Mortgage Origination General Knowledge: Products, Disclosures, and Underwriting Basics
Product landscape
- Conventional conforming: Fannie/Freddie eligible; PMI generally required above 80% LTV.
- FHA: government-insured, lower credit thresholds, mortgage insurance premium typically for the life of the loan.
- VA: entitlement-based, no monthly mortgage insurance but a funding fee, veteran occupancy required.
- USDA: rural eligibility and income limits, guarantee fee.
- Jumbo, non-QM, and HELOCs: different disclosure and underwriting paths.
Ability to repay and QM
TILA requires a reasonable, good-faith ATR determination using eight underwriting factors: income, assets, employment, monthly payment, simultaneous loans, mortgage-related obligations, DTI, and credit history. General QM relies on a price-based threshold and limits on risky features. Loans outside QM remain subject to ATR with greater compliance risk.
The file
The 1003 application, 1008 transmittal summary, income and asset documentation, credit report, title commitment, appraisal, flood determination, and insurance. Key ratios: LTV = loan divided by the lower of appraised value or purchase price; DTI = total monthly obligations divided by gross monthly income.
Disclosure sequence
Application → Loan Estimate → intent to proceed → appraisal and verifications → Closing Disclosure → consummation → recording.
Worked example
Purchase price $300,000, loan $285,000. The appraisal comes in at $280,000. Because LTV uses the lower of price or value, LTV is 285,000 divided by 280,000, or about 102%. The loan exceeds value, so the borrower must restructure - larger down payment, lower price, or a different product - before the file can proceed.
Traps
- Using the higher of price or appraised value for LTV.
- Treating a preapproval as a commitment to lend.
- Forgetting PMI termination rights: borrower-requested cancellation at 80% of original value and automatic termination at 78% based on the amortization schedule.