Borrower qualification ratios, credit analysis, and underwriting concepts tested on the SAFE Act mortgage loan originator exam.
35 cards · basic cards · AI-written, checked twice. Edit anything.
- What is the debt-to-income ratio (DTI) and what does it measure?
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The ratio of a borrower's total monthly debt payments to gross monthly income, expressed as a percentage. It measures the borrower's ability to repay the loan.- What is the front-end ratio?
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The ratio of housing expenses (mortgage payment, taxes, insurance, HOA fees) to gross monthly income.- What is the back-end ratio?
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The ratio of all monthly debt payments (housing plus auto loans, credit cards, student loans, child support) to gross monthly income.- What are typical DTI limits for conventional loans?
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Front-end ratio 28 percent, back-end ratio 36 percent (can be higher with compensating factors).- What are typical DTI limits for FHA loans?
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Front-end ratio 31 percent, back-end ratio 43 percent (may stretch to 50 percent with strong compensating factors).- What is the maximum debt-to-income ratio allowed for VA loans?
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VA loans typically allow a back-end DTI of 41 percent, with case-by-case exceptions up to 60 percent.- What is a credit score, and what range is considered acceptable?
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A three-digit number (typically 300-850) that reflects creditworthiness. Generally, 620+ is acceptable for conventional loans and 580+ for FHA.- What are the five factors that make up a FICO credit score?
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Payment history (35%), amounts owed (30%), length of credit history (15%), credit mix (10%), and new credit (10%).- What is a loan-to-value (LTV) ratio?
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The ratio of the loan amount to the property's appraised value (or purchase price, whichever is lower), expressed as a percentage.- What LTV ratio typically requires private mortgage insurance (PMI)?
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An LTV of more than 80 percent generally requires PMI on conventional loans.- What are cash reserves, and why are they important in underwriting?
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Liquid assets (savings, investments) that a borrower has after closing. They demonstrate financial stability and ability to cover payments if income is interrupted.- What is employment verification, and what document is typically used?
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Confirmation of a borrower's current employment status, income, and job stability. Typically verified using a Verification of Employment (VOE) form.- What types of income documentation are required for a mortgage application?
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Pay stubs, W-2s (past two years), tax returns (past two years), and for self-employed borrowers, business tax returns and financial statements.- What is asset verification in mortgage underwriting?
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Confirmation of the borrower's financial assets (bank accounts, stocks, retirement accounts) used for down payment and reserves. Typically verified with bank statements.- What is an appraisal in mortgage lending?
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An independent professional valuation of the property to ensure the loan amount does not exceed the property's market value.
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