Mortgage Loan Origination Activities practice

All 25 free mortgage loan origination activities questions

1. Which three things set the principal and interest payment on a mortgage?

   • A The loan amount, the interest rate and the term Correct
   • B The loan amount, the credit score and the term A credit score helps price the interest rate, and it is not an input to the payment itself.
   • C The purchase price, the down payment and the taxes Property taxes are collected alongside the payment rather than forming part of the principal and interest.
   • D The interest rate, the credit score and the insurance Homeowner's insurance is a separate cost, and the credit score is not an input to this calculation.

   The principal and interest payment depends on the home loan amount, the interest rate, and the number of years it takes to repay the loan, so nothing else enters that part of the payment.

   Your Home Loan Toolkit, p. 5 Reference document, not law.

2. Who gathers the legal documents, closes the loan and handles the money involved in a home purchase?

   • A The closing agent Correct
   • B The loan processor The processor assembles the loan file for underwriting and does not run the closing or hold the money.
   • C The underwriter The underwriter decides whether the loan is approved, which happens before anyone reaches the closing table.
   • D The appraiser The appraiser reports on the value of the property and has no part in the closing itself.

   The closing agent does that work, and the title varies by region: in most of the country the person is a settlement agent, and in several western states the same role is called an escrow agent.

   Your Home Loan Toolkit, p. 17 Reference document, not law.

3. About what share of a credit score rests on paying bills on time?

   • A 10% The booklet puts payment history well above this share, and names it as the largest component.
   • B 15% This is under the share the booklet gives payment history, which it puts above every other component.
   • C 30% The booklet puts about 30 percent on how much debt the borrower owes, which it names second.
   • D 35% Correct

   About 35 percent of a credit score rests on paying bills on time, which makes payment history the largest part the booklet names. How much debt is owed comes second, at about 30 percent.

   Your Home Loan Toolkit, p. 7 Reference document, not law.

4. What does the estimated total monthly payment on an adjustable-rate mortgage include?

   • A Principal, interest, taxes and insurance Correct
   • B Principal and interest only Principal and interest are only part of the figure, which is why the line is called the total monthly payment.
   • C Principal, interest and mortgage insurance Mortgage insurance is in the figure, but so are taxes, homeowners insurance and other escrow items.
   • D Principal, interest and property taxes Property taxes are in the figure, but so are mortgage insurance, homeowners insurance and other escrow items.

   The payments shown include mortgage insurance, property taxes, homeowners insurance and any additional property assessments or other escrow items, so comparing two offers on principal and interest alone leaves out part of the cost.

   Consumer Handbook on Adjustable-Rate Mortgages, p. 7 Reference document, not law.

5. A post-closing audit shows the borrower paid more than the zero tolerance rule allowed. What must the creditor do to cure it?

   • A Refund the excess within 30 days of closing Sixty days is the cure period here; 30 days belongs to corrected disclosures after a post-consummation event.
   • B Send corrected disclosures alone within 60 days A corrected disclosure without the money back leaves the consumer out of pocket, so it is not a cure.
   • C Refund and correct the disclosures within 60 days Correct
   • D Credit the excess against the first payment The rule pairs the refund with corrected disclosures delivered within 60 days, and this step sends none.

   The cure has two halves: the creditor must refund the excess to the consumer and must deliver corrected disclosures reflecting that refund, each no later than 60 days after consummation.

   Regulation Z, 12 CFR s. 1026.19(f)(2)(v)

6. A settlement agent hands the borrower the Closing Disclosure. Who is responsible for making sure the disclosure was provided on time?

   • A The settlement agent alone The settlement agent may deliver the disclosure, and responsibility for timely delivery still sits with the creditor.
   • B The mortgage broker who took the application A broker's delivery duty runs to the Loan Estimate, while this disclosure is the creditor's to ensure.
   • C The creditor Correct
   • D Whoever the closing instructions name Closing instructions are a private arrangement and cannot move a duty the rule places on the creditor.

   A settlement agent may provide the Closing Disclosure, but the creditor must ensure the disclosure is provided in line with every requirement, so the task can be delegated and the responsibility cannot.

