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MLO Licensing Test (2025) Questions and
Verified Answers (100% Guaranteed Pass)
Income of self-employed applicants a self-employed applicant must show that he or she has maintained an income for two years in order to qualify for a mortgage loan.
- Tax returns for the past two years
- A year-to-date profit and loss statement
- Balance sheets for the past two years
- A self-employed income analysis Informational Disclosures to Educate the Consumer
- Your Home Loan Toolkit: A Step-by-Step Guide: RESPA Consumer Handbook on Adjustable-Rate - Mortgages (CHARM) Booklet: required by TILA within three business days of application for all ARMs
- When Your Home Is on the Line: What You Should Know about Home Equity Lines of Credit: this booklet is required by TILA
- List of homeownership counseling organizations: RESPA Disclosures to Inform the Consumer about the Costs of a Loan (Pre-Closing) Loan Estimate, Closing Disclosure, Affiliate Business Arrangement, Re-disclosure of APR (3d prior to closing) Disclosures to Inform the Consumer about the Costs of a Loan (Post-Closing)
Initial Escrow Account Statement, Annual Escrow statement, Escrow Closing notice, Initial Rate change disclosure Disclosures to Advise Consumer of Risky Lending Terms or Agreements Balloon Payment Notice, Notice regarding insurance premiums, Notice that completion of loan application and receipt of disclosure does not obligate borrower to complete transaction Disclosures to Alert Consumers of Their Rights Notice of Right to Receive Appraisal Report (3d), Notice Regarding Monitoring Programs (ECOA), Notice of Right to Rescind (TILA), Notice of Right to Cancel PMI (HPA), Notice of Right to Receive Credit Score and to Dispute Its Accuracy, Notice of Right to Financial Privacy and Right to Opt Out of the Sharing of Personal Information (GLB) Disclosures to Alert Consumers about the Status of a Loan Application Notice of Adverse action Action taken Incomplete application (all 30d)
{annual income} ÷ 12 = {monthly income} Income calculation for self-employed {year one income} + {year two income} = {income base} {income base} ÷ 24 = {monthly income} A loan applicant applies for a mortgage to purchase a home which the seller has agreed to sell for $350,000. The purchase price is $5,000 less than the home's appraised value of $355,000. The loan applicant has savings of $70,000 to use for a down payment. Find the LTV and Loan amount {Purchase Price} - {Down Payment} = {Mortgage Amount} {$350,000} - {$70,000} = {$280,000} {Amount of Mortgage} ÷ {Purchase Price} = {LTV} {$280,000} ÷ {$350,000} = {80%} Monthly Housing Expense PITI Principal Interest Taxes Insurance Used in calc. Front End/Housing ratio LTV over 80% Fannie/Freddie will not purchase this loan unless borrower purchases mortgage insurance
CLTV
{(First mortgage + Second mortgage)} ÷ {Appraised value of home} = {CLTV} Tom is applying for a second mortgage loan for $60,000. He has a $200,000 mortgage loan on his home, which has an appraised value of $310,000. In order to determine Tom's CLTV, the lender completes the following calculation: {$200,000 + $60,000} / {$310,000} = 84% Because Tom's CLTV is more than 80%, the lender imposes a slightly higher interest rate on the second mortgage loan. HLTV (define) ratio determined when the borrower has a first mortgage and a home equity line of credit with the balance not fully drawn Loans NOT subject to ATR Rule Open-end home equity plans ▪ Reverse mortgages ▪ Bridge loans with terms of 12 months or less ▪ Construction loans ▪ Loans made by a housing finance agency Loans under QM Rule cannot ▪ Have a term of more than 30 years ▪ Feature negative amortization, interest-only payments, or balloon payments
Appraisal approaches
- Sales Comparison Approach (market approach) - compare similar properties in near vicinity
- Cost Approach - new construction
