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NV MLO practice questions

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Question 1Federal Law and Regulation

Under the SAFE Act, what is the minimum pre-licensing education requirement for a state-licensed mortgage loan originator?

  1. 8 hours, including at least 2 hours on federal law and regulation
  2. 20 hours, including at least 3 hours on federal law Correct answer.
  3. 12 hours, including at least 1 hour on federal law and regulation
  4. 30 hours, including at least 5 hours on federal law and regulation and ethics

Explanation

The SAFE Act sets a floor of 20 hours of pre-licensing education for state-licensed originators, including at least 3 hours on federal law and regulation, 3 hours on ethics, and 2 hours on non-traditional mortgage lending. States may add requirements but may not reduce the federal minimum.

Question 2Federal Law and Regulation

How many hours of continuing education must a state-licensed mortgage loan originator complete each year under the SAFE Act?

  1. 8 hours of continuing education each year Correct answer.
  2. 10 hours of continuing education each year
  3. 12 hours of continuing education each year
  4. 4 hours of continuing education each year

Explanation

The SAFE Act requires at least 8 hours of annual continuing education for licensed originators, with specified content including federal law, ethics, and non-traditional lending. The requirement renews each licensing year and must be completed before renewal.

Question 3Federal Law and Regulation

Where must a mortgage loan originator's unique identifier appear?

  1. Only on the NMLS Consumer Access public website listing
  2. Only on the originator's business cards and email signature block
  3. On applications and solicitations, as required by regulation Correct answer.
  4. Only in the employer's internal personnel and licensing files

Explanation

The SAFE Act and its implementing rules require the originator's unique identifier to be shown on loan applications, solicitations, and other documents the regulations specify, so consumers can look the originator up in NMLS. It is not limited to internal records or a single website.

Question 4Federal Law and Regulation

A consumer refinances the mortgage on her primary residence. How long does she have to rescind the transaction under the Truth in Lending Act?

  1. Five business days after the closing date
  2. Until midnight of the second business day after the closing date
  3. Until midnight of the third business day after consummation Correct answer.
  4. Until midnight of the day the loan closes

Explanation

TILA gives the consumer three business days after consummation to rescind a covered refinance of a principal dwelling. The clock runs from consummation, not from the application date, and the right does not apply to a purchase-money loan.

Question 5Federal Law and Regulation

A title company agrees to pay a loan originator $500 for each loan the originator refers to it. How does RESPA treat this arrangement?

  1. Prohibited as an illegal kickback for referral of business Correct answer.
  2. Permitted only for federally related mortgage loans above $1 million
  3. Permitted if it is itemized on the Closing Disclosure
  4. Permitted if the amount is reasonable and customary and disclosed

Explanation

Section 8 of RESPA bars giving or accepting any fee or thing of value for the referral of settlement service business on a federally related mortgage loan. Disclosure or reasonableness of the amount does not cure a referral-fee violation.

Question 6Federal Law and Regulation

Under ECOA and Regulation B, when must a creditor notify an applicant of adverse action?

  1. Within 30 days after receiving a completed application Correct answer.
  2. Within 90 days after receiving a completed application and notifying the applicant
  3. Within 60 days after receiving a completed application
  4. Within 10 days of receiving the application

Explanation

Regulation B requires a creditor to notify the applicant of adverse action within 30 days after receiving a completed application. A counteroffer or a notice of incompleteness restarts or extends the timing only as the regulation permits.

Question 7Federal Law and Regulation

Which federal law requires certain financial institutions to collect and report data about mortgage applications, originations, and denials?

  1. The Real Estate Settlement Procedures Act, as amended
  2. The Fair Credit Reporting Act and its implementing rules
  3. The Bank Secrecy Act and the USA PATRIOT Act
  4. The Home Mortgage Disclosure Act, implemented by Regulation C Correct answer.

Explanation

HMDA, implemented by Regulation C, requires covered institutions to collect, record, and report loan-level data on applications, originations, and denials. The data supports fair lending analysis and public disclosure of lending patterns.

Question 8Federal Law and Regulation

Under Regulation Z's loan originator compensation rule, an originator's compensation may be based on which factor?

