General Mortgage Knowledge
General Mortgage Knowledge
This domain tests mortgage products, underwriting concepts, property and closing topics, and basic loan math. You need to recognize how loan terms affect risk, cost, and eligibility.
Core concepts
- Loan types: Conventional loans are not government-insured; FHA loans carry mortgage insurance premiums; VA loans use entitlement and have no monthly PMI; USDA loans have income and property eligibility limits.
- Risk measures: LTV compares loan amount to property value. DTI compares monthly debt to income. Higher LTV and DTI generally increase risk and pricing.
- Escrow and insurance: Escrow accounts collect taxes and insurance. Private mortgage insurance (PMI) may be required above 80% LTV and can generally be canceled at 80% LTV on request, with automatic termination at 78% under federal rules.
- Amortization: Early payments are mostly interest; later payments reduce principal faster.
- Property topics: An appraisal estimates value; an inspection reports condition. Title insurance protects against title defects.
Worked example
A $200,000 loan at 6% for 30 years has a monthly rate of 0.005 and 360 payments. Using P × r / [1 − (1 + r)^−n], the principal and interest payment is about $1,199.10. If taxes and insurance add $300 per month, the total housing payment is about $1,499.10. That total, not just P&I, is used in DTI.
Traps
Confusing the note rate with APR, which includes certain finance charges. Treating a prequalification as a loan approval. Mixing up PMI with FHA mortgage insurance premiums. Assuming an appraisal guarantees property condition.