a revised Loan Estimate by when?

• a.Within 7 business days
• b.At consummation
• c.It is never required
• d.No later than three business days after the rate is locked✓

A rate lock is a specific event that permits a revised Loan Estimate. When the rate is locked, the creditor must provide the revised LE no later than three business days after the lock so the disclosed rate-dependent charges reflect the locked rate.TRID

The Loan Estimate states that the consumer must indicate intent to proceed within how many business days for the closing cost estimates to remain available (the standard minimum period)?

• a.10 business days✓
• b.3 business days
• c.30 business days
• d.7 business days

The Loan Estimate must state that the estimated closing costs are available through a specified date, and that date must be at least 10 business days after the LE is provided. If the consumer does not indicate intent to proceed within that period, the creditor may revise the estimates.TRID

Under TRID, 'consummation' refers to:

• a.The day the consumer receives the keys
• b.The time the consumer becomes contractually obligated on the loan✓
• c.The day the appraisal is ordered
• d.The day the loan funds are disbursed

Consummation is the time at which the consumer becomes contractually obligated on the loan, as determined by state law. It is a distinct concept from closing or funding, and the CD waiting period is measured against consummation.TILA / Regulation Z

The Closing Disclosure primarily shows:

• a.Only the interest rate
• b.The consumer's credit score
• c.The actual, final terms and closing costs of the mortgage transaction✓
• d.An estimate that may still change substantially

The Closing Disclosure sets out the actual, final terms and costs of the mortgage transaction. It uses a format similar to the Loan Estimate so consumers can compare the final figures against the earlier estimates.TRID

A key reason the CD mirrors the LE's format is to:

• a.Confuse comparison shopping
• b.Eliminate the need for a promissory note
• c.Speed up underwriting
• d.Let the consumer easily compare final costs against the original estimates✓

The Closing Disclosure uses a layout similar to the Loan Estimate so consumers can readily compare the final terms and costs to the estimates they received earlier. This comparability is central to the purpose of TRID disclosures.TRID

A consumer receives the Closing Disclosure in person on Monday. Assuming no intervening federal holidays, the earliest day consummation may occur is:

• a.Thursday✓
• b.Wednesday
• c.Tuesday
• d.The following Monday

The three-business-day waiting period counts Tuesday, Wednesday, and Thursday, but not the Monday of receipt. Because Saturdays generally count as business days under the precise definition (only Sundays and legal public holidays are excluded), and no holiday intervenes here, consummation may occur on Thursday.TRID

A creditor places the Closing Disclosure in the mail. For the three-business-day receipt requirement, the consumer is presumed to receive it:

• a.On the day of mailing
• b.Three business days after mailing, unless the creditor has evidence of earlier receipt✓
• c.Seven business days after mailing
• d.Only when the consumer physically signs for it

When the CD is mailed, the consumer is presumed to receive it three business days after mailing, unless there is evidence of earlier receipt. The three-business-day waiting period before consummation then runs from that presumed receipt date. Delivering the CD in person or electronically with proof of receipt can shorten this timeline.TRID

The consumer may waive the CD three-business-day waiting period only when:

• a.The consumer simply requests it in writing for convenience
• b.The creditor approves a shorter timeline
• c.There is a bona fide personal financial emergency, such as imminent foreclosure, documented in a dated written statement✓
• d.The loan is for an investment property

The three-business-day waiting period may be waived only for a bona fide personal financial emergency, such as the imminent sale of the consumer's home in foreclosure. The consumer must give a dated written statement describing the emergency; convenience alone is not enough.TRID

If a charge exceeds the applicable tolerance at closing, the creditor generally must:

• a.Cancel the loan
• b.Ignore it if under $100
• c.Charge the consumer more
• d.Refund the excess to the consumer, a 'cure', typically within 60 days of consummation✓

When a charge exceeds its tolerance, the creditor must cure the violation by refunding the excess to the consumer, generally within 60 calendar days after consummation. A corrected Closing Disclosure reflecting the refund is also provided.TRID

Charges on the Loan Estimate are deemed made in 'good faith' if:

• a.The amount actually charged does not exceed the amount disclosed, subject to the applicable tolerances✓
• b.The loan officer intended to be accurate
• c.The consumer agrees in writing
• d.The charge is under $1,000

Good faith is generally measured by comparing the amount charged at closing to the amount disclosed on the Loan Estimate. A charge is in good faith if the amount charged does not exceed the disclosed amount, subject to the zero, 10 percent, or no-tolerance categories.TRID

'Services the consumer can shop for' are those for which:

• a.The creditor picks the provider
• b.The creditor permits the consumer to select the provider✓
• c.No provider is needed
• d.The fee is always zero

Services the consumer can shop for are those for which the creditor permits the consumer to choose the provider. The creditor must give the consumer a written list of providers; whether a charge stays in the 10 percent tolerance or moves to no tolerance depends on whether the consumer picks from that list.TRID