  1. The amount of credit extended Correct answer.
  2. Whether the loan is a qualified mortgage
  3. The interest rate of the loan
  4. The number of discount points charged to the borrower

Explanation

Regulation Z prohibits basing originator compensation on the transaction's terms or conditions other than the amount of credit extended. Loan amount is the one permissible transaction-based proxy, so compensation may be a percentage of the loan amount.

Question 9Federal Law and Regulation

Under HOEPA, a mortgage generally becomes a high-cost mortgage when total points and fees exceed which threshold?

  1. 8 percent of the total loan amount for loans of $50,000 or more
  2. 3 percent of the total loan amount for all loan amounts
  3. 5 percent of the total loan amount for loans of $20,000 or more Correct answer.
  4. 10 percent of the total loan amount regardless of the loan size or property type

Explanation

HOEPA's points-and-fees trigger is 5 percent of the total loan amount for loans of $20,000 or more, with the dollar figure adjusted annually, and 8 percent for loans under that amount. Crossing the trigger brings the loan extra disclosures, escrow, and restriction on certain features.

Question 10Federal Law and Regulation

Under the General Qualified Mortgage definition in Regulation Z, the borrower's total debt-to-income ratio generally may not exceed which level?

  1. 45 percent
  2. 43 percent Correct answer.
  3. 50 percent
  4. 36 percent

Explanation

The General QM standard caps total monthly debt payments at 43 percent of the consumer's monthly income, measured using the Appendix Q framework, unless the loan qualifies under a different QM category such as the price-based or agency definitions. Loans that are not QM must still satisfy the ability-to-repay rule.

Question 11Federal Law and Regulation

When is flood insurance required on a mortgage loan?

  1. The home is in a special flood hazard area and federal law applies Correct answer.
  2. The loan amount exceeds the conforming loan limit for the county
  3. The borrower makes a down payment below twenty percent
  4. The borrower's credit score falls below the agency minimum

Explanation

The Flood Disaster Protection Act requires flood insurance when the improved property securing a loan is in a special flood hazard area and the loan is made, insured, or purchased by a federally regulated lender or is otherwise federally related. Loan size, credit score, and down payment do not control the requirement.

Question 12Federal Law and Regulation

Under the Bank Secrecy Act, a mortgage lender must file a Suspicious Activity Report for a transaction of at least $5,000 when the lender:

  1. Receives payment by cashier's check rather than by wire transfer
  2. Is unable to verify the customer's employment history
  3. Knows of no reasonable explanation for the transaction after reviewing the available facts Correct answer.
  4. Has not previously done business with the customer or an affiliate

Explanation

The SAR rule requires a report when a transaction of at least $5,000 is conducted or attempted and the institution knows, suspects, or has reason to suspect it involves illegal activity, has no business or apparent lawful purpose, or lacks a reasonable explanation. The report must be filed with FinCEN within the regulatory time frame.

Question 13Federal Law and Regulation

Before originating a mortgage, a lender screens the borrower against which list to comply with economic sanctions rules?

  1. The HMDA public loan register
  2. The Federal Housing Finance Agency's conforming loan limits
  3. The OFAC Specially Designated Nationals list Correct answer.
  4. The NMLS Consumer Access database

Explanation

The Office of Foreign Assets Control administers sanctions, and lenders must screen applicants and other parties against the SDN list and other restricted-party lists before proceeding. A match can require blocking the transaction and reporting to OFAC.

Question 14Federal Law and Regulation

Under the Gramm-Leach-Bliley Act, a mortgage lender generally must:

  1. Provide each customer with a free copy of the credit report every year
  2. Obtain the customer's written authorization before ordering any credit report
  3. Report every customer's payment history to the nationwide credit bureaus
  4. Give an initial privacy notice and a chance to opt out of certain information sharing Correct answer.

Explanation

GLBA's privacy provisions require a clear initial privacy notice describing the institution's information-sharing practices and, for sharing nonpublic personal information with nonaffiliated third parties outside the statutory exceptions, a reasonable opportunity to opt out. Annual notices are required in specified circumstances.

Question 15Federal Law and Regulation

When a lender denies a loan application based on information in a consumer report, what must it do under the Fair Credit Reporting Act?

