An MLO is working with a borrower whose previous home had escrow waived, but the new loan requires escrow. The borrower is concerned about the payment shock. What is the most appropriate guidance?
Correct Answer
C) The borrower should budget for the higher payment and understand escrow benefits
When escrow is required (such as for high LTV loans, FHA, VA, or USDA loans), the MLO should educate the borrower about budgeting for the total payment and explain escrow benefits like automatic payment of taxes and insurance. The requirement cannot be waived, and changing loan programs may not be in the borrower's best interest.
Why This Is the Correct Answer
When escrow is required (such as for high LTV loans, FHA, VA, or USDA loans), the MLO should educate the borrower about budgeting for the total payment and explain escrow benefits like automatic payment of taxes and insurance. The requirement cannot be waived, and changing loan programs may not be in the borrower's best interest.
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?
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A borrower asks about the difference between discount points and origination fees. What is the most accurate explanation?
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