Section 4 Lesson 3 2

1. Question

A borrower is reviewing acceptable sources of funds for a down payment and asks which assets may be used based on underwriting guidelines.

A) Verified assets permitted under income source guidelines

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B) Any funds the borrower can access

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C) Credit card advances

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D) Personal unsecured loans

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2. Question

A borrower provides checking and savings account statements to document available reserves.

A) Gifted funds

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B) Checking and savings accounts

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C) Cash advances

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D) Borrowed funds

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3. Question

A borrower plans to use funds held in mutual funds and certificates of deposit to satisfy reserve requirements.

A) Non-vested employer stock

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B) Gifted securities

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C) Stocks, bonds, and mutual funds

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D) Personal loans

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4. Question

A borrower intends to use funds from a retirement account to meet reserve requirements.

A) All retirement funds

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B) Employer contributions only

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C) Funds available only at retirement age

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D) Vested retirement account funds

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5. Question

A borrower lists the cash value of a life insurance policy as part of the assets available for reserves.

A) Cash value of a vested life insurance policy

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B) Policy face value

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C) Employer-paid policy

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D) Non-vested policy value

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6. Question

A borrower attempts to include funds from an employer retirement plan that have not yet vested as reserves.

A) Savings account funds

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B) Non-vested funds

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C) Money market funds

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D) Life insurance cash value

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7. Question

A borrower includes stock held in a privately owned company as reserve funds.

A) Publicly traded stock

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B) Mutual funds

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C) Stock in an unlisted corporation

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D) Vested retirement stock

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8. Question

A borrower attempts to use funds from a personal unsecured loan to satisfy reserve requirements.

A) Savings account funds

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B) Gift funds

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D) Personal unsecured loan funds

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C) Vested retirement funds

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9. Question

A borrower attempts to count lender-provided funds toward required reserves.

A) Lender contributions

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B) Vested retirement funds

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C) Savings account funds

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D) Life insurance cash value

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10. Question

A borrower completes a cash-out refinance on the subject property and attempts to use the proceeds as reserves.

A) Savings account funds

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B) Cash-out refinance proceeds

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C) Vested retirement funds

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D) Life insurance cash value

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11. Question

A borrower submits a loan application and states that funds for closing and reserves are held in personal checking and savings accounts. The underwriter must determine what documentation is required to verify these assets.

A) Two months of recent bank statements

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B) A borrower affidavit

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C) Credit report only

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D) Gift letter

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12. Question

A borrower provides documentation showing funds that can easily be accessed and converted into cash. The underwriter must determine how these funds are classified.

A) Restricted assets

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B) Non-liquid assets

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C) Liquid assets

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D) Contingent assets

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13. Question

A lender requires formal confirmation of a borrower’s deposit balances and decides to request verification directly from the financial institution.

A) Borrower certification

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B) Verification of Deposit form

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C) Closing Disclosure

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D) Credit supplement

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14. Question

A lender reviews Fannie Mae guidance when verifying a borrower’s funds for closing and reserves.

A) Form 4506-C

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B) URLA

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C) Closing Disclosure

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D) Form 1006 or 1006(S)

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15. Question

A borrower submits asset documentation directly to the lender rather than through the bank. The underwriter evaluates compliance.

A) Verification must come directly from the institution

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B) Borrower-provided documents are acceptable

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C) Screenshots are sufficient

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D) Verbal confirmation is acceptable

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16. Question

A lender holds the borrower’s deposit account and wants to verify funds internally.

A) A third-party verification is required

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B) Only bank statements may be used

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C) Internal system verification is acceptable

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D) Asset verification is not allowed

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17. Question

A lender uses a third-party vendor to verify a borrower’s assets electronically.

A) Third-party verification is prohibited

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B) Allowed with borrower authorization

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C) Only bank statements are allowed

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D) Not allowed for underwriting

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18. Question

A lender reviews third-party asset verification to ensure compliance with documentation rules.

A) Documentation may be outdated

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B) Only verbal confirmation is needed

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C) Must meet document age and reliability rules

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D) No review is required

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19. Question

A lender relies on third-party asset verification and later discovers incorrect information.

