Practice Test GeeksMortgage Practice Test
← All Mortgage Flashcard Decks

Underwriting and Financial Calculations 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 Underwriting and Financial Calculations flashcards as text

  1. A borrower refinances from a 30-year loan with 20 years remaining to a new 30-year loan. What is the primary financial risk of this strategy?

    Answer: The borrower restarts the amortization clock, paying more total interest over time

    Resetting to a new 30-year term extends the loan horizon, resulting in more total interest paid even if the rate is lower.

  2. What is 'compensating factors' in mortgage underwriting?

    Answer: Positive attributes that offset a borrower's risk factors and may allow exception approvals

    Compensating factors are positive elements (large reserves, low LTV, strong credit) that justify approving a loan that exceeds a standard guideline.

  3. On an adjustable-rate mortgage (ARM), the 'fully indexed rate' is calculated as:

    Answer: The index rate plus the margin

    The fully indexed rate = current index value + the loan's margin, representing the rate if fully adjusted today.

  4. What is 'seasoning' in the context of mortgage underwriting?

    Answer: The length of time an asset or credit event has been established or on record

    Seasoning refers to the passage of time, such as how long funds have been in an account or how old a derogatory credit event is.

  5. A borrower has a monthly gross income of $7,000. Their front-end ratio is 25% and back-end ratio is 40%. What are the maximum PITI and total debt payments?

    Answer: PITI $1,750 / Total debts $2,800

    PITI = $7,000 × 25% = $1,750; total debts = $7,000 × 40% = $2,800.

  6. Which statement best describes a 'rate and term refinance'?

    Answer: Refinancing solely to change the interest rate, term, or both without taking cash out

    A rate and term refinance replaces the existing loan with new terms (rate or length) without the borrower receiving cash at closing.

  7. An underwriter calculates a borrower's effective income by averaging two years of W-2s: $58,000 and $64,000. What monthly income is used for qualifying?

    Answer: $5,083

    Average annual income = ($58,000 + $64,000) / 2 = $61,000; monthly = $61,000 / 12 = $5,083.