Client Advisory & Consultation Flashcards

A borrower recently went through a Chapter 7 bankruptcy. Under FHA guidelines, what is the typical mandatory waiting period before they can obtain a new FHA mortgage?

Answer: Two years from discharge with re-established credit

FHA guidelines generally require a two-year waiting period after Chapter 7 bankruptcy discharge, provided the borrower has re-established good credit.

During client consultation, a borrower discloses they have a pending lawsuit. Why is this information relevant to the underwriting process?

Answer: A pending lawsuit could result in a financial judgment that would impair the borrower's ability to repay the loan or create a lien on the property

A pending lawsuit may result in a monetary judgment that affects the borrower's financial position or creates a lien, both of which are material to creditworthiness.

What is the primary reason an underwriter would advise a borrower to avoid opening new credit accounts or making large purchases between application and closing?

Answer: New credit inquiries and additional debt can lower the credit score and increase DTI, potentially causing the loan to fail final underwriting

New inquiries, accounts, or debt obligations between application and closing can alter the borrower's credit profile and DTI ratio, jeopardizing final loan approval.

A borrower is considering a 15-year mortgage versus a 30-year mortgage. Which of the following is an accurate advisory comparison?

Answer: The 15-year mortgage will always have a lower total interest cost but a higher monthly payment than the 30-year mortgage

A 15-year mortgage typically carries a lower interest rate and dramatically reduces total interest paid, but requires higher monthly payments than a 30-year term.

Which fair lending law prohibits a lender from varying loan terms based on the racial composition of the neighborhood where the collateral property is located?

Answer: Fair Housing Act (FHA) and Equal Credit Opportunity Act (ECOA)

The Fair Housing Act and ECOA together prohibit redlining and other forms of geographic or demographic discrimination in mortgage lending.

A borrower has significant student loan debt that is currently in income-driven repayment (IDR) with a $0 monthly payment. How should the underwriter advise the borrower about how this debt affects their application under conventional guidelines?

Answer: Conventional guidelines (Fannie Mae) typically require the underwriter to use either the documented IDR payment or 1% of the outstanding balance if the payment is $0

Fannie Mae guidelines require using the actual IDR payment if greater than zero, but if the payment is $0, the underwriter must use 1% of the outstanding balance for DTI qualification.

When a borrower receives a counter-offer from an underwriter with conditions, which advisory step is most important to take first?

Answer: Clearly explain each condition to the borrower, identify what documentation is needed to satisfy each, and set a realistic timeline for gathering the items

Effective client advisory requires translating underwriting conditions into plain language and actionable steps so the borrower can satisfy them efficiently.