A) The lender remains responsible

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B) The vendor assumes responsibility

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C) The borrower becomes responsible

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D) No party is responsible

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20. Question

A lender uses a third-party verification vendor that does not meet Fannie Mae reliability standards.

A) Documentation is acceptable anyway

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B) Borrower verification is sufficient

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C) Vendor must meet reliability standards

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D) Only bank statements may be used

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21. Question

A borrower applying for a mortgage has an installment loan with eight remaining payments. The underwriter reviews whether this debt must be included when calculating qualifying ratios.

A) The installment debt must always be included regardless of remaining payments

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B) The installment debt is generally not counted when 10 or fewer payments remain unless the payment is high

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C) The installment debt may be excluded only if paid off before closing

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D) The installment debt is excluded only with a letter of explanation

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22. Question

A borrower leases a vehicle and has only three payments remaining. The loan officer evaluates whether this obligation must be included in qualifying ratios.

A) The lease payment may be excluded due to the short remaining term

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B) The lease payment is excluded if the borrower intends to return the vehicle

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C) The lease payment must be included regardless of remaining payments

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D) The lease payment may be excluded with documentation

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23. Question

A borrower is required to pay alimony and child support for another six years. The underwriter reviews whether this obligation must be included in qualifying ratios.

A) The payments are excluded if voluntarily paid

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B) The payments are excluded if paid by payroll deduction

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C) The payments must be included if more than 10 payments remain

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D) The payments are never included

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24. Question

A VA borrower and spouse both work full-time and pay monthly child care expenses. The underwriter evaluates whether this expense must be included.

A) Child care is excluded for VA loans

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B) Child care is included only if court ordered

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C) Child care must be included when both spouses work full-time

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D) Child care is optional at the underwriter’s discretion

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25. Question

A borrower co-signed a loan for a relative but states they do not make the payments. The underwriter reviews whether this obligation must be counted.

A) The payment is always excluded

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B) The payment is excluded with a letter of explanation

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C) The payment must be included unless proof shows another party pays

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D) The payment is excluded after 12 months

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26. Question

A borrower owns rental property that produces a monthly loss. The underwriter evaluates how this affects qualifying.

A) The loss is ignored

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B) The loss is offset by appreciation

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C) The negative cash flow must be included

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D) The loss is excluded if reserves are sufficient

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27. Question

A self-employed borrower applies for a mortgage and submits income documentation. The lender reviews what is required.

A) Pay stubs only

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B) Bank statements only

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C) Audited or unaudited profit and loss statement

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D) Employer verification

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28. Question

A borrower wants to use capital gains income to qualify for a loan. The loan officer reviews whether this income may be used.

A) Capital gains are always acceptable

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B) Capital gains are never acceptable

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C) Capital gains may be used if properly documented

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D) Capital gains replace earned income

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29. Question

A borrower relies on capital gains income to qualify for a mortgage. The underwriter reviews documentation requirements.

A) One year of tax returns is sufficient

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B) Verbal verification is acceptable

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C) Two years of tax returns including Schedule D are required

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D) Capital gains cannot be averaged

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30. Question

A borrower applies for a mortgage using income that has varied from year to year. The loan originator notes that the borrower also owns additional real estate and liquid assets that could be sold if future income decreases. The loan originator must determine whether this income may be used for qualification.

A) The income may not be used because it is not consistent

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B) The income may be used only if it is guaranteed by contract

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C) The income may be averaged and used if the borrower has additional assets to support repayment

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D) The income must be excluded unless it has been stable for five years

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31. Question

A borrower receives Social Security retirement income based on their own work history. The loan originator reviews whether this income may be used for qualification.

A) It may not be used because it is government income

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B) It may be used only if limited to three years

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C) It may be used because it has no defined expiration date

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D) It may be used only with IRS transcripts

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32. Question

A borrower receives Social Security income on behalf of a family member. The loan originator evaluates whether this income may be used to qualify.

A) The income may never be used

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B) The income may be used if documentation shows at least three years remaining

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C) The income may be used without documentation

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D) The income may only be used for reserves

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33. Question

A borrower receives long-term disability income from a private insurance provider. The loan originator reviews what documentation is required.