- Income Approach - investment properties Sales Comparison Approach guidelines ▪ Proximity to the subject property ▪ Date of sale (12 mo) ▪ Net & gross adjustments ▪ Sales or financing concessions Lock-In Agreement agreement lender to lock in rate Float agreement lock in interest rate without locking in points Underwriting - main activities Income Analysis Assets - Cash to Close the Transaction The Subject Property Collateral - meet lender guidelines for collateral
Underwriting - The Sales Contract While reviewing the sales contract, the underwriter will look for credits or personal property included in the sales contract that will affect the value of the collateral. Underwriting Review of the Appraisal Looks to confirm that the names, address, and property description are accurate Compare location of subject property to comps Underwriting - Inspections Safety Issues - manufactured homes Flood Zone Verification & Other Inspections A clear title Before securing mortgage debt with a home, a consumer needs to know that there are not any pre- existing liens, encumbrances, or title defects that may affect homeownership or personal liability. Title Insurance title insurance protects against events that may have happened in the past, while other forms of insurance, such as homeowner's insurance, provide protection from future events. title abstract
monetary claims that may provide the creditor with the right to foreclosure; determines order in which creditors are paid for debt voluntary and involuntary V: mortgage I: imposed on property bc of unpaid debt Title Theory States a deed of trust is executed, and the borrower (grantor) conveys legal title to the trustee while retaining equitable title; lender = beneficiary Lien Theory States the borrower retains both legal and equitable title. The mortgage serves as a lien against the property. Intermediary States the borrower holds title to property but expressly agrees that the lender can take back title when the borrower defaults Foreclosure proceedings In lien theory states, foreclosure is a judicial process that is conducted through the courts. In title theory states, foreclosures are non-judicial; power of sale clause Subordiantion Agreement may be needed to ensure the lender's priority of lien when customer has second mortgage or a HELOC
Private mortgage insurance (PMI): required by lenders on conventional loans when the loan-to-value (LTV) is higher than 80%. PMI is to provide some security to the lender in the event of default Borrowers also qualify for a loan with a lower down payment when they are willing to pay PMI. Can be cancelled (80%/78%) Mortgage insurance premium (MIP): MIP is required on all FHA loans Upfront MIP is collected on all FHA loans, in addition to annual MIP, which is collected on a monthly basis. Used to fund claims ENTIRE loan Wet settlement is when the parties to a loan transaction meet to execute documents, and afterwards, funds are disbursed Dry settlement
Example: a mortgage has an annual interest rate of 6% and is due monthly. What would the periodic rate be? {.06} ÷ {12} = {.005}, or .5%} Example: what is the periodic interest due on a mortgage loan balance of $106,000 with a 30- year rate of 5.325%? {.05325} ÷ {12} = {.0044375} {.0044375} x {106,000} = {470.375}, or $470. Example: what is the interest on a credit card compounded daily with an APR of 22% and a balance of $1,100? {APR} ÷ {365} = {Periodic Rate} {.22} ÷ {365} = {.0006027} {.0006027} x {1,100} = {.66297}, or 66 cents Interest Per Diem (C) {Interest Rate} × {Loan Balance} = {Annual Interest} {Annual Interest} ÷ 365 = {Daily Interest Amount} Monet is obtaining a 30-year, fixed-rate mortgage loan for $220,000, with an interest rate of 4%. Monet's closing date is set for July 27, and she must pay per diem interest for the remainder of the month. The per diem interest for Monet's loan is calculated based on a 365-day year (31 days per month). What is her per diem interest due at closing? At closing, she pays $120.55 in per diem interest to cover interest for the end of July.