For purposes of triggering an application, the 'estimated value of the property' may be based on:

• a.Only a completed formal appraisal
• b.Only the tax-assessed value
• c.The consumer's own estimate or the purchase price stated in a sales contract✓
• d.The creditor's automated valuation only, never the consumer's

The 'estimate of the value of the property' among the six pieces can be based on the consumer's own estimate or the purchase price in the sales contract; a formal appraisal is not required to trigger an application. This is one of the six items that starts the LE clock.TRID

Before the consumer receives the Loan Estimate, if the creditor provides a written estimate of terms or costs, it must:

• a.Be identical to the final CD
• b.Be provided only orally
• c.Guarantee those costs
• d.Clearly state, in a prominent statement, that the terms are not an offer✓

If a creditor provides a written estimate of terms or costs before the consumer receives the LE, it must include a prominent statement that the terms and costs may change and are not an offer. This prevents such worksheets from being mistaken for the official Loan Estimate.TRID

A borrower gives the loan officer their name, monthly income, SSN, the loan amount they want, and an estimate of the home's value, but has not yet identified a specific property address. Under TRID:

• a.An application has NOT yet been triggered, because the property address is still missing✓
• b.An application is triggered because five pieces are enough
• c.The LE must be sent within three days anyway
• d.The six-piece rule does not apply to purchase loans

All six pieces are required for an application, and the property address is one of them. With only five pieces provided, no application has been triggered and the three-business-day LE clock has not yet started.TRID

A creditor may use a revised Loan Estimate to reset a tolerance baseline only when:

• a.At any time before closing for any reason
• b.A valid reason applies, such as a changed circumstance, a borrower-requested change, or a rate lock✓
• c.The consumer's income is verified as originally stated
• d.The creditor discovers it underpriced its own origination fee

A revised LE may reset tolerances only when a specific valid reason applies, such as a changed circumstance affecting settlement charges or eligibility, a borrower-requested change, a rate lock, or expiration of the LE. A creditor's own pricing mistake is not a valid reason to reset tolerances.TRID

The borrower asks to switch from a 30-year to a 15-year loan after the initial LE, changing several costs. The creditor may:

• a.Not issue any revised LE
• b.Only issue a revised CD
• c.Issue a revised Loan Estimate reflecting the borrower-requested change within three business days✓
• d.Charge whatever fees it wants with no re-disclosure

A borrower-requested change to the loan terms is a valid reason to issue a revised Loan Estimate. The creditor must provide the revised LE within three business days of receiving the request, and it may reset tolerances for the affected charges.TRID

A revised Loan Estimate may NOT be provided:

• a.After a rate lock
• b.After a changed circumstance
• c.Within three business days of application
• d.On or after the date the consumer has received the Closing Disclosure✓

A revised Loan Estimate cannot be provided on or after the date the consumer receives the Closing Disclosure. Because the revised LE must be received at least four business days before consummation and the CD at least three, once the CD is out, any further changes are reflected on a revised CD, not a new LE.TRID

Amounts placed into an escrow, impound, or reserve account are subject to which tolerance?

• a.No tolerance✓
• b.Zero tolerance
• c.10 percent tolerance
• d.25 percent tolerance

Amounts placed into an escrow, impound, or reserve account are in the 'no tolerance' category, meaning they may change from the LE to the CD as long as the estimate was made in good faith and based on the best information reasonably available.TRID

Premiums for homeowners (hazard) insurance disclosed on the LE are subject to which tolerance?

• a.Zero tolerance
• b.No tolerance✓
• c.10 percent tolerance
• d.They cannot appear on the LE

Homeowners (hazard) insurance premiums are in the 'no tolerance' category because the amount depends on the policy the consumer selects and can vary. The estimate must still be based on the best information reasonably available and made in good faith.TRID

A charge for a service the consumer cannot shop for, provided by an affiliate of the creditor, is subject to which tolerance?

• a.10 percent tolerance
• b.No tolerance
• c.Zero tolerance✓
• d.15 percent tolerance

Charges for services the consumer cannot shop for that are provided by the creditor or an affiliate of the creditor are subject to zero tolerance. Because the creditor controls the provider, it is expected to disclose those amounts accurately.TRID

Which pairing correctly matches the charge to its tolerance category?

• a.Recording fees — 10 percent tolerance; transfer taxes — zero tolerance✓
• b.Recording fees — zero tolerance; transfer taxes — 10 percent tolerance
• c.Both — no tolerance
• d.Both — zero tolerance

Recording fees fall under the 10 percent cumulative tolerance, while transfer taxes are subject to zero tolerance. Distinguishing these two government-related charges is a common exam point.TRID

At closing, which of these is most likely permitted to be higher than the Loan Estimate without a tolerance cure?