A) No documentation is required

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B) Only bank statements are required

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C) A disability policy or benefit statement must be obtained

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D) The income cannot be used

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34. Question

A borrower receives long-term disability income that requires periodic re-certification but has no defined end date. The loan originator evaluates whether the income may be used.

A) The income must be excluded

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B) The income may be used because re-evaluation is not an expiration date

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C) The income may only be used for reserves

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D) The income must be discounted

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35. Question

A borrower is currently receiving short-term disability benefits that will convert to long-term disability. The loan originator determines which income amount should be used.

A) The higher short-term benefit

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B) The long-term disability amount

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C) An average of both amounts

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D) Neither amount may be used

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36. Question

A borrower claims disability income but cannot provide documentation verifying eligibility or duration. The loan originator evaluates whether the income may be used.

A) The income may be used with verbal confirmation

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B) The income may be used with a written explanation

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C) The income may not be used without proper documentation

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D) The income may be used only for reserves

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37. Question

A borrower’s income includes both capital gains and disability income. The loan originator evaluates whether both may be used for qualification.

A) Only one income source may be used

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B) Both may be used if documentation requirements are met

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C) Disability income replaces capital gains

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D) Capital gains must be excluded

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38. Question

A borrower applies for a mortgage after being unemployed for over three years. The loan originator reviews what is generally required to establish acceptable income history.

A) Six months of income history is sufficient

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B) A minimum of two years of employment income is recommended

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C) Employment history is not required

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D) Only current employment must be verified

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39. Question

A borrower has been employed for only one year but has strong qualifications and a stable career path. The loan originator evaluates whether the income may still be used.

A) The income must be excluded

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B) Only two full years of income may be used

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C) The income may be used if positive factors offset the short history

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D) The income may only be used for FHA loans

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40. Question

A borrower had a gap in employment but recently returned to work as a registered nurse. The loan originator evaluates how this affects underwriting.

A) Employment gaps automatically disqualify the borrower

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B) Certain professions are viewed more favorably despite gaps

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C) Only self-employed borrowers qualify after a gap

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D) Employment gaps are ignored for all loans

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41. Question

A borrower applying for an FHA loan had a prior gap in employment but has been working steadily for several months. The loan originator reviews eligibility.

A) Employment must be continuous for two years

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B) Employment must be verified for one year

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C) The borrower must be fully employed for six months before case number issuance

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D) FHA does not allow employment gaps

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42. Question

A borrower had a period of unemployment and then returned to work. The loan originator must verify prior employment history.

A) No prior employment verification is required

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B) Only one year of prior employment must be verified

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C) Only current employment must be verified

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D) Two years of employment prior to the gap must be verified

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43. Question

Under ECOA, which information may a creditor consider?

A. The applicant’s hobbies

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B. Income stability and continuance

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C. Communication preferences

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D. Social club memberships

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44. Question

How must a creditor treat telephone listings?

A. Use it to determine stability

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B. Use it for employment verification

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C. Use it for high-risk loans

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D. Not consider it at all

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45. Question

How must a creditor treat income from part-time or retirement sources?

A. It may NOT be discounted because of its source

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B. Part-time income may be ignored

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C. Only full-time income counts

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D. Pension income may be reduced by 50%

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46. Question

Which of the following may a creditor NOT consider under ECOA?

A. Length of time on current job

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B. Continuance of retirement income

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C. Whether the applicant has a telephone listing in their name

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D. Applicant’s occupation

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47. Question

Which accounts may be considered in credit history?

A. Only individual accounts

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B. All accounts used or contractually liable

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C. Only last 12 months

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D. Only joint accounts

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48. Question

Which factor may creditors consider under ECOA?

A. Religious beliefs

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B. Ethnicity

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C. Primary language

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D. Permanent residency and immigration status

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49. Question

When may a creditor consider state property laws?

A. When they affect creditworthiness

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B. Only for joint loans

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C. Only for unsecured loans

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D. Only for investment property

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50. Question

How should government bonds be valued when used as a source of funds to close?

A. At their current market value only

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B. At their redemption value only

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C. At their purchase price unless the redemption value can be determined and verified, with receipt of funds verified

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D. At the lowest value between purchase price and market value

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51. Question

What documentation is required to verify the value of stocks used as funds to close?

