Mortgage Loan Originator Loan Underwriting and Processing 2 — Questions and Answers
Question 1: Which of the following income types is typically considered 'stable' for mortgage qualification?
- Unemployment benefits
- Lottery winnings
- Two-year history of self-employment income (Correct answer)
- One-time bonus received last month
Correct answer: Two-year history of self-employment income
Self-employment income with a two-year history is considered stable income; lenders average the two years to determine qualifying income.
Question 2: What is the purpose of a Verification of Employment (VOE) in the loan process?
- To verify the borrower's tax returns
- To confirm the borrower's current employment status, position, and income (Correct answer)
- To check the borrower's credit history
- To appraise the subject property
Correct answer: To confirm the borrower's current employment status, position, and income
A VOE is sent to the employer to independently verify the borrower's employment status, title, start date, and income details.
Question 3: In underwriting, a 'layered risk' scenario means:
- The borrower has multiple properties
- Multiple risk factors are present simultaneously, increasing overall loan risk (Correct answer)
- The loan has more than one lien
- The collateral has multiple appraisals
Correct answer: Multiple risk factors are present simultaneously, increasing overall loan risk
Layered risk occurs when multiple risk factors (e.g., low credit score + high LTV + minimal reserves) combine, making the loan riskier than any single factor alone.
Question 4: What document is used to verify a borrower's income from wages and is issued by employers annually?
- 1099-INT
- W-2 (Correct answer)
- Schedule C
- 1040 transcript
Correct answer: W-2
The W-2 form, issued by employers, reports wages and withholdings and is used by underwriters to verify a salaried borrower's annual income.
Question 5: When qualifying a borrower using rental income, lenders typically use what percentage of gross rental income?
- 100%
- 85%
- 75% (Correct answer)
- 50%
Correct answer: 75%
Most conventional guidelines allow 75% of gross rental income to account for vacancy and maintenance expenses when qualifying borrowers.
Question 6: What is the purpose of 'gift funds' documentation requirements in mortgage underwriting?
- To prove the gift is taxable
- To confirm the funds are a true gift and not a loan that would affect DTI (Correct answer)
- To verify the donor's employment
- To ensure the gift is from an immediate family member only
Correct answer: To confirm the funds are a true gift and not a loan that would affect DTI
Gift fund documentation (gift letter + donor bank statements) ensures down payment funds are truly gifted and not a loan that would increase the borrower's debt obligations.
Mortgage Loan Originator Loan Underwriting and Processing 2
Which of the following income types is typically considered 'stable' for mortgage qualification?