   Regulation Z, 12 CFR s. 1026.19(f)(1)(v)

7. On the Uniform Residential Loan Application in use since January 2021, which section does the lender complete to give the borrower the originator's details?

   • A Section 1, Borrower Information The first section collects the borrower's own personal, income and employment details.
   • B Section 5, Declarations The declarations ask the borrower about the property, the financing and past financial history.
   • C Section 8, Demographic Information Demographic information is collected because the law requires the lender to ask, not to identify the originator.
   • D Section 9, Loan Originator Information Correct

   The application's final section is filled in by the lender rather than the borrower, and it gives the borrower the identifying and contact details of the organization and the individual who originated the loan.

8. What makes up total monthly debt obligations in the debt-to-income (DTI) ratio for ability to repay?

   • A The new payment and installment debts Leaving out the taxes and insurance understates the numerator, since mortgage-related obligations belong in it.
   • B The new payment alone The new payment is one of four pieces the sum is built from rather than the whole of it.
   • C Current debts only, without the new payment The payment on the loan being made is the first item in the sum, so it cannot be dropped.
   • D New payment, housing costs and all debts Correct

   Total monthly debt obligations is the sum of the payment on the covered transaction, any simultaneous loan, mortgage-related obligations such as property taxes and required insurance, and current debts including alimony and child support, and that sum is measured against total monthly income.

   Regulation Z, 12 CFR s. 1026.43(c)(7)(i)(A)

9. A lender is making a loan secured by a building in a special flood hazard area. How much flood insurance must cover the building?

   • A The full replacement cost of the building Replacement cost can run above both figures the statute names and is not the measure it sets.
   • B The appraised value of the property Appraised value includes the land and is not one of the two figures compared here.
   • C The lesser of balance or maximum coverage Correct
   • D The purchase price stated in the contract The purchase price is a contract term rather than either figure the statute uses.

   The building must be covered for the term of the loan in an amount at least equal to the outstanding principal balance of the loan or the maximum limit of coverage available under the National Flood Insurance Act, whichever is less.

   42 USC s. 4012a(b)(1)(A)

10. On a home purchase, what does a lender's title insurance policy protect and what does an owner's policy protect?

    • A The amount lent, and the buyer's investment Correct
    • B The buyer's equity, and the lender's lien This swaps the two: the lender's policy covers what the lender lent, and the buyer's investment is the owner's policy.
    • C The buyer's investment, and the seller's warranty An owner's policy protects the buyer, and it insures nothing for the seller.
    • D Both parties at once, under one policy The two policies are separate, and the owner's one is the buyer's own decision where the lender does not require it.

    A lender's title insurance policy protects the amount the lender lent, while an owner's policy protects the buyer's own financial investment in the home and is optional unless the lender requires it as a condition of the loan.

    Your Home Loan Toolkit, p. 18 Reference document, not law.

11. After the underwriting decision, the borrower discloses a home equity line she will take out at the same closing. What must the lender do?

    • A Underwrite the mortgage loan again Correct
    • B Close, since the ratios still pass The ratios have to be worked again with the new lien in them before anybody can say they still pass.
    • C Document the line after closing The disclosure lands before closing, and the requirement is to underwrite again rather than to paper it afterwards.
    • D Ignore a line with no draw at closing A line with no draw still carries a credit limit that enters the combined ratio.

    New or larger subordinate financing that surfaces once the file has been decided, at any point through to the closing table, sends the loan back through underwriting, because the extra lien changes the combined ratios the decision rested on.

12. The job of the appraiser on a home purchase loan is to give the lender:

    • A A list of needed repairs Checking the home's condition and repairs is the home inspector's job, and the inspector works for the buyer.
    • B An estimate of market value Correct
    • C An opinion on the title Title is researched by a title company, and the appraiser gives no opinion on ownership.
    • D The agreed contract price The contract price is what the buyer agreed to pay; the appraisal shows how that price compares with similar sales.

    The appraiser works independently and gives the lender an estimate of the home's market value. Checking the home's condition and listing repairs is the home inspector's job, done for the buyer.

    Your Home Loan Toolkit, p. 19 Reference document, not law.

