Process Flashcards
7 cards from real Mortgage practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Process flashcards as text
What is a 'subordination agreement' and when is it needed in the mortgage process?
Answer: A document where a junior lienholder agrees to remain in a lower lien priority position behind a new first mortgage
When refinancing, existing second mortgages or HELOCs must sign a subordination agreement to maintain their junior position behind the new first mortgage.
What does 'mortgage commitment letter' signify in the home buying process?
Answer: A formal written offer of a mortgage loan that is contingent on specified conditions
A mortgage commitment letter is the lender's formal conditional approval indicating they will fund the loan if stated conditions are met by the expiration date.
What is 'income averaging' in mortgage underwriting, and when is it applied?
Answer: Using a multi-year average of variable or self-employment income to determine qualifying income
For self-employed borrowers or those with variable income, underwriters typically average two years of tax returns to arrive at a stable qualifying income figure.
What is the purpose of a 'verification of deposit' (VOD) in the loan process?
Answer: To verify the borrower's bank account balances and ownership for down payment and reserve verification
A VOD is sent by the lender to the borrower's bank to confirm account ownership, current balance, and average balance, supporting down payment and reserve requirements.
What is 'recasting' a mortgage and how does it differ from refinancing?
Answer: Recasting re-amortizes the existing loan after a lump-sum principal payment without changing the rate or terms; refinancing creates a new loan
Mortgage recasting recalculates monthly payments based on the reduced principal after a large payment, using the existing rate and remaining term, with minimal fees and no new credit inquiry.
What is a 'post-closing audit' and why do lenders conduct them?
Answer: A quality control review of the loan file after closing to ensure compliance, accuracy, and investor salability
Post-closing audits verify that the loan file is complete, accurate, and compliant with guidelines so the loan can be sold on the secondary market without repurchase risk.
What is a 'Notice of Right to Cancel' and when must lenders provide it?
Answer: A federally required disclosure given to borrowers in certain refinances, informing them of the three-day right to rescind
Under the Truth in Lending Act, lenders must provide two copies of the Notice of Right to Cancel to each borrower at closing of a refinance on their primary residence.