A. A verbal confirmation from the borrower

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B. A prior year tax return showing stock ownership

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C. A current statement from the stockbroker or a stock certificate with a dated newspaper stock list, and verification of receipt of funds

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D. Only a screenshot of the borrower’s online trading account

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52. Question

When may funds from a trust account be used to satisfy cash-to-close requirements?

A. When the borrower is listed as a beneficiary

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B. When the borrower has access to the funds and that access can be verified

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C. Only when the trust is revocable

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D. Only after funds are distributed

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53. Question

How is cash-on-hand treated as a source of funds for down payment or closing costs?

A. Acceptable with a written explanation

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B. Acceptable if deposited prior to closing

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C. Acceptable for closing costs only

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D. Not an acceptable source of funds

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54. Question

Under what condition may a property seller accept a borrower’s existing property as trade equity for a down payment?

A. When the borrower provides no cash down payment

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B. When the borrower provides a 5% cash down payment and the equity contribution reflects true value

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C. When the trade value exceeds the appraised value

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D. When the lender waives appraisal requirements

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55. Question

What additional documentation is required when trade equity is used toward a down payment?

A. A verbal confirmation from the seller

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B. A broker price opinion only

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C. A separate written appraisal and a land records search to verify ownership and liens

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D. Only a settlement statement

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56. Question

When may excess rent payments be applied toward a borrower’s down payment?

A. When the lease term is at least six months

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B. When the rental payment exceeds market rent and there is a valid rental/purchase agreement with a minimum 12-month lease and documented payments

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C. When the borrower provides canceled checks for three months

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D. When the seller agrees verbally

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57. Question

How is sweat equity treated by Fannie Mae and Freddie Mac?

A. Accepted by both agencies without restriction

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B. Not accepted by either agency

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C. Accepted by Fannie Mae but not Freddie Mac

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D. Not accepted by Fannie Mae, but permitted by Freddie Mac with a 5% cash investment

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58. Question

When may borrowed funds be used as funds to close?

A. Only when unsecured

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B. Only when repayment is included in qualifying ratios

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C. When the funds are secured by an asset and represent a return of equity

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D. Only when borrowed from a family member

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59. Question

Government bonds are being used as a source of funds to close. How should they be valued?

A. At purchase price unless the redemption value can be determined and verified.

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B. At face value regardless of redemption status.

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C. At current market value only.

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D. At redemption value only, even if it cannot be verified.

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60. Question

Stocks are being used for funds to close. What documentation is required to verify their value?

A. A current statement from the stockbroker or a photocopy of the stock certificate, accompanied by a dated newspaper stock list.

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B. Only the original purchase receipt.

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C. A bank statement showing deposit of funds.

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D. A verbal confirmation from the borrower.

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61. Question

When can trust account funds be used for funds to close?

A. Only if the trust is irrevocable.

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B. Only if the trustee approves in writing.

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C. If the borrower has access to the funds and it can be verified.

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D. Only if the trust has been established for at least five years.

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62. Question

How is cash-on-hand treated as a source of funds for the down payment or closing costs?

A. Acceptable if documented by affidavit.

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B. Acceptable for closing costs only.

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C. Acceptable if deposited prior to application.

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D. Cash-on-hand is not an acceptable source of funds for the down payment or closing costs.

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63. Question

A seller will take the borrower’s existing property in trade as part of the down payment. What must be true for trade equity to be acceptable?

A. The borrower has made a 5% cash down payment and the equity contribution is a true-value consideration.

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B. No separate appraisal is needed if both parties agree on value.

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C. The borrower has at least 3% equity in the traded property.

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D. The seller may accept the property at any value without documentation.

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64. Question

In a rent-with-option-to-purchase situation, when can the portion of rent that exceeds market rent be applied toward the down payment?

A. If there is a valid rental/purchase agreement, the lease term was at least 12 months, payments for the last 12 months are documented, and the appraiser develops market rents.

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B. If the lease term is at least 6 months.

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C. If the borrower provides proof of any rent paid, regardless of term.

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D. If rent exceeds market rent by any amount, even without a written agreement.

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65. Question

How is sweat equity treated under Fannie Mae and Freddie Mac guidelines?

