General Mortgage Knowledge
Product literacy
The exam expects you to recognize a product from a short fact pattern and to know its cost structure. Conventional conforming loans follow Fannie Mae and Freddie Mac guidelines and county loan limits. FHA carries an upfront mortgage insurance premium of 1.75% of the base loan plus an annual premium, and permits 3.5% down at a 580 or better score. VA offers 0% down with a funding fee instead of monthly mortgage insurance. USDA targets eligible rural areas with income caps and a guarantee fee. Above that sit jumbo, portfolio, and HELOC products, plus adjustable-rate mortgages built from an index plus margin with initial, periodic, and lifetime caps.
The math you will be asked to do
- Principal and interest on a fully amortizing fixed loan.
- LTV = loan amount divided by the lesser of sales price or appraised value.
- Points: discount points buy the rate down; origination points are lender revenue; the APR folds fees in so borrowers can compare offers.
- Secondary market: Fannie and Freddie buy conforming loans, Ginnie securitizes government loans, warehouse lines fund loans before sale, and servicing is traded for a servicing release premium.
Worked example
$300,000 at 6% for 30 years. Monthly rate 0.005, 360 payments, so the payment factor is about 0.0059955 and P&I is roughly $1,798.65. Add $300 taxes and $150 insurance for PITI of about $2,248.65. If the purchase price is $360,000 with $60,000 down, LTV is 83.3% - above 80%, so conventional mortgage insurance applies until the balance amortizes down.
Traps that cost marks
- Confusing APR with the note rate.
- Adding ARM caps instead of treating them as cumulative from the initial rate.
- Saying VA loans have "no mortgage insurance" without noting the funding fee.
- Using the appraised value alone for LTV when it exceeds the sales price.