CMC Client Financial Advising 2 — Questions and Answers
Question 1: A client has a debt-to-income (DTI) ratio of 48%. Which action should a CMC recommend first?
- Approve the loan immediately since 48% is below 50%
- Advise the client to pay down revolving debt before applying (Correct answer)
- Suggest the client apply for a jumbo loan instead
- Recommend the client co-sign with a family member
Correct answer: Advise the client to pay down revolving debt before applying
A DTI of 48% is above the conventional 43–45% limit, so reducing revolving debt is the most direct way to improve eligibility.
Question 2: When advising a self-employed client on income documentation, which two years of tax returns are typically required by lenders?
- The most recent one year only
- The most recent two consecutive years (Correct answer)
- Any two years within the past five
- Three years to account for income volatility
Correct answer: The most recent two consecutive years
Lenders typically require the two most recent consecutive years of federal tax returns to establish consistent self-employment income.
Question 3: A client asks whether they should use gift funds for their down payment. What key condition must a CMC verify?
- The gift must come from a blood relative only
- The gift giver must be a U.S. citizen
- The gift must be documented and not require repayment (Correct answer)
- The gift amount cannot exceed $10,000
Correct answer: The gift must be documented and not require repayment
Lenders require a gift letter confirming the funds are a true gift with no expectation of repayment; the source must also be documented.
Question 4: A first-time homebuyer has excellent credit but minimal savings. Which program is BEST suited for a low down payment?
- Conventional 30-year fixed with 20% down
- FHA loan with 3.5% down (Correct answer)
- Jumbo loan with 10% down
- USDA commercial loan
Correct answer: FHA loan with 3.5% down
FHA loans allow down payments as low as 3.5% for borrowers with a credit score of 580 or higher, making them ideal for asset-limited first-time buyers.
Question 5: A client wants to maximize the mortgage interest deduction. What filing status consideration should a CMC highlight?
- Only married couples filing jointly can deduct mortgage interest
- The deduction is only available on primary residences, not second homes
- The standard deduction may exceed itemized deductions, reducing the tax benefit (Correct answer)
- Mortgage interest is fully deductible regardless of loan amount
Correct answer: The standard deduction may exceed itemized deductions, reducing the tax benefit
Since the 2017 Tax Cuts and Jobs Act raised the standard deduction significantly, many clients benefit more from the standard deduction than itemizing mortgage interest.
Question 6: Which credit score range typically qualifies a borrower for the best conventional mortgage rates?
- 620–639
- 640–679
- 680–719
- 740 and above (Correct answer)
Correct answer: 740 and above
Borrowers with credit scores of 740 or higher generally receive the most favorable conventional mortgage interest rates and pricing tiers.
Question 7: A client is comparing a 15-year vs. 30-year mortgage. What is the PRIMARY financial trade-off a CMC should explain?
- The 15-year loan has a lower interest rate but higher monthly payment (Correct answer)
- The 30-year loan always has a lower total interest cost
- The 15-year loan requires private mortgage insurance
- The 30-year loan cannot be paid off early without penalties
Correct answer: The 15-year loan has a lower interest rate but higher monthly payment
A 15-year mortgage typically carries a lower interest rate but significantly higher monthly payments due to the compressed repayment schedule.
CMC Client Financial Advising 2
A client has a debt-to-income (DTI) ratio of 48%.
Which action should a CMC recommend first?