Underwriting and Qualification 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 Qualification flashcards as text
A borrower has two mortgage late payments in the past 12 months. How does this typically affect FHA loan eligibility?
Answer: It may result in a downgrade to manual underwriting or denial
Recent mortgage lates are a significant red flag; FHA guidelines may require manual underwriting and increase scrutiny or result in denial.
What is the standard waiting period after a Chapter 7 bankruptcy before a borrower can qualify for a conventional loan?
Answer: 4 years
Fannie Mae and Freddie Mac require a 4-year waiting period after Chapter 7 bankruptcy discharge before conventional loan eligibility.
Which of the following best describes 'reserves' in mortgage underwriting?
Answer: Assets remaining after closing that could cover future mortgage payments
Reserves are liquid assets remaining after the down payment and closing costs that demonstrate the borrower's ability to weather financial disruptions.
What is a 'non-arm's length transaction' and why do underwriters scrutinize it?
Answer: A sale between related parties or those with a personal connection that could affect the price
Non-arm's length transactions (e.g., family sales) may have inflated or deflated prices, so underwriters apply extra scrutiny to ensure fair market value.
For a VA loan, what replaces the traditional PMI requirement?
Answer: A VA Funding Fee paid upfront or financed
VA loans charge a one-time VA Funding Fee (which can be financed) instead of ongoing monthly mortgage insurance.
What does a 'conditional approval' mean in the underwriting process?
Answer: The loan is approved pending receipt of specific additional documents or clarifications
A conditional approval means the underwriter approves the loan in principle but requires certain conditions — like updated pay stubs or a letter of explanation — before final clearance.
A self-employed borrower shows $120,000 gross income on their business return but takes $40,000 in deductions. What income does the underwriter typically use?
Answer: $80,000 — net after business deductions
Underwriters generally use net income from Schedule C after deductions, though some non-cash deductions like depreciation may be added back.