Mortgage Loan Originator Loan Underwriting and Processing 1 — Questions and Answers
Question 1: What does the acronym 'DTI' stand for in mortgage underwriting?
- Down-payment to income
- Debt-to-income (Correct answer)
- Deferred-tax index
- Default threshold indicator
Correct answer: Debt-to-income
DTI (debt-to-income) ratio compares a borrower's monthly debt obligations to gross monthly income and is a key underwriting metric.
Question 2: Under conventional underwriting guidelines, the maximum back-end DTI ratio typically allowed without compensating factors is:
- 28%
- 36%
- 43% (Correct answer)
- 50%
Correct answer: 43%
Conventional loans typically use a 43% back-end DTI as the standard maximum, though DU/LP may approve higher ratios with strong compensating factors.
Question 3: What is the minimum FICO credit score required for FHA loan eligibility with 3.5% down payment?
- 580 (Correct answer)
- 620
- 640
- 660
Correct answer: 580
FHA guidelines allow a 3.5% minimum down payment for borrowers with credit scores of 580 or higher; scores between 500-579 require 10% down.
Question 4: In mortgage underwriting, 'seasoning' of funds typically refers to:
- Age of the property
- How long funds have been in the borrower's account (Correct answer)
- Duration of employment
- Length of the loan term
Correct answer: How long funds have been in the borrower's account
Seasoned funds are those that have been in the borrower's account for a sufficient period (typically 60 days) to verify they are not borrowed or undisclosed gifts.
Question 5: Which automated underwriting system (AUS) is used by Fannie Mae?
- Loan Prospector (LP)
- Desktop Underwriter (DU) (Correct answer)
- Total Scorecard
- GUS
Correct answer: Desktop Underwriter (DU)
Fannie Mae's automated underwriting system is Desktop Underwriter (DU), while Freddie Mac uses Loan Product Advisor (LPA, formerly LP).
Question 6: What does LTV stand for, and what does a lower LTV indicate?
- Loan-to-value; lower LTV means greater borrower equity and less lender risk (Correct answer)
- Lender-to-value; lower LTV means higher loan amount
- Loan-to-value; lower LTV means higher interest rate
- Lien-to-value; lower LTV means less borrower equity
Correct answer: Loan-to-value; lower LTV means greater borrower equity and less lender risk
LTV (loan-to-value) is the loan balance divided by property value; a lower LTV indicates more borrower equity, reducing the lender's default risk.
Mortgage Loan Originator Loan Underwriting and Processing 1
What does the acronym 'DTI' stand for in mortgage underwriting?