General Mortgage Knowledge
General Mortgage Knowledge
This domain tests product and underwriting fundamentals: loan types, mortgage insurance, LTV and DTI, escrow, and secondary-market basics. Questions often ask you to compare products or calculate a ratio.
Products and terms
- Conventional conforming: eligible for Fannie Mae or Freddie Mac; loan limits apply; PMI is usually required above 80% LTV.
- FHA: government-insured; mortgage insurance premium applies; credit and down-payment rules are more flexible.
- VA: guaranty for eligible veterans; funding fee; no monthly mortgage insurance, though a one-time fee may be financed.
- USDA: rural eligibility and income limits; guarantee fee.
- ARMs: initial rate, index, margin, and caps for initial, periodic, and lifetime adjustments. A teaser rate is not the fully indexed rate.
Calculations
LTV equals loan amount divided by property value. CLTV includes all liens. HCLTV includes the full drawn line on a HELOC even if undrawn. DTI compares monthly debt to gross monthly income. PITI includes principal, interest, taxes, and insurance.
Worked example
A $300,000 purchase with 20% down gives a $240,000 first mortgage and 80% LTV, so PMI is generally not required. If the buyer adds a $30,000 second lien, CLTV is 90%. If the second lien is a $30,000 HELOC that is fully undrawn, HCLTV is still 90%. A 10% down purchase at 90% LTV would normally carry PMI until cancellation or termination under the Homeowners Protection Act.
Traps
Do not use the purchase price as value when the appraisal is lower. Do not ignore subordinate liens in CLTV. Do not confuse the note rate with APR. Do not assume VA loans have monthly PMI. Do not treat a preapproval as a final underwriting commitment.