General Mortgage Knowledge
This domain covers mortgage products, terminology, and the mechanics of a loan file. You must understand loan types: conventional conforming (Fannie/Freddie), FHA, VA, USDA, jumbo, and portfolio. Know amortization - how principal and interest split changes over time, and how to compute a payment with the amortization formula or a factor. Understand LTV, CLTV, and HCLTV, and how subordinate liens affect them.
Know the components of a mortgage payment (PITI) and escrow/impound accounts. Understand fixed vs. adjustable-rate mortgages: initial rate, adjustment caps (periodic and lifetime), index and margin, and how teaser rates work. Know interest-only and balloon structures. Understand points (discount vs. origination) and APR as a cost measure.
Traps: confusing CLTV with LTV when a second lien exists; misapplying caps on an ARM; assuming a lower rate always means lower APR; and forgetting that PMI applies to conventional loans with high LTV while MIP applies to FHA. Also watch for questions on title insurance (lender's vs. owner's), appraisal purpose, and flood zones.
Rule of thumb: CLTV = (first lien + all subordinate liens) ÷ appraised value. If a $300,000 home has a $240,000 first and $30,000 second, CLTV = $270,000 ÷ $300,000 = 90%, while LTV on the first is 80%.
Worked example: A $200,000 loan at 6% for 30 years has a monthly P&I of about $1,199 (using the standard amortization formula). Adding $400 taxes and $150 insurance gives a PITI near $1,749.