Mortgage Products and Programs 2 — Questions and Answers
Question 1: What is the maximum DTI ratio typically allowed for a USDA Guaranteed Loan without compensating factors?
- 36%
- 41% (Correct answer)
- 45%
- 50%
Correct answer: 41%
USDA Guaranteed Loans generally allow a maximum DTI of 41%, though waivers may be granted with strong compensating factors.
Question 2: Which mortgage product allows a borrower to draw funds, repay, and redraw during the draw period?
- Home Equity Loan
- HELOC (Correct answer)
- Cash-out refinance
- Reverse mortgage
Correct answer: HELOC
A Home Equity Line of Credit (HELOC) is a revolving credit line that allows repeated borrowing and repayment during the draw period.
Question 3: A 5/1 ARM means the rate is fixed for the first 5 years, then adjusts every:
- 5 years
- 6 months
- 1 year (Correct answer)
- 2 years
Correct answer: 1 year
In a 5/1 ARM, the '1' indicates the rate adjusts once per year after the initial 5-year fixed period.
Question 4: The Fannie Mae HomeReady program is designed primarily for:
- Veterans and active-duty military
- Low-to-moderate income borrowers (Correct answer)
- Self-employed borrowers only
- Borrowers with jumbo loan needs
Correct answer: Low-to-moderate income borrowers
HomeReady targets low-to-moderate income borrowers and allows income from non-borrower household members to qualify.
Question 5: Which loan program insures mortgages for properties in rural and suburban areas and requires no down payment?
- FHA Section 203(k)
- VA Loan
- USDA Rural Development Loan (Correct answer)
- Fannie Mae HomeReady
Correct answer: USDA Rural Development Loan
The USDA Rural Development Guaranteed Loan program offers 100% financing for eligible rural and suburban properties.
Question 6: A balloon mortgage typically requires full repayment of the remaining principal:
- After each payment adjustment
- At the end of a short term (e.g., 5 or 7 years) (Correct answer)
- Only if the borrower refinances
- When the LTV reaches 80%
Correct answer: At the end of a short term (e.g., 5 or 7 years)
Balloon mortgages have a large lump-sum payment due at the end of a relatively short loan term, often 5 to 7 years.
Question 7: Which feature of an ARM caps the maximum amount the interest rate can increase at each adjustment?
- Lifetime cap
- Periodic cap (Correct answer)
- Payment cap
- Index floor
Correct answer: Periodic cap
The periodic cap limits how much the interest rate can change at any single adjustment interval.
Mortgage Products and Programs 2
What is the maximum DTI ratio typically allowed for a USDA Guaranteed Loan without compensating factors?