A borrower with an interest-only mortgage wants to refinance before the interest-only period ends. Which factor would be MOST important for qualification under current lending standards?
Correct Answer
A) The borrower's ability to qualify for the fully amortizing payment
Under current ATR and QM standards, lenders must verify the borrower's ability to repay the loan based on the fully amortizing payment, not just the interest-only payment. This means the borrower must qualify based on the higher payment that includes principal and interest, ensuring they can handle the payment shock when the interest-only period ends.
Why This Is the Correct Answer
Under current ATR and QM standards, lenders must verify the borrower's ability to repay the loan based on the fully amortizing payment, not just the interest-only payment. This means the borrower must qualify based on the higher payment that includes principal and interest, ensuring they can handle the payment shock when the interest-only period ends.
More Mortgage Knowledge Questions
A borrower is comparing two loan offers: Loan A has no points and 4.5% interest rate, Loan B has 2 points and 4.0% interest rate. The loan amount is $400,000. How much will the borrower pay upfront for the points on Loan B?
A lender charges a 1% origination fee on all loans. For a borrower obtaining a $250,000 mortgage, what is the maximum origination fee that can be charged without violating the points and fees test under the ATR/QM rule for a first-lien mortgage?
Under what circumstances can a Qualified Mortgage include a prepayment penalty?
A borrower is considering paying discount points to reduce their interest rate. Each point costs 1% of the loan amount and reduces the rate by 0.25%. On a $300,000 loan, how much would the borrower pay for 2 discount points?
A borrower asks about the difference between discount points and origination fees. What is the most accurate explanation?
People Also Study
Federal Mortgage-Related Laws
23% of exam
Mortgage Loan Origination Activities
25% of exam
Ethics, Fraud & Consumer Protection
17% of exam
Uniform State Test Content
12% of exam
Previous Question
A borrower applies for a VA loan with a credit score of 580 and a debt-to-income ratio of 45%. After closing, which entity would be the most likely purchaser of this loan in the secondary market?
Next Question
For USDA Rural Development loans, the income limit is typically based on what percentage of the area median income (AMI)?