CMP CMP - Certified Mortgage Processor Property Types and Eligibility Questions and Answers 2 — Questions and Answers
Question 1: What is the key distinction between a 'second home' and an 'investment property' for mortgage qualification purposes?
- Investment properties must be in a different state than the primary residence
- Second homes must be occupied by the borrower for a portion of the year and cannot be subject to rental agreements (Correct answer)
- Second homes require a higher down payment than investment properties
- There is no underwriting distinction between the two
Correct answer: Second homes must be occupied by the borrower for a portion of the year and cannot be subject to rental agreements
A second home must be a property the borrower occupies personally for part of the year and generally cannot be rented out full-time, unlike an investment property.
Question 2: Which property condition would most likely make a home ineligible for FHA financing?
- The home is 40 years old
- The home has peeling paint, a leaking roof, or exposed electrical hazards (Correct answer)
- The home is located in a rural area
- The home has a detached garage
Correct answer: The home has peeling paint, a leaking roof, or exposed electrical hazards
FHA appraisal standards require properties to meet minimum property standards (MPS); defects such as peeling paint, roof leaks, or safety hazards must be repaired prior to closing.
Question 3: What is a 'limited review' for a condominium, and when is it available?
- A shortened appraisal process for new construction condos
- A streamlined condo project approval available for lower LTV loans on established projects without full project review (Correct answer)
- An FHA-specific review for condos under $150,000
- A review only required for investment condos
Correct answer: A streamlined condo project approval available for lower LTV loans on established projects without full project review
A limited review is a Fannie Mae/Freddie Mac option for established condo projects where the loan meets certain LTV thresholds, requiring less documentation than a full project review.
Question 4: A property being purchased is located in a Special Flood Hazard Area (SFHA). What is the processor's responsibility?
- Decline the loan — SFHA properties are ineligible for conventional financing
- Ensure the borrower obtains flood insurance and that the policy meets FEMA and lender requirements (Correct answer)
- Recommend the borrower purchase a different property
- Order a second appraisal from a flood-certified appraiser
Correct answer: Ensure the borrower obtains flood insurance and that the policy meets FEMA and lender requirements
Properties in SFHA zones require flood insurance that meets FEMA NFIP standards; the processor must confirm coverage is in place before closing.
Question 5: What is a 'non-arm's length transaction' and why does it require additional scrutiny during loan processing?
- A transaction where the seller is a bank or REO property
- A sale between related parties or parties with a pre-existing business relationship, which may inflate the purchase price (Correct answer)
- A purchase using a power of attorney
- A transaction where the buyer waives inspection
Correct answer: A sale between related parties or parties with a pre-existing business relationship, which may inflate the purchase price
Non-arm's length transactions between family members or business associates carry a higher risk of inflated purchase prices and require additional documentation to confirm the value is legitimate.
Question 6: Which property type typically requires a 'project approval' before a lender can offer financing?
- Single-family detached homes
- Condominiums (Correct answer)
- Townhomes with fee simple title
- Manufactured homes on owned land
Correct answer: Condominiums
Condominium projects require lender and often agency-level project approval because the entire HOA and project financial health affect the collateral value, unlike detached single-family homes.
CMP CMP - Certified Mortgage Processor Property Types and Eligibility Questions and Answers 2
What is the key distinction between a 'second home' and an 'investment property' for mortgage qualification purposes?