Mortgage Mortgage Underwriting Principles Questions and Answers 2 — Questions and Answers
Question 1: Which ratio compares a borrower's total monthly debt payments to their gross monthly income?
- Debt-to-income ratio (Correct answer)
- Loan-to-value ratio
- Housing expense ratio
- Combined loan-to-value ratio
Correct answer: Debt-to-income ratio
The debt-to-income (DTI) ratio measures all recurring monthly debt obligations against gross monthly income.
Question 2: What is the primary purpose of an appraisal in the mortgage underwriting process?
- To determine the fair market value of the property (Correct answer)
- To verify the borrower's employment history
- To assess the borrower's creditworthiness
- To calculate the debt-to-income ratio
Correct answer: To determine the fair market value of the property
An appraisal provides an independent estimate of the property's fair market value to ensure the loan amount is appropriate.
Question 3: Under Qualified Mortgage (QM) rules, what is the maximum DTI ratio generally allowed?
- 43% (Correct answer)
- 50%
- 36%
- 28%
Correct answer: 43%
The general QM rule caps the debt-to-income ratio at 43% to ensure borrower ability to repay.
Question 4: Which of the following would most likely trigger a referral to a senior underwriter?
- Large unexplained deposits in the borrower's bank account (Correct answer)
- A credit score of 780
- Stable employment for 5 years
- A loan-to-value ratio of 70%
Correct answer: Large unexplained deposits in the borrower's bank account
Large unexplained deposits raise concerns about the source of funds and may indicate undisclosed liabilities or fraud.
Question 5: What does the term 'compensating factors' refer to in mortgage underwriting?
- Strengths that offset weaknesses in a borrower's application (Correct answer)
- Fees charged to compensate the lender for risk
- Adjustments made to the interest rate
- Penalties for late mortgage payments
Correct answer: Strengths that offset weaknesses in a borrower's application
Compensating factors are positive borrower attributes, such as large cash reserves, that can offset concerns like a slightly high DTI.
Question 6: Which document is used to verify a borrower's income from self-employment during underwriting?
- Tax returns with Schedule C or K-1 (Correct answer)
- W-2 wage statements
- Pay stubs from the last 30 days
- A verbal verification of employment
Correct answer: Tax returns with Schedule C or K-1
Self-employed borrowers typically provide two years of personal tax returns including Schedule C or K-1 to document business income.
Mortgage Mortgage Underwriting Principles Questions and Answers 2
Which ratio compares a borrower's total monthly debt payments to their gross monthly income?