13. Of these closing charges, the one held to the 10 percent aggregate limit is:

    • A The recording fee Correct
    • B Transfer taxes Transfer taxes are in the group that may not increase at all.
    • C Prepaid interest Prepaid interest may change without limit as long as the estimate used the best information available.
    • D The lender's origination fee A charge paid to the creditor may not increase at all, so the lender's fee is outside the 10 percent group.

    Recording fees are held to the 10 percent limit, which caps their total, with the charges for third-party services, at 10 percent above the Loan Estimate. Transfer taxes and the lender's own fee may not rise at all, and prepaid interest has no set limit.

    Regulation Z, 12 CFR s. 1026.19(e)(3)(ii)

14. If a creditor open Monday to Friday receives an application on Monday, what is the last day to send the Loan Estimate?

    • A Wednesday Wednesday is only the second business day after Monday.
    • B Thursday Correct
    • C Friday Friday is the fourth business day after Monday, one day late.
    • D The next Monday The next Monday is well past the third business day.

    The Loan Estimate must go out no later than the third business day after the application, and counting Tuesday, Wednesday and Thursday makes Thursday the deadline. Friday is the fourth business day, one day late.

    Regulation Z, 12 CFR s. 1026.19(e)(1)(iii)(A)

15. All of the following are among the six pieces of information that make up a mortgage application except:

    • A Property address The property address is one of the six items.
    • B Employer's name Correct
    • C Social security number The social security number, given to obtain a credit report, is one of the six items.
    • D Loan amount sought The loan amount sought is one of the six items.

    Six items make an application under the Loan Estimate rules: the consumer's name, income, social security number, property address, estimated property value and loan amount sought. The employer's name is not one of them.

    Regulation Z, 12 CFR s. 1026.2(a)(3)(ii)

16. What is the debt-to-income ratio for a borrower with $7,200 of monthly income, a $1,800 housing payment and $900 of other monthly debts?

    • A 12.5% That counts only the other debts and leaves out the housing payment.
    • B 25% That counts only the housing payment and leaves out the other debts.
    • C 37.5% Correct
    • D 40% That figure is higher than the debts divided by the income.

    The debt-to-income ratio sets total monthly debt, housing included, against total monthly income: $1,800 plus $900 over $7,200 is 37.5 percent. The 25 percent option counts the housing payment alone.

    Regulation Z, 12 CFR s. 1026.43(c)(7)(ii)(A)

17. An adjustable-rate mortgage begins at 5 percent, each change is capped at 2 percent, and its lifetime cap is 5 percent. At the first change the index is 4.5 percent and the margin 2.75 percent; what is the new rate?

    • A 5% The rate does change at the adjustment, so it does not stay at the start rate.
    • B 7% Correct
    • C 7.25% That ignores the 2 percent cap on the first change.
    • D 10% That is the lifetime ceiling, not the rate after one change.

    The index plus the margin is 7.25 percent, but the 2 percent cap limits the first change to 7 percent from the 5 percent start. The 7.25 percent option skips the periodic cap.

    Regulation Z, 12 CFR s. 1026.37(j)(6)(i)

18. On an FHA loan, a borrower is self-employed when she owns at least what share of the business?

    • A 10% A 10 percent interest is below the 25 percent ownership line in the Federal Housing Administration (FHA) definition.
    • B 25% Correct
    • C 50% The FHA definition starts at 25 percent, so an owner need not hold half.
    • D 51% Majority ownership is not required; 25 percent or more is enough.

    A borrower is self-employed on a Federal Housing Administration (FHA) loan when she holds an ownership interest of 25 percent or more in the business. A 10 percent stake falls under the line, and majority ownership is not required.

    FHA Handbook 4000.1, p. 255 Reference document, not law.

19. Mortgage loan production normally includes each of these phases EXCEPT:

    • A Taking applications Taking applications is origination, the first of the four production phases.
    • B Underwriting Underwriting, where the application is approved or denied, is the third phase.
    • C Settling the loan Settling the loan is the closing unit's work, the last production phase.
    • D Servicing Correct

    Mortgage loan production normally runs through four phases: origination, processing, underwriting and closing. Servicing comes after the loan is made, so it is not a production phase. Taking applications belongs to origination and settling the loan to closing, both inside production.