This scenario is helpful in understanding how per diem interest is calculated, using a 365-day year and a 31 - day month. Monet must pay per diem interest for the remainder of the month of July - meaning July 27, 28, 29, 30, and 31. The total she must pay is determined by calculating the daily interest amount and multiplying that figure by the number of days for which interest must be paid. Amortized Mortg. Payments (C) Financial calculator: 1.total loan amount, 2.interest rate 3.loan term Returns Principal&Interest Taxes (C) {Annual Property Taxes} ÷ {12} = {Monthly Property Taxes} Private mortg. insurance (C) {Loan Amount} × {Mortgage Insurance Rate} = {Annual PMI} {Annual PMI} ÷ {12} = {Monthly PMI} Annual PMI (C) {Loan Amount} × {Mortgage Insurance Rate} = {Annual PMI}
{Purchase Price} x {Down Payment %} = {Minimum Down Payment} Larissa is purchasing a property for $237,000. Her lender requires PMI unless the LTV is 80% or below. Larissa mentions this to her sister, who is a mortgage loan originator. She offers to sit down with Larissa and do some calculations to determine the minimum down payment that would be required in order to avoid paying PMI. The calculation is as follows: {$237,000} × {.20} = {$47,400} LTV (C) {Loan Amount} ÷ {Lesser of the Property Value or Purchase Price} = {LTV} CLTV (C) {1st Loan Balance} + {2nd Loan Balance} + {All Other Lien Balances} = {Total Encumbrance}{Total Encumbrance} ÷ {Lesser of the Property Value or Purchase Price} = {CLTV} Assume a borrower is looking to refinance and consolidate some of his debts. He has a first mortgage balance of $115,000 and a home equity loan with a balance of $21,000. He also has a tax lien of $4, against his property. His property has appraised at $192,000. What is his CLTV? {1st Loan Balance} + {2nd Loan Balance} + {All Other Lien Balances} = {Total Encumbrance} {115000} + {21000} + {4000} = {$140,000} {Total Encumbrance} ÷ {Property Value} = {CLTV} {140000} ÷ {192000} = {73%}
Taylor and Shannon are purchasing a home with an appraised value of $280,000. The purchase price of the home is $278,000. Taylor and Shannon are making a 25% down payment, thanks in part to gift funds provided to them by Shannon's mother. In order to determine their LTV, the following calculations are completed: {$278,000} x {.25} = $69,500 {$278,000} - {$69,500} = $208,500 {$208,500} ÷ {$278,000} = 75% Front-end Housing ratio (C) {Monthly Housing Expense} / {Income} = {Front End Ratio} Back-end ratio {Total Monthly Obligations} / {Income} = {Back End Ratio} Total Monthly Obligations = Mo Housing Expense + Recurring Debt Mo Housing Expense + Recurring Debt
Gross Mo Income Freddie Mac and many other investors require the use of a __ minimum payment on revolving debt. 5% Emmett and his wife, Jane, earn $6,780 per month. They are seeking a mortgage loan to purchase a new home. The loan they are currently trying to obtain includes a PITI payment of $1,756. The front end ratio for the loan is calculated as follows: {$1,756} ÷ {$6,780} = 0.
Any mortgage product other than 30-year-fixed Niche loans Loans for borrowers with unique circumstances or needs Option ARMs or nontraditional ARMs which offer flexible payment options. Common payment options might include: minimum payments, interest-only payments, fully amortizing 30-year payments, and fully amortizing 15-year payments. May result in NegAm Regulatory authority for FHA HUD - Department of Housing and Urban Development MMIF Mutual Mortgage Insurance Fund (MMIF) FHA insurance fund to payout claims UFMIPs Upfront Mortgage Insurance Premiums Borrowers may pay in full at closing OR finance this premium by adding to the loan amount Annual Mortgage Insurance Premiums (annual MIPs) Paid monthly and amount depends on
- LTV ratio
- Length of the loan term
- Base amount of the loan Cancellation of Mortgage Insurance under FHA/HUD Guidelines FHA ARMS Under current HUD regulations, the FHA can insure hybrid ARMs that offer fixed rates for one, three, five, or ten years before annual adjustment to the rate of interest begins. One-, three-, and five-year ARMs allow for caps of 1% and 5%. Seven- and ten-year ARMs allow for caps of 2% and 6%. VA ARMs Veterans Benefits Improvement Act of 2004 allows the VA to guarantee both traditional and hybrid ARMs. Traditional ARMs: guaranteed by VA
- limit annual adjustment to 1% and
- include a cap (5% pts on the maximum interest rate increase over the life of the loan) Hybrid mortgage product that
- sets a fixed interest rate for the first three to five years and then adjusts annually U.S. Department of Veterans Affairs (the VA) role in VA loans does not make loans to veterans; it establishes eligibility requirements for VA loans and guarantees them
