Mortgage Products and Programs 3 — Questions and Answers
Question 1: Which government-backed loan program charges both an Upfront Mortgage Insurance Premium (UFMIP) and an annual MIP?
- VA loan
- USDA loan
- FHA loan (Correct answer)
- Conventional loan
Correct answer: FHA loan
FHA loans require a UFMIP (typically 1.75% of the loan amount) plus annual MIP paid monthly for the life of most loans.
Question 2: A construction-to-permanent loan differs from a standalone construction loan because it:
- Requires two closings instead of one
- Automatically converts to a permanent mortgage after construction (Correct answer)
- Does not require inspections during the build phase
- Is only available through the FHA 203(k) program
Correct answer: Automatically converts to a permanent mortgage after construction
A construction-to-permanent loan closes once and converts to a long-term mortgage when construction is complete, saving closing costs.
Question 3: The VA funding fee for a first-time use, no-down-payment purchase by an active-duty veteran is approximately:
- 0.5%
- 1.25%
- 2.15% (Correct answer)
- 3.30%
Correct answer: 2.15%
As of current VA guidelines, the funding fee for a first-time use purchase with no down payment is 2.15% of the loan amount.
Question 4: An interest-only mortgage allows borrowers to pay only interest for a set period, which means:
- Principal balance decreases faster
- Monthly payments are lower during the IO period but principal is not reduced (Correct answer)
- The loan converts to a HELOC automatically
- The loan is amortized over 15 years instead of 30
Correct answer: Monthly payments are lower during the IO period but principal is not reduced
During the interest-only period, payments cover only interest, so the principal balance stays the same until amortization begins.
Question 5: The FHA 203(k) loan is specifically designed to finance:
- New construction only
- Purchase and renovation of a home in a single loan (Correct answer)
- Investment properties with rental income
- Energy-efficient upgrades after purchase
Correct answer: Purchase and renovation of a home in a single loan
The FHA 203(k) program allows borrowers to finance both the acquisition and rehabilitation of a property with one loan.
Question 6: Freddie Mac's Home Possible program allows a minimum down payment of:
- 0%
- 3% (Correct answer)
- 5%
- 10%
Correct answer: 3%
Home Possible permits a down payment as low as 3% for qualifying low-to-moderate income borrowers.
Question 7: A jumbo loan is defined as a loan that exceeds the:
- FHA county loan limit
- FHFA conforming loan limit (Correct answer)
- VA entitlement ceiling
- USDA area income limit
Correct answer: FHFA conforming loan limit
Jumbo loans exceed the conforming loan limits set annually by the Federal Housing Finance Agency (FHFA) and are not eligible for purchase by Fannie Mae or Freddie Mac.
Mortgage Products and Programs 3
Which government-backed loan program charges both an Upfront Mortgage Insurance Premium (UFMIP) and an annual MIP?