A W-2 employee receives irregular overtime pay that varies significantly month to month. The MLO should calculate this income by:
Correct Answer
B) Averaging the overtime over the most recent 12 months if it's likely to continue
Variable income such as overtime must be averaged over a representative period (typically 12-24 months) and there must be reasonable likelihood that the income will continue. The averaging approach provides a more accurate picture of the borrower's typical income capacity.
Why This Is the Correct Answer
Variable income such as overtime must be averaged over a representative period (typically 12-24 months) and there must be reasonable likelihood that the income will continue. The averaging approach provides a more accurate picture of the borrower's typical income capacity.
More Origination Questions
A borrower has a construction-to-permanent loan with a 12-month construction phase. At month 10, construction is only 60% complete due to delays. What is the most likely outcome?
For a construction-to-permanent loan, when must the initial Closing Disclosure be provided for the construction phase?
During a refinance transaction, the appraiser determines that significant unpermitted additions were made to the property. The appraiser wants to discuss this with the MLO before finalizing the report. What should the MLO do?
An appraiser discovers that a property has significant foundation issues that were not disclosed. The appraiser reduces the property value by $25,000 and includes detailed comments about the structural problems. The loan officer is upset because this will kill the deal. Under AIR, the loan officer:
An MLO's compensation structure includes higher payments for certain loan products. When is it acceptable to recommend these higher-compensated products?
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A borrower's loan application shows a debt-to-income ratio of 45%. What additional documentation requirement applies under the Ability-to-Repay rule?
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A Loan Estimate discloses a $1,500 appraisal fee in the 'Services You Can Shop For' section, but provides no list of service providers. At closing, the borrower used the lender's appraiser and was charged $1,650. What tolerance category applies?