General Mortgage Knowledge
What this domain tests
General Mortgage Knowledge tests the vocabulary and math behind loan products, property valuation, title, insurance, underwriting, and servicing. Questions ask you to compute LTV/CLTV and DTI, distinguish loan programs, read amortization and escrow figures, and identify which document or insurance protects which party.
Core rules
- LTV = loan amount ÷ lesser of sales price or appraised value. CLTV adds all mortgage liens against the property. A second lien raises CLTV even when the first loan's LTV is unchanged.
- Front-end DTI is proposed housing payment (PITI, plus HOA and mortgage insurance) ÷ gross monthly income. Back-end DTI adds all recurring debts. ATR/QM rules require verification and a reasonable ability-to-repay analysis.
- Conventional, FHA, VA, and USDA loans differ on mortgage insurance, down payment, occupancy, and underwriting. Fixed-rate loans have level principal and interest; ARMs shift rate risk to the borrower after the initial period.
- Title insurance protects against title defects; a lender's policy protects the lender, an owner's policy protects the owner. An appraisal estimates value; it is not a home inspection or a warranty.
- PITI = principal, interest, taxes, insurance. Escrow/impound accounts collect taxes and insurance monthly.
Worked example
Purchase price is $400,000; the appraisal is $390,000; the first loan is $312,000; a second lien is $20,000. Use the lower value: $312,000 ÷ $390,000 = 80% LTV. CLTV = ($312,000 + $20,000) ÷ $390,000 = 85.1%. If the borrower's gross monthly income is $7,500 and PITI is $1,875, front-end DTI is 25%. Add $750 of recurring debts and back-end DTI is ($1,875 + $750) ÷ $7,500 = 35%.
Traps
Using the sales price when the appraisal is lower overstates LTV. Forgetting HOA dues or mortgage insurance understates DTI. Discount points are prepaid interest; origination fees are lender charges. Preapproval is not a loan commitment, and an appraisal is not a guarantee of marketability.