Mortgage Products and Practices Flashcards

Which loan type is most appropriate for a borrower purchasing a 4-unit property and planning to live in one unit?

Answer: FHA loan

FHA loans are available for 1-4 unit properties when the borrower occupies one unit as a primary residence.

What is the primary difference between a rate-and-term refinance and a cash-out refinance?

Answer: Cash-out refinances result in a new loan balance exceeding the payoff of the existing loan

A cash-out refinance produces proceeds above what is needed to pay off the existing mortgage, increasing the loan balance.

In a construction-to-permanent loan, when does the permanent mortgage phase typically begin?

Answer: Upon issuance of a certificate of occupancy or completion of construction

The construction phase converts to permanent financing upon completion, typically evidenced by a certificate of occupancy.

Which feature of an adjustable-rate mortgage limits how much the interest rate can increase at any single adjustment?

Answer: Periodic adjustment cap

The periodic adjustment cap restricts how many percentage points the rate can change at each individual adjustment interval.

A borrower wants to purchase a $500,000 home with a $400,000 loan. Their LTV is 80%, which means they will likely:

Answer: Avoid private mortgage insurance on a conventional loan

Conventional loans with LTV at or below 80% do not require PMI, as the borrower has at least 20% equity.

What is the VA funding fee primarily designed to do?

Answer: Offset the cost of the VA loan guarantee program to taxpayers

The VA funding fee helps sustain the VA loan program by offsetting government costs, reducing the burden on taxpayers.

Which of the following best describes a 'stand-alone' second mortgage?

Answer: A second mortgage originated independently after the first mortgage has already closed

A stand-alone second mortgage is obtained separately from and after the first mortgage, often to access equity in an existing home.