  1. Give an adverse action notice naming the consumer reporting agency used Correct answer.
  2. Report the denial to each nationwide consumer reporting agency
  3. Obtain the consumer's signature acknowledging the denial of credit
  4. Provide the consumer with a free copy of the report within 60 days

Explanation

FCRA adverse action notices must state that the action was based in whole or in part on information from a consumer reporting agency, identify the agency, and state that the consumer may obtain a free copy of the report and dispute its accuracy. The notice must also state that the agency did not make the credit decision.

Question 16Federal Law and Regulation

The Fair Housing Act's prohibition on discrimination in residential mortgage lending covers which set of protected characteristics?

  1. Race, color, religion, sex, national origin, familial status, and disability Correct answer.
  2. Any basis, including credit history and income
  3. Credit score, loan amount, and property value
  4. Only race and national origin

Explanation

The Fair Housing Act bars discrimination in the sale, rental, and financing of dwellings based on race, color, religion, sex, national origin, familial status, and disability. The ECOA adds further prohibited bases such as age, marital status, and receipt of public assistance income.

Question 17Federal Law and Regulation

A lender sets a $150,000 minimum loan amount for all loans it makes in a metropolitan area where a large share of residents are minority homeowners. This practice is most likely to raise concerns under:

  1. The Home Mortgage Disclosure Act's reporting thresholds
  2. HOEPA's points and fees limits for high-cost mortgages
  3. The Fair Housing Act and ECOA as possible redlining or disparate impact discrimination Correct answer.
  4. The Fair Credit Reporting Act's permissible purpose rules

Explanation

An across-the-board minimum loan amount can effectively exclude neighborhoods or borrower groups from credit, which raises redlining and disparate impact concerns under the Fair Housing Act and ECOA. Lenders are expected to justify such policies by business necessity and to show there is no less discriminatory alternative.

Question 18Federal Law and Regulation

Under the TILA-RESPA integrated disclosure rules, the Loan Estimate must be delivered or placed in the mail no later than:

  1. The same business day the application is received by the creditor
  2. Seven business days after the creditor receives the application
  3. Three business days after the creditor receives the consumer's application Correct answer.
  4. Ten business days after the creditor receives the application

Explanation

Regulation Z requires the creditor to provide the Loan Estimate within three business days after receiving the consumer's application and no later than seven business days before consummation. The applicant is considered to have received it three business days after delivery or mailing under the mailbox rule.

Question 19Federal Law and Regulation

The Closing Disclosure must be received by the consumer no later than:

  1. Two business days before consummation
  2. The day before consummation
  3. Three business days before consummation Correct answer.
  4. Five business days before consummation

Explanation

The creditor must ensure the consumer receives the Closing Disclosure at least three business days before consummation. If the disclosed terms change within that window in a way the rules treat as significant, a revised disclosure and a new waiting period are required.

Question 20Federal Law and Regulation

Which action by a loan originator violates appraisal independence rules under Regulation Z?

  1. Providing the appraiser with a copy of the purchase contract
  2. Asking the appraiser to correct a factual error in a completed report
  3. Keeping a standing list of appraisers selected for the quality of their work
  4. Telling the appraiser the loan will not close unless the value meets a target Correct answer.

Explanation

Regulation Z prohibits coercion, bribery, and undue influence aimed at causing an appraiser to misstate value, including tying loan approval or closing to a desired value. Providing accurate transaction documents, requesting correction of factual errors, and using quality-based appraiser panels are permitted practices.

Question 21Federal Law and Regulation

Under the Military Lending Act, a covered loan to an active-duty servicemember may not carry a Military Annual Percentage Rate above:

  1. 36 percent Correct answer.
  2. 25 percent
  3. 43 percent
  4. 18 percent

Explanation

The Military Lending Act caps the Military Annual Percentage Rate at 36 percent for covered consumer credit extended to covered borrowers, and it also restricts mandatory arbitration and certain terms. The MAPR includes fees and charges beyond interest that are not part of the APR.

Question 22Federal Law and Regulation

Under Regulation X, a lender may require a cushion in the borrower's escrow account of no more than:

  1. One-sixth of the total annual escrow payments Correct answer.
  2. Three months of escrow payments
  3. One month of escrow payments
  4. One-half of the total annual escrow payments

Explanation

RESPA limits the escrow cushion to no more than one-sixth of the estimated total annual payments, which is roughly two months. Amounts beyond that limit constitute an overage the servicer must address.