A. Allowed by both agencies without restrictions.

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B. Not acceptable with Fannie Mae, but Freddie Mac permits it if the borrower provides a 5% cash investment from their own funds.

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C. Not allowed by either agency.

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D. Allowed by Fannie Mae but not Freddie Mac.

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66. Question

Why may borrowed funds secured by an asset be used for funds to close?

A. Because they are treated as income.

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B. Because they represent a return of equity.

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C. Because repayment is optional.

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D. Because they do not require documentation.

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67. Question

When may the monthly repayment debt for a loan secured by a financial asset not need to be counted for qualifying?

A. When the lender obtains a copy of the loan instrument showing the borrower’s financial asset as collateral for the loan.

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B. When the loan term is under 12 months.

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C. When the borrower has reserves equal to the loan amount.

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D. When the collateral asset is still counted as an available asset for verifying funds to close.

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68. Question

If an asset is used as collateral for borrowed funds, how is that asset treated when verifying funds to close?

A. It may still be counted as an asset if it is liquid.

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B. It is partially counted based on the outstanding loan balance.

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C. It is counted only if the borrower has additional reserves.

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D. The assets used to secure the loan may not be counted as “Assets” for verifying funds to close.

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69. Question

When must a lender verify the source of an earnest money deposit on an FHA loan?

A. Only when the borrower is a first-time homebuyer.

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B. When the deposit exceeds 1% of the sales price or appears excessive based on the borrower’s savings history.

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C. Only when the deposit is paid in cash.

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D. When the seller requests verification.

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70. Question

Which documentation may be used to verify savings and checking accounts for FHA funds to close?

A. A borrower affidavit only.

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B. A verification of deposit and the most recent bank statement, or two months’ original bank statements in lieu of a VOD.

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C. A credit report showing account balances.

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D. A copy of the deposit receipt only.

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71. Question

Which of the following is an acceptable source of FHA gift funds?

A. The property seller.

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B. The real estate broker involved in the transaction.

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C. The home builder.

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D. A close friend with a clearly defined interest in the borrower.

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72. Question

Which statement correctly describes restrictions on FHA gift funds?

A. Gifts may require repayment after closing.

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B. Gifts may be funded with cash-on-hand.

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C. Gifts may come from the seller if disclosed.

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D. Gifts may not come from any party with an interest in the sale of the property.

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73. Question

What is FHA’s primary concern regarding how gift funds are obtained by the donor?

A. That the donor provides tax returns.

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B. That the funds are seasoned for 90 days.

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C. That the donor uses their own earned income.

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D. That the funds are not derived from a party to the sales transaction.

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74. Question

On a property being sold to other family members, who may provide equity credit as a gift?

A. Any close friend of the borrower.

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B. Only family members.

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C. Any charitable organization.

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D. The real estate broker.

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75. Question

How does FHA generally view the payment of a borrower’s consumer debt by third parties?

A. As an acceptable gift with no impact on sales price.

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B. As a permitted closing cost contribution up to 10%.

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C. As acceptable only if paid before underwriting.

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D. As an inducement to purchase.

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76. Question

FHA permits sellers and other parties to contribute up to what percentage of the sales price toward a buyer’s actual closing costs and financing concessions?

A. 2%.

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B. 4%.

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C. 6%.

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D. 8%.

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77. Question

If someone pays expenses on behalf of the borrower that are not permitted under FHA’s mortgage financing contribution policy, what must occur?

A. The buyer must sign a repayment agreement.

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B. The sales price must be reduced dollar-for-dollar.

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C. The lender must ignore the payment if documented.

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D. The payment may be counted as reserves.

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78. Question

If someone other than a family member pays off the borrower’s debts, how must those funds be treated for FHA maximum insurable mortgage calculations?

A. As acceptable down payment assistance.

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B. As lender credit with no adjustment.

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C. As reserves and counted as assets.

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D. As an inducement to purchase requiring a dollar-for-dollar reduction to the sales price.

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79. Question

Which item is required to properly document gift funds?

A. A purchase contract addendum stating the loan amount only.

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B. A gift letter signed by the donor and borrower stating the amount, no repayment, donor contact information, and relationship.

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C. A credit report showing the donor’s liabilities.

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D. A cashier’s check receipt only.