• a.The creditor's origination fee
• b.Per-diem prepaid interest that increased because closing occurred later in the month than assumed✓
• c.A transfer tax
• d.The credit report fee charged by the creditor's affiliate

Per-diem prepaid interest is in the 'no tolerance' category, so it can be higher at closing than on the LE, for example when closing occurs later in the month, without triggering a cure. The creditor's origination fee and transfer taxes are zero tolerance, and an affiliate charge for a service the consumer cannot shop for is also zero tolerance.TRID

During processing, an underwriter needs to verify a salaried borrower's income. Which document set most directly supports qualifying income for a W-2 wage earner?

• a.Recent pay stubs, prior-year W-2 forms, and a verification of employment✓
• b.Two years of Schedule C business tax returns and a profit-and-loss statement
• c.A signed gift letter and the donor's bank statement
• d.The purchase contract and the seller's disclosure statement

For a W-2 wage earner, income is documented with recent pay stubs, prior-year W-2s, and often a verification of employment (VOE). Schedule C and P&L statements apply to self-employed borrowers, and gift letters or contracts document other loan facts, not wage income.

An automated underwriting system returns a recommendation on a conventional loan submitted to Fannie Mae. Which system produced the finding?

• a.Loan Prospector (LP/LPA)
• b.Desktop Underwriter (DU)✓
• c.Total Scorecard alone
• d.The Closing Disclosure engine

Desktop Underwriter (DU) is Fannie Mae's automated underwriting system, while Loan Product Advisor (LPA, formerly Loan Prospector) is Freddie Mac's. TOTAL Scorecard is used with FHA loans, and the Closing Disclosure is a settlement document, not an underwriting engine.

A property appraisal comes in $15,000 below the agreed purchase price on a home the buyer is financing at 95% LTV. If nothing else changes, what is the most likely consequence?

• a.The lender must automatically raise the loan amount to cover the gap
• b.The appraisal has no effect because loans are based only on price
• c.The lender bases the loan on the lower appraised value, so the buyer must bring more cash or renegotiate✓
• d.The purchase contract is automatically voided by federal law

Lenders base the loan-to-value ratio on the lower of the purchase price or appraised value. A low appraisal reduces the maximum loan, so the buyer typically must bring additional cash, renegotiate the price, or dispute the appraisal. Federal law does not automatically void the contract.

A borrower requests a rate lock on Tuesday and the loan officer confirms a 45-day lock in writing. What does this lock agreement primarily guarantee?

• a.That the appraisal will support the purchase price
• b.That the loan will be approved by underwriting
• c.That closing costs will not increase for any reason
• d.That the quoted interest rate and points are held for a set period if the loan closes within that window✓

A rate lock guarantees the interest rate and points for a specified period, provided the loan closes within that window and terms do not change. It does not guarantee underwriting approval, appraised value, or that all closing costs remain fixed.TILA-RESPA Integrated Disclosure (TRID)

A flood determination shows the subject property sits in a Special Flood Hazard Area (SFHA), and the loan is federally related. What must the lender require?

• a.Flood insurance be maintained on the improvements for the life of the loan✓
• b.The borrower waive any right to flood coverage in writing
• c.The property be re-appraised at a higher value
• d.The loan be denied automatically

Under the Flood Disaster Protection Act, when a federally related loan secures a building in an SFHA, the lender must require flood insurance covering the improvements for the term of the loan. Being in an SFHA does not by itself require denial or re-appraisal.Flood Disaster Protection Act

A title search reveals an unreleased mechanic's lien from a prior contractor. Before closing, what is the appropriate resolution?

• a.Ignore it because the buyer is not responsible for the seller's contractors
• b.Clear the lien so title can transfer free of that encumbrance, typically via payoff or release at settlement✓
• c.Increase the loan amount to match the lien
• d.Order a second appraisal

An unreleased lien is a cloud on title that must be cleared before the property can transfer with clear, insurable title. This is typically resolved by paying off and recording a release of the lien at settlement. It is not remedied by a second appraisal or ignoring it.

An underwriter issues a conditional approval. What best describes a loan condition?

• a.A final denial that cannot be reversed
• b.A promise that the interest rate will drop before closing
• c.A specific item the borrower must satisfy before the loan can be cleared to close✓
• d.A federal disclosure required only at application

A conditional approval means the loan is approved subject to specific conditions, such as additional documentation or explanations, that must be satisfied before a clear-to-close is issued. It is not a denial, a rate promise, or a disclosure.

At closing, the lender sets up an escrow (impound) account for a borrower. What is the primary purpose of this account?

