Mortgage Mortgage General Mortgage Knowledge Questions and Answers 2 — Questions and Answers
Question 1: What is the primary purpose of a loan estimate (LE) that lenders must provide to borrowers?
- To disclose estimated loan terms, projected payments, and closing costs (Correct answer)
- To guarantee the final interest rate on the mortgage
- To serve as the binding loan agreement between borrower and lender
- To provide the borrower's credit score and history
Correct answer: To disclose estimated loan terms, projected payments, and closing costs
A Loan Estimate is a standardized form required under TRID rules that discloses estimated loan terms, projected payments, and closing costs within three business days of application.
Question 2: Which of the following best describes negative amortization?
- When monthly payments are large enough to pay off the loan early
- When the loan balance increases because payments do not cover the interest owed (Correct answer)
- When the interest rate decreases over the life of the loan
- When the borrower makes extra principal payments each month
Correct answer: When the loan balance increases because payments do not cover the interest owed
Negative amortization occurs when monthly payments are insufficient to cover the interest due, causing the unpaid interest to be added to the principal balance.
Question 3: What does the debt-to-income (DTI) ratio measure in mortgage qualification?
- The borrower's total assets divided by total liabilities
- The borrower's monthly debt payments divided by gross monthly income (Correct answer)
- The property's appraised value divided by the loan amount
- The borrower's net worth divided by the requested loan amount
Correct answer: The borrower's monthly debt payments divided by gross monthly income
The DTI ratio compares a borrower's total monthly debt obligations to their gross monthly income, helping lenders assess repayment ability.
Question 4: What is the purpose of a title search during the mortgage process?
- To determine the fair market value of the property
- To verify the property meets local building codes
- To examine public records for liens, encumbrances, or ownership disputes on the property (Correct answer)
- To confirm the borrower's employment history
Correct answer: To examine public records for liens, encumbrances, or ownership disputes on the property
A title search examines public records to identify any liens, encumbrances, or ownership claims that could affect the buyer's clear ownership of the property.
Question 5: Which type of mortgage allows the borrower to convert from an adjustable rate to a fixed rate during the loan term?
- Balloon mortgage
- Convertible ARM (Correct answer)
- Interest-only mortgage
- Reverse mortgage
Correct answer: Convertible ARM
A convertible ARM includes a provision that allows the borrower to switch from an adjustable interest rate to a fixed rate at specified times during the loan.
Question 6: What is the typical minimum credit score required for a conventional mortgage loan?
- 500
- 580
- 620 (Correct answer)
- 700
Correct answer: 620
Most conventional mortgage lenders require a minimum credit score of 620, though higher scores generally qualify for better interest rates and terms.
Mortgage Mortgage General Mortgage Knowledge Questions and Answers 2
What is the primary purpose of a loan estimate (LE) that lenders must provide to borrowers?