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80. Question

If the donor transfers gift funds using a cashier’s check, money order, or official check, what documentation is required?

A. Only a copy of the cashier’s check.

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B. A credit report showing available funds.

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C. A withdrawal document or canceled check showing the funds came from the donor’s personal account, and if borrowed, written evidence the source was acceptable.

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D. A letter from the real estate agent confirming availability of funds.

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81. Question

When a borrower sells personal property to obtain funds for closing, which amount may be counted as assets to close?

A. The higher of the estimated value or the sales price.

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B. The estimated value only.

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C. The actual sales price only.

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D. The lesser of the estimated value or the actual sales price.

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82. Question

Which statement correctly describes the treatment of a trade-in of manufactured housing as a source of funds?

A. Trade-ins may result in cash back to the borrower.

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B. Net proceeds from the trade-in may be used, but cash back to the borrower is not permitted.

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C. Only manufactured homes considered real estate may be traded.

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D. Trade-in value may be used without documentation.

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83. Question

What must a borrower provide when an employer guarantees to purchase the borrower’s previous residence due to relocation?

A. A letter from the real estate agent only.

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B. Proof that the home has already been sold.

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C. Evidence of the agreement and the net proceeds guaranteed.

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D. A copy of the borrower’s employment contract.

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84. Question

Which statement correctly describes employer assistance plans used for closing costs or cash investment?

A. Employer-paid assistance always reduces the maximum mortgage amount.

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B. Employer assistance paid at closing is considered employee compensation and does not require an adjustment to the maximum mortgage amount.

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C. Salary advances are acceptable as assets to close.

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D. Employer assistance may be undocumented if paid after settlement.

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85. Question

How are government-issued savings bonds counted when used as a source of funds to close?

A. At current market value only.

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B. At face value regardless of redemption eligibility.

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C. At original purchase price unless redemption eligibility and value are confirmed.

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D. At redemption value without verification.

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86. Question

How much of an IRA, 401(k), or similar retirement account may generally be included in underwriting?

A. 100% of the account balance.

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B. 80% of the account balance.

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C. 60% of the account value unless a higher amount can be withdrawn with evidence.

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D. Only the vested employer contribution.

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87. Question

What documentation may be used to verify the value of stocks and bonds?

A. A borrower’s written statement.

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B. A purchase receipt only.

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C. A monthly or quarterly statement from the stockbroker or managing financial institution.

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D. A credit report.

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88. Question

Under what condition may cash saved at home be considered an acceptable source of funds to close?

A. If the borrower deposits the funds without explanation.

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B. If the borrower demonstrates the ability to accumulate the funds and the money is verified.

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C. Only if the borrower has a long history of bank accounts.

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D. Only if the funds are less than $5,000.

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89. Question

When may rent credit be considered an accumulation of the borrower’s cash investment?

A. When the borrower has lived rent-free in the property.

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B. When rent paid is below fair market value.

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C. When the cumulative rent paid exceeds the appraiser’s estimate of fair market rent and proper documentation is provided.

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D. When the borrower and seller agree informally.

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90. Question

Which installment debts are not counted when qualifying the borrower?

A. Debts with balances under $1,000.

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B. Debts with deferred payments.

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C. Debts paid monthly.

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D. Debts with 10 payments or less remaining.

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91. Question

How must a car lease be treated for qualifying purposes?

A. Counted only if more than 12 months remain.

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B. Excluded if the lease is expiring.

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C. Counted only if the borrower plans to renew.

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D. Always counted as a monthly liability.

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92. Question

How is alimony or child support treated if ten or fewer payments remain?

A. Always counted.

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B. Averaged over 12 months.

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C. Counted only for FHA loans.

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D. Excluded from qualifying.

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93. Question

What should a lender do if a borrower disputes responsibility for a co-signed or contingent liability shown on the credit report?

A. Remove the debt automatically.

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B. Ignore the borrower’s claim.

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C. Count the debt regardless.

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D. Request documentation proving another party is making the payments.

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94. Question

How should negative cash flow from rental real estate be handled?

A. Ignored if offset by reserves.

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B. Excluded for first-time landlords.

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C. Counted only if multiple properties exist.

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D. Included under liabilities.

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94 graded questions

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