• a.To hold the borrower's down payment until the deed records
• b.To pay the loan originator's commission over time
• c.To fund future discount points
• d.To collect and pay property taxes and hazard insurance premiums as they come due✓

An escrow/impound account collects a portion of the borrower's monthly payment to pay property taxes and hazard (and sometimes flood) insurance when due. RESPA limits the cushion a lender may require. It is not for down payments, commissions, or points.Real Estate Settlement Procedures Act (RESPA)

A self-employed borrower applies for a mortgage. Which documentation most directly establishes qualifying income?

• a.Two years of personal and business tax returns with a year-to-date profit-and-loss statement✓
• b.A single recent pay stub
• c.The borrower's verbal estimate of monthly earnings
• d.A copy of the borrower's business license only

Self-employed income is typically documented with two years of personal and business tax returns plus a current year-to-date profit-and-loss statement to establish stable, ongoing income. A single pay stub, a verbal estimate, or a license alone is insufficient.

A verification of deposit (VOD) shows a $20,000 deposit two weeks before application that the borrower cannot explain. Why does this concern an underwriter?

• a.Large deposits always disqualify the borrower
• b.Unsourced large deposits may represent undisclosed debt or funds that are not the borrower's own✓
• c.Deposits have no bearing on loan approval
• d.Bank statements are never reviewed in underwriting

Underwriters must verify that funds used for down payment and reserves are the borrower's own and properly sourced. A large, unexplained deposit may be a hidden loan or borrowed funds, which affects the true debt picture, so documentation of the source is required.

In qualifying a borrower, the front-end (housing) ratio is calculated as:

• a.Total monthly debts divided by gross monthly income
• b.Loan amount divided by property value
• c.Monthly housing expense (PITI) divided by gross monthly income✓
• d.Net monthly income divided by total assets

The front-end or housing ratio compares the total monthly housing expense (principal, interest, taxes, and insurance, or PITI) to gross monthly income. The back-end ratio adds all other monthly debts. Loan-to-value is a separate measure of the loan against property value.

A borrower's rate lock expires two days before the scheduled closing due to processing delays. What is the most common consequence?

• a.The loan is automatically canceled
• b.The borrower keeps the original rate indefinitely with no action
• c.The lender must pay the borrower a penalty
• d.The lender may extend the lock (sometimes for a fee) or re-lock at current market rates✓

When a lock expires before closing, the lender typically offers a lock extension, sometimes for a fee, or re-locks at prevailing market rates, which may be higher or lower. The loan is not automatically canceled, and there is generally no automatic penalty paid to the borrower.

Under the appraisal rules of ECOA/Regulation B, when must a lender provide the applicant a copy of the appraisal on a first-lien dwelling loan?

• a.Promptly upon completion, or at least three business days before closing, whichever is earlier✓
• b.Only if the borrower pays an extra fee
• c.Only after the loan closes
• d.Never; appraisals are confidential to the lender

Under ECOA/Regulation B, a lender must provide a copy of appraisals and other written valuations promptly upon completion, or at least three business days before consummation, whichever is earlier. The applicant may waive the timing but still receives a copy.Equal Credit Opportunity Act (ECOA)

During underwriting, a DU finding lists 'Approve/Eligible' but includes verification messages. What do these messages require?

• a.That the loan be denied because messages appeared
• b.That the listed documentation and conditions be obtained and verified to support the finding✓
• c.That the borrower re-apply from scratch
• d.That the interest rate be increased

An 'Approve/Eligible' DU finding still lists verification messages and conditions that the file must document, such as income, assets, and credit items. Satisfying these supports the recommendation. Messages do not mean denial or require re-application.

A survey ordered during closing reveals that the neighbor's fence extends three feet onto the subject property. This is an example of:

• a.A prepayment penalty
• b.An escrow shortage
• c.An encroachment that may need to be resolved before closing✓
• d.A rate lock extension

When a structure or improvement crosses a boundary line onto another parcel, it is an encroachment. It can cloud title or affect value and may need resolution, such as an agreement or title exception, before closing proceeds. It is unrelated to prepayment penalties or rate locks.

At funding, the settlement agent disburses loan proceeds. In a typical purchase, funds are primarily disbursed to:

• a.The loan originator as commission only
• b.The borrower directly in cash
• c.The appraiser and inspector before all others
• d.The seller and to pay off existing liens, taxes, and settlement charges per the settlement statement✓

At funding and disbursement, the settlement agent pays the seller, pays off existing liens and prorated taxes, and covers settlement charges as itemized on the settlement statement/Closing Disclosure. Proceeds are not paid solely as commission or handed to the borrower in cash on a purchase.

A borrower earns a $3,000 monthly bonus that has been consistent for three years and is likely to continue. How may an underwriter treat this bonus income?

• a.It may be counted as qualifying income if documented as stable and likely to continue✓
• b.It can never be used because bonuses are variable
• c.It doubles the borrower's qualifying income automatically
• d.It only counts toward assets, not income

Variable income such as bonuses, overtime, or commissions can be counted as qualifying income when it is documented over an adequate history (commonly about two years) and shown to be stable and likely to continue. It is not automatically excluded or double-counted.

