Lending Practices and Documentation
The Documentation Chain
Candidates must understand the documents that support a mortgage file: the application, income verification, down payment source documentation, credit report, property appraisal, and the commitment letter. Know the purpose of each and the red flags that trigger additional verification. Understand lender underwriting criteria, including debt service ratios and loan-to-value limits, and the distinction between A-lender and alternative lending standards.
Traps to Watch
Questions often test whether a document is required at application or at funding, or whether a gift letter must be accompanied by proof of transfer. Watch for distractors that accept a stated income without verification in an A-lender file, or that treat a co-signer as a co-borrower without clarifying liability. Another trap: assuming an appraisal is always required when an automated valuation may suffice for low-ratio loans.
Rule of Thumb
Document the source, not just the amount. For every down payment and every income figure, the file should show where the money came from and how it was verified. Undocumented funds are a common cause of declined or delayed funding.
Worked Example
A borrower states a $50,000 down payment from savings. The file shows $20,000 in a savings account and a $30,000 gift from a parent. A compliant file includes a signed gift letter stating no repayment is required, plus bank evidence of the transfer into the borrower's account. Without the transfer evidence, the lender may exclude the gift from the down payment calculation.