Underwriting and Qualification Flashcards

Which credit score model is most commonly used by mortgage lenders in the U.S.?

Answer: FICO Mortgage Score (Versions 2, 4, 5)

Mortgage lenders typically use FICO Score versions 2, 4, and 5 from the three major bureaus, which are mortgage-specific scoring models.

What is the minimum credit score generally required for an FHA loan with a 3.5% down payment?

Answer: 580

FHA requires a minimum 580 credit score for the 3.5% down payment option; scores between 500–579 require 10% down.

In underwriting, what does 'seasoning' of funds refer to?

Answer: How long funds have been in the borrower's account

Seasoning refers to how long assets have been in the borrower's account — typically 60 days — proving they are not borrowed funds.

Which of the following is NOT counted in a borrower's monthly debt obligations for DTI calculation?

Answer: Car insurance premiums

Insurance premiums are not installment or revolving debts, so they are excluded from the back-end DTI calculation.

What triggers an automated underwriting system (AUS) to require manual underwriting?

Answer: A 'Refer' or 'Caution' finding from the AUS

When AUS returns a 'Refer' (Fannie Mae) or 'Caution' (Freddie Mac) finding, the file must be manually reviewed by an underwriter.

A borrower earns $6,000/month and pays $1,800/month toward all debts including the proposed mortgage. What is their back-end DTI?

Answer: 30%

$1,800 ÷ $6,000 = 0.30, or 30% back-end DTI.

What is the purpose of the 4506-C form in the mortgage underwriting process?

Answer: To authorize the IRS to release tax transcripts to the lender

Form 4506-C allows the lender to obtain tax return transcripts directly from the IRS to verify the borrower's reported income.