An appraiser uses the sales comparison approach on a single-family home. This approach primarily estimates value by:

• a.Calculating the cost to rebuild the home new, less depreciation
• b.Comparing the subject to recent sales of similar nearby properties with adjustments✓
• c.Dividing net operating income by a capitalization rate
• d.Using only the original purchase price of the home

The sales comparison approach estimates value by comparing the subject property to recent sales of similar homes, adjusting for differences in features, size, and condition. The cost approach rebuilds less depreciation, and the income approach capitalizes income, both used more in other property types.

A loan is 'cleared to close.' What does this status indicate?

• a.The borrower has made the first mortgage payment
• b.The appraisal has just been ordered
• c.All underwriting conditions have been satisfied and the loan can proceed to closing✓
• d.The interest rate has been locked for the first time

'Cleared to close' means underwriting has reviewed and approved all conditions, so the loan can move to the closing/settlement stage. It does not refer to ordering the appraisal, locking the rate, or making a payment.

Under RESPA Section 8, a title company offers a loan originator a cash payment for each referral of settlement business. This arrangement is:

• a.Permitted if disclosed orally
• b.Permitted if under $500
• c.Permitted if the borrower consents
• d.A prohibited kickback for referrals of settlement service business✓

RESPA Section 8 prohibits giving or receiving any fee, kickback, or thing of value for the referral of settlement service business on federally related mortgage loans. Such payments are illegal regardless of amount, disclosure, or borrower consent.Real Estate Settlement Procedures Act (RESPA)

A borrower's back-end debt-to-income ratio is 52%, above program guidelines. Which action could most directly help the borrower qualify?

• a.Pay off or pay down a car loan and credit cards to lower monthly debt✓
• b.Order a second appraisal
• c.Increase the loan amount requested
• d.Change the property address

The back-end ratio includes all monthly debts. Paying off or paying down installment and revolving debts lowers the numerator and reduces the ratio, improving qualification. A second appraisal or a larger loan does not lower the debt-to-income ratio.

An FHA loan is run through an automated underwriting system. Which scorecard evaluates the credit risk for FHA loans?

• a.Desktop Underwriter Scorecard
• b.TOTAL Scorecard✓
• c.Loan Prospector Scorecard
• d.Closing Disclosure Scorecard

FHA uses the TOTAL (Technology Open To Approved Lenders) Scorecard, which runs through DU or LPA to assess credit risk on FHA-insured loans. DU and LPA are the underlying systems, and there is no Closing Disclosure scorecard.

During post-closing, a lender reviews the completed file before selling the loan to an investor. What is the main purpose of this post-closing review?

• a.To reset the borrower's interest rate
• b.To re-order the appraisal for the buyer's records
• c.To confirm the file is complete, accurate, and compliant so the loan is saleable✓
• d.To collect the borrower's first payment in person

Post-closing review (quality control and file assembly) confirms that documents are complete, accurate, and compliant with investor and regulatory requirements so the loan can be delivered or sold in the secondary market. It does not change the rate or collect payments.

A borrower wants to use a $10,000 gift from a parent for the down payment. What documentation does an underwriter typically require?

• a.A promissory note showing the gift must be repaid
• b.Nothing; gifts never need documentation
• c.The parent's tax return only
• d.A gift letter stating no repayment is expected, plus evidence of transfer and, often, donor ability✓

Gift funds require a gift letter confirming the money is a true gift with no expectation of repayment, along with documentation of the transfer of funds and sometimes the donor's ability to give. If repayment were required, it would be a loan, not a gift, and would count as debt.

A lender's title insurance policy (loan policy) primarily protects:

• a.The lender against loss from covered title defects up to the loan amount✓
• b.The borrower against declining property values
• c.The appraiser against valuation errors
• d.The seller against buyer default

A loan (lender's) title policy protects the lender's lien position against covered defects in title, such as undisclosed liens or ownership claims, up to the loan amount. An owner's policy protects the buyer. It does not insure against market declines or default.

An underwriter reviews a borrower's employment stability. A borrower who changed jobs within the same field for higher pay is generally viewed how, compared with one who has frequent gaps and unrelated job changes?

• a.Less favorably, because any job change is a red flag
• b.More favorably, because advancement within a field supports income stability✓
• c.Identically, because job history is never considered
• d.Automatically disqualified for changing jobs

Underwriters assess the likelihood that income will continue. A job change within the same field for career advancement generally supports stability, while frequent employment gaps or unrelated changes raise concerns. Job changes alone do not disqualify a borrower.

A borrower is quoted a 'float-down' option on their rate lock. What does a float-down provision allow?