Question 23Federal Law and Regulation

An advertisement for a mortgage states a simple annual rate of interest of 5.5 percent. Under Regulation Z, the advertisement must also disclose:

  1. The name and NMLS identifier of the loan originator featured
  2. The appraised value of the sample property used in the advertisement
  3. The APR, whether the rate can increase, and the repayment terms Correct answer.
  4. The total dollar amount of loans the lender funded in the prior year

Explanation

Stating a rate is a trigger term under Regulation Z, so the advertisement must disclose the annual percentage rate, and where applicable whether the rate may increase and the terms of repayment. The disclosures must be presented with equal prominence.

Question 24Federal Law and Regulation

Under the SAFE Act, an individual may originate a residential mortgage loan only if the individual:

  1. Is licensed or registered under the SAFE Act Correct answer.
  2. Holds a bachelor's degree in finance or a related business field
  3. Is sponsored by a licensed real estate broker in the same state
  4. Has at least three years of documented mortgage experience

Explanation

The SAFE Act requires an individual who originates residential mortgage loans to hold a state license or, for employees of certain institutions, be registered, and to maintain that status through education, testing, and background checks. Experience and education are not substitutes for licensure.

Question 25Federal Law and Regulation

A loan originator directs a borrower who qualifies for a lower-rate loan into a higher-rate loan that pays the originator more, and the borrower receives no corresponding benefit. Under Regulation Z this conduct is:

  1. Permitted if the higher rate is disclosed on the Loan Estimate
  2. Permitted because the originator is not the creditor on the loan
  3. Permitted if the borrower signs a written disclosure of the higher rate
  4. Prohibited steering Correct answer.

Explanation

Regulation Z's anti-steering provision bars a loan originator from directing a consumer to a transaction that is less favorable than another the consumer qualifies for, unless the consumer obtains a tangible net benefit. Disclosure of the worse terms does not cure the steering.

Question 26Federal Law and Regulation

Under Regulation Z, which of the following loans is generally exempt from the regulation's disclosure requirements?

  1. A loan secured by a vacation home the consumer uses for family holidays
  2. A home equity line of credit on the consumer's primary residence
  3. A refinance of the consumer's primary residence
  4. A loan to a business secured by a commercial building Correct answer.

Explanation

Regulation Z implements the Truth in Lending Act and covers consumer credit, which is credit extended primarily for personal, family, or household purposes. Credit extended for business, commercial, or agricultural purposes is excluded even when it is secured by real property. A loan to a business secured by a commercial building therefore falls outside the regulation's disclosure rules.

Question 27Federal Law and Regulation

Under the Homeowners Protection Act, a borrower in good standing may request cancellation of private mortgage insurance once the principal balance is scheduled to reach what share of the property's original value?

  1. 85 percent of the property's appraised value at the time of the request
  2. 80 percent of the original value Correct answer.
  3. 78 percent of the original value
  4. 75 percent of the original value

Explanation

The Homeowners Protection Act permits a borrower who is current on payments to request cancellation of private mortgage insurance when the loan balance reaches 80 percent of the home's original value. Automatic termination occurs later, at 78 percent of original value based on the original amortization schedule. Cancellation generally also requires a satisfactory payment history and may require evidence the property value has not declined.

Question 28Federal Law and Regulation

Which of the following arrangements violates RESPA's anti-kickback provision?

  1. A servicer charges the borrower a fee for preparing a payoff statement
  2. A title company pays an agent a fee for each loan the agent refers to it, where no service is performed for that fee Correct answer.
  3. A lender charges the borrower one discount point in exchange for a lower interest rate
  4. A lender pays a mortgage broker a fee disclosed on the settlement statement for services the broker actually performed

Explanation

Section 8 of RESPA prohibits giving or receiving anything of value in exchange for the referral of settlement service business involving a federally related mortgage loan. Payments are permitted only for goods or services actually furnished and reasonably related in value to the amount paid. A referral fee with no corresponding service is a classic prohibited kickback.

Question 29Federal Law and Regulation

Under the customer identification program rules, which item must a lender obtain from an individual opening a mortgage account?

