CSLB General Building (B) — 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.80%✓
• b.20%
• c.25%
• d.75%

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.80%✓
• c.90%
• d.75%

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.20%
• b.22%
• c.25%✓
• 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.25%
• b.28%
• 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.$1,650✓
• b.$1,500
• c.$1,550
• d.$1,600

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.$5,000✓
• c.$500
• 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.2.25%
• b.5.50%
• c.5.75%✓
• d.3.50%

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.7.00%
• b.4.00%
• c.5.00%
• 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.4.00%✓
• b.5.00%
• c.6.00%
• 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.$300,000
• b.$289,500✓
• 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.$12,000
• b.$500
• c.$1,000✓
• d.$1,200

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.$35,000
• c.$17,500
• d.$70,000✓

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.VA loan✓
• b.USDA loan
• c.FHA loan
• d.Conventional 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.Jumbo loan
• b.USDA loan✓
• c.VA loan
• d.FHA 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.Interest-only ARM
• b.Balloon mortgage
• c.Reverse mortgage (HECM)✓
• 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.An FHA loan
• b.A subprime loan
• c.A conforming loan
• d.A jumbo 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.Fixed-rate mortgage✓
• b.5/1 ARM
• c.Interest-only loan
• d.Balloon loan

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

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.Cap
• b.Index
• c.Margin✓
• d.APR

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

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.The rate adjusts every year
• c.Payments are interest-only for 30 years
• d.No payments are due until sale

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

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

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

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

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

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.Fannie Mae and Freddie Mac✓
• d.No secondary buyers

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

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.75%✓
• b.80%
• c.70%
• d.85%

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.70%
• b.80%✓
• c.75%
• d.85%

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.25%
• b.30%
• c.28%✓
• d.35%

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.26%
• b.30%
• c.36%
• 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.$2,050✓
• b.$1,950
• c.$2,100
• d.$1,500

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

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.4.75%
• b.3.00%
• c.7.75%✓
• d.6.75%

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.3.00%
• c.10.00%
• d.8.00%✓

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.4.00%✓
• b.5.00%
• c.6.00%
• 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.$12,500
• b.$8,750✓
• c.$25,000
• 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.$900
• b.$1,000
• c.$700✓
• d.$600

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 conforming loan
• b.An FHA loan
• c.A USDA loan
• d.A jumbo 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.85%✓
• b.15%
• 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.70%
• b.80%✓
• c.75%
• d.90%

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.$2,304
• c.$2,016✓
• d.$2,160

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

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

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

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.9.00%
• b.5.00%
• c.7.00%✓
• d.8.00%

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 initial adjustment cap
• c.The periodic cap
• d.The lifetime 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.Interest is waived
• d.Principal is paid before interest

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

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.

A prepayment penalty is a fee charged when a borrower:

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

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

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 monthly escrow portion is increased to cover the shortage✓
• b.The loan is called due
• c.The interest rate rises
• 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.80%
• b.78%✓
• c.75%
• d.90%

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

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

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.$9,000✓
• b.$10,500
• c.$15,000
• 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.$1,680
• b.$2,160✓
• c.$2,000
• d.$2,520

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

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

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.85%
• d.90%

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.60%
• b.75%✓
• c.70%
• d.80%

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.25%
• b.28%
• c.30%✓
• d.33%

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.25%
• b.30%
• c.36%
• d.40%✓

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.$1,100
• c.$1,300
• 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.$3,600
• b.$4,500✓
• c.$1,800
• d.$5,400

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.6.25%
• b.3.50%
• c.5.50%✓
• d.6.00%

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.6.50% then 5.50%
• b.3.50% then 4.50%
• c.5.50% then 6.50%
• 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.$386,000✓
• b.$380,000
• c.$390,000
• 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.$720
• b.$600✓
• c.$500
• d.$620

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.70%
• b.72%
• c.75%✓
• d.80%

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.$1,950
• c.$2,080
• d.$1,820✓

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

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.For the life of the loan✓
• c.For exactly 5 years
• d.It never applies

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

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 lifetime cap
• b.The margin
• c.The permanent rate
• 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.Liquid assets a borrower has left after closing, often measured in months of PITI✓
• b.The lender's profit
• c.Unpaid interest
• 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.A gift letter stating the funds are not a loan✓
• c.Repayment within one year
• 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.A permanent buydown only lasts one year
• b.Neither changes the payment
• c.A permanent buydown lowers the note rate for the full loan term, while a temporary buydown reduces the rate only for the first years✓
• 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.Skip payments
• b.Remove the property tax escrow
• c.Increase the loan amount
• d.Convert to a fixed rate during a specified window, often for a fee✓

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.