• a.The lender to raise the rate anytime before closing
• b.The borrower to switch to an adjustable-rate loan for free
• c.The borrower to obtain a lower rate if market rates fall during the lock period, usually for a fee✓
• d.The borrower to skip the appraisal

A float-down option lets the borrower take advantage of a lower rate if market rates decline during the lock period, while still being protected if rates rise. It typically involves a fee and specific terms, and it is unrelated to appraisals or loan type changes.

An appraisal report notes the subject property's highest and best use differs from its current use. Why does 'highest and best use' matter in valuation?

• a.It sets the interest rate
• b.It determines the borrower's credit score
• c.It fixes the loan term
• d.It reflects the legally permissible, physically possible, and financially feasible use that supports maximum value✓

Highest and best use is the reasonably probable use of a property that is legally permissible, physically possible, financially feasible, and maximally productive, and it underpins the appraiser's value conclusion. It does not set rates, credit scores, or loan terms.

In qualifying an applicant end-to-end, a lender evaluates the 'four Cs.' Which set correctly lists them?

• a.Capacity, Credit, Capital, and Collateral✓
• b.Cost, Closing, Contract, and Commission
• c.Cash, Coverage, Compliance, and Contingency
• d.Charge, Cushion, Cap, and Carryback

Traditional underwriting evaluates the four Cs: Capacity (ability to repay), Credit (history), Capital (assets/reserves), and Collateral (the property). The other lists are not the recognized underwriting framework.

A processor orders a verification of employment (VOE) but the borrower started a new job last week. What additional step is most appropriate?

• a.Cancel the loan because the borrower is newly employed
• b.Document the prior two-year employment history and, if needed, verify the offer/start of new employment✓
• c.Ignore the new job entirely
• d.Require the borrower to quit and return to the old job

Underwriting evaluates a two-year employment history to gauge stability. A recent job change is acceptable when the prior history is documented and the new employment is verified, often via an offer letter and a verbal or written VOE. New employment alone does not require denial.

A borrower must receive the Closing Disclosure at least how many business days before consummation of the loan?

• a.One business day
• b.Two business days
• c.Three business days✓
• d.Seven business days

Under TRID, the creditor must ensure the borrower receives the Closing Disclosure at least three business days before consummation. Certain changes (like an APR increase beyond tolerance) can trigger a new three-day waiting period. The seven-day rule applies to the Loan Estimate before consummation.TILA-RESPA Integrated Disclosure (TRID)

During underwriting, an appraiser identifies functional obsolescence in the subject home. What does functional obsolescence refer to?

• a.A lien recorded against the property
• b.A decline in the overall neighborhood economy
• c.Physical wear from age and use
• d.A loss in value from outdated design or features that reduce usefulness✓

Functional obsolescence is a loss in value caused by outdated or poorly designed features, such as an awkward floor plan or too few bathrooms. Physical deterioration is wear and tear, and external obsolescence comes from outside factors like a declining neighborhood.

A borrower with strong income but only 90 days of seasoning on a large deposit asks why 'reserves' matter. What are reserves in underwriting?

• a.Liquid assets remaining after closing that could cover several months of mortgage payments✓
• b.The lender's profit on the loan
• c.The amount of the seller's concession
• d.The appraiser's contingency fee

Reserves are the borrower's liquid assets remaining after down payment and closing costs, often measured in months of PITI. They cushion against payment disruption and strengthen the file. They are not lender profit, seller concessions, or appraiser fees.

A settlement agent prepares to record the deed and mortgage after funding. Recording these documents primarily serves to:

• a.Set the borrower's interest rate
• b.Give public notice of the ownership transfer and the lender's lien✓
• c.Waive the borrower's right of rescission
• d.Cancel the title insurance policy

Recording the deed and mortgage/deed of trust in the public land records gives constructive notice of the change in ownership and the lender's lien position, protecting priority. Recording does not set rates, waive rescission, or cancel title insurance.

An underwriter needs to confirm a borrower's outstanding debts and payment history. Which document is the primary source?

• a.The purchase contract
• b.The appraisal report
• c.The tri-merge credit report✓
• d.The flood determination certificate

A tri-merge credit report combines data from the three major bureaus and is the primary source for a borrower's outstanding debts, balances, and payment history used to calculate ratios and assess credit. The contract, appraisal, and flood certificate serve other purposes.

A borrower is buying a condominium. In addition to the standard file, what does the lender typically require during underwriting?

• a.Only a driver's license
• b.Nothing extra beyond a house purchase
• c.A commercial appraisal
• d.A condo project review, including the HOA's budget, insurance, and owner-occupancy details✓

Condo financing requires a project review to confirm the homeowners association is financially sound, adequately insured, and meets investor requirements for owner-occupancy and litigation. This is in addition to the borrower's standard qualifying documents.

A borrower's application shows income from child support they wish to use to qualify. How may this income be treated?