  1. A copy of the individual's most recent federal tax return
  2. A utility bill addressed to the individual
  3. The individual's date of birth Correct answer.
  4. A credit report from a nationwide consumer reporting agency

Explanation

The customer identification program rules require a financial institution to obtain, at a minimum, the customer's name, date of birth, address, and identification number before opening an account. The institution must also verify the identity information through documentary or non-documentary means. Tax returns and utility bills may be used to verify identity but are not required elements of the program itself.

Question 30Federal Law and Regulation

A servicemember incurred a mortgage before entering active duty, and the loan carries an interest rate above 6 percent. Under the Servicemembers Civil Relief Act, what relief applies?

  1. All interest previously paid on the loan is refunded to the servicemember
  2. Interest above 6 percent is forgiven and the rate is capped at 6 percent during military service Correct answer.
  3. The rate is permanently reduced to 6 percent for the remaining life of the loan
  4. The entire debt is forgiven for the duration of the servicemember's active-duty service

Explanation

The Servicemembers Civil Relief Act caps the interest rate at 6 percent on obligations incurred before military service, for the period of military service. The servicemember must give the creditor written notice and a copy of military orders, generally within 180 days after termination of service. Interest above 6 percent is forgiven, not deferred, and the protection ends when military service ends.

Question 31Federal Law and Regulation

Under the general ability-to-repay standard in Regulation Z, which of the following must a creditor consider and verify?

  1. The appraised value of the property securing the loan
  2. The lender's own cost of funds for the loan
  3. The borrower's current employment status Correct answer.
  4. The amount of compensation the loan originator will receive from the lender

Explanation

The general ability-to-repay standard requires a creditor to consider and verify eight underwriting factors, including the consumer's current or reasonably expected income and assets, current employment status, the monthly payment on the loan, related obligations, other debts, the debt-to-income ratio or residual income, and credit history. Employment status is one of those enumerated factors. The creditor must verify the factors using reasonably reliable third-party records.

Question 32Federal Law and Regulation

When a lender refers a borrower to a title agency that the lender owns, what does RESPA require of the lender?

  1. Give the borrower a written disclosure of the ownership relationship and the estimated charge Correct answer.
  2. Record the referral fee as a credit to the borrower on the settlement statement
  3. Limit the affiliate's total charge to the itemized cost of the service provided
  4. Obtain the borrower's written consent to the referral at least three business days before closing

Explanation

An affiliated business arrangement is exempt from the Section 8 referral prohibition only if the provider discloses the ownership relationship to the consumer, states that a referral is being made, and discloses the estimated charge. The consumer also cannot be required to use the affiliate's services. The disclosure is typically made at or before the time of referral.

Question 33Federal Law and Regulation

Under the Fair Credit Reporting Act, a mortgage lender may obtain a consumer report on an applicant without the applicant's separate written authorization when:

  1. The applicant's spouse, who is not applying for the loan and will not be obligated on it, will also live in the home
  2. The lender needs the report in connection with a credit transaction involving the applicant Correct answer.
  3. The lender wants to review the applicant's report two years after closing to market a new home equity line
  4. The applicant has signed a purchase contract for the property that will secure the loan

Explanation

The Fair Credit Reporting Act permits a consumer reporting agency to furnish a report to a person with a permissible purpose, including a person who intends to use the information in connection with a credit transaction involving the consumer. A mortgage lender evaluating an application has that permissible purpose without separate written authorization. Using a report for unrelated marketing to an existing customer generally requires the prescreening rules and a firm offer of credit.

Question 34Federal Law and Regulation

Under Regulation Z, a first-lien higher-priced mortgage loan secured by a principal dwelling generally requires which of the following?

  1. A guarantee that the interest rate will not adjust for the first five years
  2. An escrow account for property taxes and insurance Correct answer.
  3. A certification that the borrower completed homebuyer counseling
  4. A written waiver of escrow signed by the borrower at closing

Explanation

Regulation Z requires creditors to establish an escrow account for taxes and insurance on first-lien higher-priced mortgage loans secured by a principal dwelling. The escrow generally must be maintained for at least five years unless the borrower qualifies for a cancellation after that period. Limited exemptions exist, such as for certain small creditors operating in rural or underserved areas.

Question 35Federal Law and Regulation

Under Regulation X, a servicer generally may not make the first notice or filing required for a foreclosure until the borrower's mortgage obligation is more than how many days delinquent?

