Regulations and Compliance 🏛️
What does RESPA stand for and what does it regulate?
he Real Estate Settlement Procedures Act, which regulates closing cost disclosures and referral practices in mortgage loans.
What is the minimum down payment for a standard FHA loan?
3.5%.
What does "underwriting" mean in the mortgage process?
The assessment of a loan's risk to determine if it should be approved.
What credit score range is considered "good" for favorable mortgage rates?
700-749
If a property costs $300,000 and the borrower makes a 20% down payment, what is the loan amount?
$240,000.
Which law protects borrowers from discrimination in mortgage lending?
The Equal Credit Opportunity Act (ECOA)
Which type of mortgage loan is guaranteed by the Department of Veterans Affairs?
VA loan
What is the first step in the mortgage loan process?
The loan application
What does DTI stand for and how is it calculated?
Debt-to-Income ratio; calculated by dividing total monthly debt payments by gross monthly income.
What is the formula for calculating a mortgage loan’s monthly payment?
Uses the annuity formula for fixed payments.
What does TILA stand for and what does it regulate?
The Truth in Lending Act, which regulates interest rate and loan term disclosures.
What makes Jumbo loans unique?
They exceed the loan limits set by Fannie Mae and Freddie Mac.
Which document provides borrowers with an estimate of closing costs and loan terms?
Loan Estimate (LE)
What is the maximum recommended DTI for a conventional loan?
43%, though some cases allow up to 50%.
What does APR stand for and how does it differ from the interest rate?
Annual Percentage Rate; includes interest and additional loan costs.
How many hours of pre-licensing education does the SAFE Act require for NMLS licensing?
20 hours.
What is the primary advantage of USDA loans?
They allow 100% financing for properties in rural areas.
What are the four key documents a borrower needs for loan approval?
Pay stubs, tax returns, bank statements, and an employment verification letter.
What does LTV stand for and how is it calculated?
Loan-to-Value ratio; calculated by dividing the loan amount by the property's value.
If a borrower has a low credit score, what strategy can they use to secure a better interest rate?
Increase their down payment or improve their credit score before applying.
What is the primary purpose of the Dodd-Frank Act in relation to the mortgage industry?
To regulate and oversee the financial industry to prevent abusive practices and improve consumer protection.
What is the main difference between conforming and non-conforming loans?
Conforming loans meet the limits and guidelines of Fannie Mae and Freddie Mac, while non-conforming loans do not.
What are the three main types of underwriting approvals?
Manual approval, conditional approval, and final approval.
What are the three key factors that determine the interest rate offered to a borrower?
Credit score, loan-to-value ratio (LTV), and loan type.
If a borrower’s DTI is 55%, are they likely to qualify for a conventional loan?
No, as it exceeds the recommended limits of 43-50%.