• a.It may count if documented, likely to continue for a defined period (often at least three years), and received consistently✓
• b.It can never be used to qualify
• c.It counts double because it is tax-free
• d.It only counts as an asset

Child support, alimony, or maintenance may be used as qualifying income if it is documented, has been received consistently, and is likely to continue for at least a defined period (commonly three years). A borrower is not required to disclose it, but if used, it must be supported.

A closing is scheduled, but the underwriter adds a 'prior-to-funding' condition. How does this differ from a 'prior-to-doc' condition?

• a.There is no difference; both are optional
• b.A prior-to-doc condition must be met before closing documents are drawn, while a prior-to-funding condition must be met before loan proceeds are released✓
• c.A prior-to-funding condition is met after the loan closes
• d.Both must be satisfied only after recording

Conditions are sequenced: prior-to-document (PTD) conditions must be satisfied before closing documents are prepared, and prior-to-funding (PTF) conditions must be cleared before loan proceeds are disbursed. Neither is optional, and both precede funding/recording.

After closing, a lender compiles loan-level data such as loan purpose, applicant demographics, and action taken for annual reporting. Which law drives this data collection?

• a.The Fair Credit Reporting Act
• b.The Truth in Lending Act
• c.The Home Mortgage Disclosure Act✓
• d.The Fair Housing Act

The Home Mortgage Disclosure Act (HMDA) requires covered lenders to collect and report loan-level data, including loan purpose, applicant demographic information, and the action taken, to help identify lending patterns. It is a post-origination reporting obligation distinct from FCRA, TILA, or the Fair Housing Act.Home Mortgage Disclosure Act (HMDA)

An appraisal uses the cost approach on a newer, unique home with few comparable sales. The cost approach estimates value by:

• a.Averaging the last three listing prices
• b.Capitalizing the property's rental income
• c.Using only the borrower's opinion of value
• d.Adding land value to the replacement cost of improvements, less depreciation✓

The cost approach estimates value as the land value plus the current cost to replace the improvements, minus accrued depreciation. It is most useful for new or special-purpose properties with limited comparable sales. It is not based on listings, income capitalization, or borrower opinion.

A borrower makes a 20% down payment on a conventional loan. What is one common effect on the loan structure?

• a.Private mortgage insurance is generally not required at 80% LTV or below✓
• b.The interest rate must be adjustable
• c.An escrow account is prohibited
• d.The appraisal is waived automatically

On a conventional loan, a 20% down payment puts the loan at 80% loan-to-value, which typically eliminates the requirement for private mortgage insurance (PMI). The down payment does not force an adjustable rate, prohibit escrow, or automatically waive the appraisal.

An appraiser adjusts a comparable that has an extra bathroom compared to the subject property. In the sales comparison approach, adjustments are made to the:

• a.Subject property, to match each comparable
• b.Comparable properties, to make them reflect the subject✓
• c.Loan amount, to match the appraisal
• d.Borrower's income, to match the value

In the sales comparison approach, adjustments are applied to the comparable sales, not the subject, to account for differences so each comp reflects what the subject would sell for. If a comp is superior (extra bath), its price is adjusted downward. The subject is never adjusted.

At settlement on a purchase, property taxes are 'prorated' between buyer and seller. What does proration accomplish?

• a.It waives the taxes for the year
• b.It doubles the tax bill at closing
• c.It allocates taxes so each party pays for the portion of the period they owned the property✓
• d.It transfers the taxes to the lender permanently

Proration divides recurring costs like property taxes between buyer and seller based on the portion of the tax period each owns the property. This ensures each party pays their fair share as of the closing date. It does not waive, double, or permanently transfer the taxes.

A borrower's DU findings return 'Refer/Eligible.' What does this typically mean for the file?

• a.The loan is automatically approved with no review
• b.The loan is denied and cannot proceed
• c.The rate is automatically reduced
• d.The file requires manual underwriting because the automated system did not issue an approve recommendation✓

A 'Refer' recommendation means the automated system could not render an approval and the file must be manually underwritten by a person, who evaluates compensating factors. 'Eligible' indicates the loan meets program parameters. Refer is not an automatic approval or denial.

During processing, the borrower opens a new credit card and finances furniture before closing. Why can this jeopardize the loan?

• a.New debt can raise the debt-to-income ratio and change the approval, especially if a soft re-pull occurs before closing✓
• b.It has no effect once the application is submitted
• c.It automatically lowers the interest rate
• d.It guarantees a faster closing

New debt taken on during processing increases monthly obligations and the debt-to-income ratio. Lenders often re-verify credit shortly before closing, and new accounts can invalidate the approval or delay closing. Borrowers are typically advised to avoid new credit until after closing.

A title commitment lists Schedule B exceptions. What are these exceptions?