  1. 120 days Correct answer.
  2. 180 days
  3. 90 days
  4. 60 days

Explanation

Regulation X bars a servicer from making the first notice or filing for foreclosure unless the borrower's mortgage obligation is more than 120 days delinquent. This period gives the borrower time to be evaluated for loss mitigation before the foreclosure process begins. The restriction applies even if the loan documents or state law would permit earlier action.

Question 36Federal Law and Regulation

A home seller tells the buyer that the sale will close only if the buyer uses the seller's preferred title company. Under RESPA, this arrangement is:

  1. Permitted, provided the title company charges the buyer no more than customary rates in the market
  2. Permitted, provided the seller discloses in writing to the buyer before closing that it owns an interest in the title company
  3. Prohibited, because RESPA bars a seller from conditioning the sale on the buyer's use of a particular title company Correct answer.
  4. Permitted, provided the buyer signs a written waiver acknowledging the seller's requirement

Explanation

Section 9 of RESPA prohibits a seller from requiring, as a condition of the sale, that the buyer purchase a title insurance policy from a particular title company. The prohibition applies even if the seller discloses the arrangement or the price is competitive. The buyer retains the right to choose the title provider.

Question 37Federal Law and Regulation

For a refinance of the borrower's principal dwelling, TILA gives the consumer a right to rescind the transaction within:

  1. One year after consummation in all cases
  2. Thirty days after the first payment due date
  3. Seven calendar days after the loan is funded
  4. Three business days after consummation Correct answer.

Explanation

The right of rescission applies to certain refinances and home equity loans secured by a principal dwelling and lasts three business days. The period runs from the later of consummation, delivery of the material disclosures, or delivery of the notice of the right to rescind. If the required notice or disclosures are never delivered, the right can extend for up to three years.

Question 38Federal Law and Regulation

Under Regulation Z, for a regular mortgage transaction with no irregular periods, a disclosed annual percentage rate is considered accurate if it is within what tolerance of the actual rate?

  1. One-sixteenth of 1 percentage point
  2. One-eighth of 1 percentage point Correct answer.
  3. One-half of 1 percentage point
  4. One-fourth of 1 percentage point

Explanation

Regulation Z's accuracy standards permit a disclosed annual percentage rate to vary from the actual rate by no more than one-eighth of 1 percentage point for regular transactions. A broader one-quarter of 1 percentage point tolerance applies to irregular transactions, such as those with an irregular first payment period. These tolerances are used in determining whether disclosures are accurate.

Question 39Federal Law and Regulation

Under Regulation X, a servicer must send the first written notice before charging a borrower for force-placed insurance at least how many days before the charge?

  1. 60 days
  2. 30 days
  3. 15 days
  4. 45 days Correct answer.

Explanation

Regulation X requires the servicer to send a first notice at least 45 days before charging the borrower for force-placed insurance. If the borrower does not respond, the servicer must send a second reminder notice at least 30 days after the first and at least 15 days before the charge. The notices must include the borrower's right to provide proof of existing coverage.

Question 40Federal Law and Regulation

A servicer receives a complete loss mitigation application more than 37 days before a foreclosure sale. Under Regulation X, within how many days must the servicer evaluate the application and notify the borrower of its determination?

  1. 5 days
  2. 10 days
  3. 30 days Correct answer.
  4. 60 days

Explanation

When a complete loss mitigation application is received, the servicer must evaluate it and provide the borrower with a written determination within 30 days of receipt. The servicer must state which options, if any, the borrower qualifies for and the reasons for any denial. Separate shorter timelines apply to acknowledging receipt of an application.

Question 41General Mortgage Knowledge

On a fully amortizing fixed-rate mortgage, which portion of the monthly payment is largest during the first few years of the loan?

  1. Principal reduction
  2. Mortgage insurance premiums
  3. Interest on the unpaid balance Correct answer.
  4. Escrowed property taxes

Explanation

Level payments on a fully amortizing loan apply interest to the outstanding balance first. Because the balance is highest at origination, interest dominates the early payments and the principal share grows over the term.

Question 42General Mortgage Knowledge

In mortgage lending, the abbreviation PITI refers to the four components of a monthly housing payment. Which set of components does it represent?