    OCC Comptroller's Handbook, Mortgage Banking, p. 33 Reference document, not law.

20. How many pages long is the Closing Disclosure?

    • A Two Two pages is too short for the form, which runs to five.
    • B Three Three is the number of days before closing the form should arrive, and the form itself has five pages.
    • C Five Correct
    • D Seven The toolkit describes the Closing Disclosure as five pages long, fewer than seven.

    The Closing Disclosure is a five-page document that gives the consumer more detail about the loan, its key terms and the fees and other costs of the mortgage and the purchase, as the Consumer Financial Protection Bureau's home loan toolkit describes it. The toolkit says it should arrive at least three days before closing, and three is the day count only.

    Your Home Loan Toolkit, p. 20 Reference document, not law.

21. What does half a point cost on a $340,000 loan?

    • A $170 $170 is one twentieth of one percent of the loan, which slips the decimal one place.
    • B $1,700 Correct
    • C $3,400 $3,400 is a full point, one percent of the loan, and half a point costs half that.
    • D $17,000 $17,000 is five percent of the loan, ten times the cost of half a point.

    One point is one percent of the loan amount, as the Consumer Financial Protection Bureau's home loan toolkit explains, which means half a point is half of one percent of $340,000, or $1,700. A full point would cost twice that.

    Your Home Loan Toolkit, p. 10 Reference document, not law.

22. Which score does a Fannie Mae lender use for a borrower whose three credit scores are 702, 640 and 688?

    • A 640 The lower score is used when only two scores are obtained, and with three the middle one counts.
    • B 677 677 is the average of the three scores, and the lender takes the middle score.
    • C 688 Correct
    • D 702 The highest of three scores is never the one chosen, because the middle score is used.

    When three credit scores are obtained for a borrower, the lender must choose the middle score (Fannie Mae Selling Guide, B3-5.1-02). Of 640, 688 and 702 the middle one is 688, and 677 is the average, which the rule does not use.

23. On the Uniform Residential Loan Application, the borrower's employment and income are entered in:

    • A Section 1, Borrower Information Correct
    • B Section 2, Assets and Liabilities Section 2 collects the borrower's financial assets and liabilities, and the job and pay go elsewhere.
    • C Section 4, Loan and Property Section 4 collects the loan purpose and the property being bought or refinanced.
    • D Section 5, Declarations Section 5 asks the declarations questions about the property, its financing and the borrower's past.

    The borrower's income and employment go in Section 1, Borrower Information, which the instructions for the Uniform Residential Loan Application say gathers personal details along with income and job history. Section 2 holds assets and liabilities, Section 4 the loan and property, and Section 5 the declarations, none of which carries the job or the pay.

24. What percent of the price is a $27,000 down payment on a $360,000 home purchase?

    • A 2.7% 2.7% misplaces the decimal, and $27,000 is a larger share of $360,000 than that.
    • B 7.5% Correct
    • C 13.3% 13.3% divides the price by the down payment, turning the fraction upside down.
    • D 75% 75% is ten times the true share, because the decimal point has moved one place.

    A down payment is the amount the buyer pays toward the home themselves, as the Consumer Financial Protection Bureau's home loan toolkit defines it, so as a percentage it is that amount divided by the price. $27,000 divided by $360,000 is 7.5%, and 75% comes from misplacing the decimal point.

    Your Home Loan Toolkit, p. 9 Reference document, not law.

25. On which type of property may a Fannie Mae borrower not use gift funds?

    • A An investment property Correct
    • B A second home A second home is one of the two property types on which gift funds are allowed.
    • C A one-unit principal residence A principal residence may be funded with gifts, and a one-unit home needs no minimum contribution from the borrower's own funds.
    • D A two-unit principal residence A two-unit principal residence may use gifts, although above 80% loan-to-value the borrower must add 5% from their own funds first.

    Gift funds may go toward a home the borrower lives in, whether as a principal residence or as a second home, and Fannie Mae does not permit them on an investment property (Fannie Mae Selling Guide, B3-4.3-04, September 2, 2026 edition). A two-unit principal residence can still take a gift, though above 80% loan-to-value the borrower must first put in 5% from their own funds.