• a.Amounts the lender must pay the appraiser
• b.Matters the title policy will NOT insure against, such as certain easements or restrictions✓
• c.The borrower's monthly payment breakdown
• d.The lock expiration dates

Schedule B of a title commitment lists exceptions, meaning specific matters like easements, covenants, or restrictions that the title policy will not cover. Reviewing these helps determine whether title is acceptable. They are unrelated to appraiser fees, payments, or lock dates.

An underwriter must calculate qualifying income for a borrower paid $22/hour working a standard 40-hour week. What is the correct gross monthly income (using 2,080 hours annually)?

• a.$1,760
• b.$2,933
• c.$3,813✓
• d.$5,280

Annual income is $22 times 2,080 hours, or $45,760, and gross monthly income is $45,760 divided by 12, which equals about $3,813. Multiplying hourly pay by 40 gives only a weekly figure, so the annual-then-divide method yields the correct monthly income.

A lender orders a 'desktop' or 'hybrid' appraisal instead of a full appraisal on an eligible loan. What distinguishes these from a traditional appraisal?

• a.They eliminate the need to determine value
• b.They are only used after closing
• c.They set the interest rate directly
• d.They rely on data and, for hybrids, third-party property inspections rather than a full appraiser interior visit✓

Desktop appraisals use property data and public records without an appraiser's on-site visit, while hybrid appraisals pair a third-party inspection with an appraiser's analysis. Both still produce a value opinion, but reduce the traditional full interior/exterior appraiser inspection.

A borrower's assets include stocks in a brokerage account they plan to use for closing. How does an underwriter typically treat these funds?

• a.They may be counted, often at a discounted value, once liquidation or accessibility is documented✓
• b.They are never usable because they are not cash
• c.They count at triple their market value
• d.They must be sold to the lender directly

Marketable securities such as stocks can be used for down payment and reserves, but underwriters may apply a discount to account for market volatility and require documentation of value and, if being used at closing, evidence of liquidation. They are not tripled or excluded outright.

Between the Loan Estimate and Closing Disclosure, the recording fee (a zero-tolerance/limited-tolerance item) increases beyond the allowed tolerance. What must the lender generally do?

• a.Nothing; all fees can change freely
• b.Cure the tolerance violation, typically by refunding the borrower the excess amount✓
• c.Cancel the loan
• d.Re-order the appraisal

Under TRID tolerance rules, certain fees may not increase from the Loan Estimate beyond set limits. If they do, the lender must cure the violation, generally by refunding the excess to the borrower, usually within 60 days of consummation. It does not require canceling the loan.TILA-RESPA Integrated Disclosure (TRID)

A borrower assumes their monthly payment on a loan with an escrow account is fixed forever. Why might the escrow portion change over time?

• a.Because the loan principal is recalculated monthly
• b.Because the interest rate on a fixed loan changes yearly
• c.Because property taxes and insurance premiums can rise or fall, changing the required escrow amount✓
• d.Because the lender adds new discount points annually

Even on a fixed-rate loan, the escrow portion of the payment can change because property taxes and insurance premiums vary over time. Lenders perform an annual escrow analysis and adjust the monthly escrow to cover the new amounts, which changes the total payment.

A borrower qualifies with a co-signer (non-occupant co-borrower). How does the co-borrower generally affect qualifying?

• a.The co-borrower's income is ignored entirely
• b.Only the co-borrower's assets count, not the primary borrower's
• c.The co-borrower cannot be held liable for the debt
• d.The co-borrower's income and debts are included, and they share legal liability for repayment✓

A non-occupant co-borrower's income and debts are considered in qualifying, which can help the primary borrower's ratios, and the co-borrower is legally liable for repaying the loan. Their contribution is not ignored, and they do share responsibility for the debt.

After the borrower reviews the initial Closing Disclosure, the seller agrees to pay an additional closing cost credit at the table. How should this be handled?

• a.Update the Closing Disclosure to reflect the seller credit before consummation✓
• b.Leave the disclosure unchanged and record it later informally
• c.Skip disclosing the credit since it helps the borrower
• d.Cancel the closing entirely

Changes to the terms or costs, such as an added seller credit, must be reflected accurately on the Closing Disclosure so the figures match the actual transaction at consummation. Some changes require a corrected CD, but the transaction must be documented accurately, not left unchanged or undisclosed.

A borrower is purchasing a home appraised at $300,000 with a sale price of $290,000 and wants a 90% loan. On what value is the maximum loan calculated, and what is it?

• a.On the appraised value; $270,000
• b.On the lower of price or value ($290,000); $261,000✓
• c.On the higher of price or value ($300,000); $270,000
• d.On the down payment; $29,000

Loan-to-value uses the lesser of the purchase price or appraised value, which is $290,000 here. At 90% LTV, the maximum loan is 0.90 times $290,000, or $261,000. Using the higher figure would overstate the allowable loan, so the lower value governs.