  1. Principal, interest, taxes, insurance Correct answer.
  2. Principal, insurance, taxes, title
  3. Principal, interest, title, inspection
  4. Payment, interest, taxes, inspection

Explanation

PITI stands for principal, interest, property taxes, and hazard insurance. These are the four items typically collected in a monthly housing payment, with taxes and insurance often held in escrow.

Question 43General Mortgage Knowledge

A property is purchased for $400,000 and the buyer makes a $60,000 down payment. What is the loan-to-value ratio?

  1. 88%
  2. 85% Correct answer.
  3. 82%
  4. 80%

Explanation

The loan amount equals the purchase price minus the down payment: $400,000 − $60,000 = $340,000. Dividing the loan by the value, $340,000 ÷ $400,000, gives 0.85, or 85% LTV.

Question 44General Mortgage Knowledge

Under federal borrower-protection rules, when must a lender automatically terminate private mortgage insurance on a home purchase loan?

  1. When the balance reaches 80% of value, but only at the borrower's request
  2. When the balance reaches 78% of original value per the schedule Correct answer.
  3. When the balance reaches 90% of original value, based on the amortization schedule
  4. When the balance reaches 75% of original value, based on the amortization schedule

Explanation

The Homeowners Protection Act requires automatic termination of PMI when the principal balance is first scheduled to reach 78% of the property's original value under the amortization schedule, provided the borrower is current. Borrower-requested cancellation is a separate right that generally becomes available at 80%.

Question 45General Mortgage Knowledge

What is the standard upfront mortgage insurance premium charged on an FHA-insured purchase loan?

  1. 1.75% of the base loan amount Correct answer.
  2. 0.55% of the base loan amount
  3. 2.25% of the sales price
  4. 3.00% of the base loan amount

Explanation

FHA charges an upfront mortgage insurance premium equal to 1.75% of the base loan amount, which may be financed into the loan. An annual premium is also collected monthly.

Question 46General Mortgage Knowledge

Which statement best describes the VA home loan benefit for an eligible veteran with full entitlement?

  1. It applies a single nationwide loan limit to all borrowers
  2. It generally allows 100% financing and no monthly MI Correct answer.
  3. It requires a 5% down payment on the purchase price
  4. It may be used only for homes in rural areas

Explanation

With full entitlement a veteran can typically finance the entire purchase price. VA loans carry a one-time funding fee instead of monthly mortgage insurance.

Question 47General Mortgage Knowledge

USDA Section 502 guaranteed loans are intended primarily for which borrowers?

  1. Any borrower whose loan exceeds the conforming loan limit
  2. Low- and moderate-income buyers in rural areas Correct answer.
  3. Buyers purchasing second homes near resort communities
  4. Investors buying rental portfolios in metropolitan areas

Explanation

The Section 502 program targets low- and moderate-income households purchasing homes in areas the USDA designates as rural. Borrower income limits apply in addition to the property location requirement.

Question 48General Mortgage Knowledge

A mortgage whose loan amount exceeds the conforming loan limit for its county is known as a:

  1. Bridge loan
  2. Subprime loan
  3. Jumbo loan Correct answer.
  4. Alt-A loan

Explanation

Loans above the conforming limit set for the area cannot be delivered to the government-sponsored enterprises and are classified as jumbo loans. They are often priced higher because they carry more risk and are held in portfolio or sold to private investors.

Question 49General Mortgage Knowledge

A mortgage whose interest rate may change periodically based on a specified index is called a(n):

  1. Graduated-payment mortgage
  2. Fixed-rate mortgage
  3. Adjustable-rate mortgage Correct answer.
  4. Balloon mortgage

Explanation

An adjustable-rate mortgage ties the note rate to an index plus a margin and adjusts on a schedule stated in the note. Caps limit how much the rate can change at each adjustment and over the life of the loan.

Question 50General Mortgage Knowledge

A 5/1 ARM with a 4.25% start rate carries caps of 2/2/5. Assuming the index rises sharply, what is the highest rate permitted at the second rate adjustment?

  1. 7.25%
  2. 9.25%
  3. 8.25% Correct answer.
  4. 6.25%

Explanation

The first cap limits the initial adjustment and the second limits each later adjustment, so the rate can rise two percentage points at each of the first two changes: 4.25% + 2 + 2 = 8.25%. The lifetime ceiling of five points (9.25%) is not reached at that point.