General Mortgage Knowledge
Domain 2 tests the product and underwriting mechanics behind the disclosures you sign: how debt is secured, priced, and repaid.
The two documents
Every residential loan pairs a promissory note (the repayment contract) with a security instrument - a mortgage in Oklahoma, a deed of trust in many other states. Oklahoma is a lien-theory state: the lender holds a lien, not title, and foreclosure runs through the courts.
Qualifying math
LTV = loan amount divided by the lesser of the sales price or appraised value. CLTV adds subordinate liens. DTI = total monthly obligations divided by gross monthly income; the housing ratio covers PITI (principal, interest, taxes, insurance), plus HOA dues and mortgage insurance where applicable. Conventional loans generally require PMI above 80 percent LTV; the borrower may request cancellation at 80 percent of original value, and it terminates automatically at 78 percent of original value on the amortization schedule.
Programs and features
Conventional, FHA (3.5 percent down at a 580 score or better, mortgage insurance premium generally for the life of the loan), VA (0 percent down, funding fee, no monthly MI, veteran occupancy required), USDA (rural, income-capped). ARMs trade a fixed initial period for a margin plus index; caps limit periodic and lifetime adjustments. Discount points buy down the rate; a temporary buydown subsidizes early payments. Reverse mortgages pay the borrower and are limited by principal limit factors.
Ability to repay
Regulation Z's ATR standard requires verifying eight underwriting factors: income and assets, employment, credit history, DTI, loan amount, monthly payment, mortgage-related obligations, and simultaneous loans.
Example: $300,000 requested on a $320,000 purchase; the appraisal comes in at $315,000. LTV uses $315,000, so LTV is 95.2 percent and PMI applies. Cancellation is measured against original value, not the appraised value at closing.
Traps: using the sales price when the appraisal is lower; treating FHA MIP as cancellable like conventional PMI; confusing the margin (fixed) with the index (variable).