General Mortgage Knowledge
General Mortgage Knowledge
This domain tests the product and underwriting vocabulary you need to place a borrower in the right loan and explain it accurately. Expect questions on loan programs, LTV and DTI math, ARM mechanics, mortgage insurance, title, and closing costs.
Products you must distinguish
- Conventional conforming: eligible for Fannie Mae/Freddie Mac; loan limits set annually; PMI often required above 80% LTV.
- FHA: government-insured; 3.5% minimum down with a 580+ score; upfront and annual MIP.
- VA: entitlement-based; Certificate of Eligibility; funding fee; no monthly mortgage insurance.
- USDA: rural eligibility and income limits; guarantee fee.
- Jumbo/portfolio: exceeds conforming limits or held in portfolio.
- Fixed vs ARM: ARM has an index, margin, initial rate, adjustment date, and initial/periodic/lifetime caps.
Math that appears
LTV = loan amount ÷ lesser of sales price or appraised value. CLTV = all liens ÷ value. Front-end DTI = housing payment ÷ gross monthly income; back-end DTI adds all recurring debts. Reserves are measured in months of housing payment.
Worked example
Purchase price $300,000; appraisal $290,000; loan $270,000. Because the appraisal is lower, LTV is $270,000 ÷ $290,000 = 93.1%, not 90%. If gross monthly income is $6,000, housing payment $1,800, and other debts $700, back-end DTI is ($1,800 + $700) ÷ $6,000 = 41.7%.
Traps that cost marks
- Using the sales price for LTV when the appraisal is lower.
- Calling the note rate the APR; APR includes fees and reflects the cost of credit.
- Confusing initial ARM cap with periodic and lifetime caps.
- Forgetting that FHA MIP and VA funding fees are not the same as conventional PMI.