In a closing-readiness check, a licensing coordinator sees facts tied to Pre qualification and Application. What should the file reflect?
Correct Answer
D) Include known monthly obligations in DTI
Why this is correct: Debt-to-income (DTI) ratio is a key underwriting metric that must be calculated using verified financial information. The original explanation notes prequalification is preliminary and must be updated with verified facts. Including known monthly obligations in DTI ensures accuracy as the file progresses toward closing, reflecting responsible lending practices. Why the other choices are wrong: "Ignore known debt because prequalification is informal" is wrong because known debts must be considered for accurate qualification. "Quote final terms without clarifying assumptions and limits" misleads borrowers by not stating that prequalification is not a loan commitment. "Treat a prequalification letter as a commitment to lend" is incorrect as prequalification is non-binding and based on unverified information. Exam tip: Prequalification is an initial assessment; always update DTI with verified debts and income before final underwriting.
Why This Is the Correct Answer
The correct response is "Include known monthly obligations in DTI" because Prequalification is preliminary and must be updated with verified debts, income, and application facts.
Why the Other Options Are Wrong
Option A: Ignore known debt because prequalification is informal.
This choice is a tempting shortcut, but it conflicts with prequalification limits because the file still needs the required documentation, timing, or rule-based review before the action is taken.
Option B: Quote final terms without clarifying assumptions and limits.
This choice is a tempting shortcut, but it conflicts with prequalification limits because the file still needs the required documentation, timing, or rule-based review before the action is taken.
Option C: Treat a prequalification letter as a commitment to lend.
This choice is not the best answer because it applies the wrong file step for prequalification limits; the governing rule is tested by the correct option.
Memory Technique
prequalification and debt updates: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
For prequalification limits questions, separate the required file step from plausible sales, timing, or documentation shortcuts.
Common Mistakes to Avoid
- -Choosing an internal exception instead of the governing rule
- -Treating preliminary or informal facts as a substitute for required documentation
- -Answering from a familiar but unrelated mortgage topic
More Origination Questions
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An MLO is reviewing procedures for a case where a cost changes after the Closing Disclosure has already been provided. What is the proper handling?
During a post-application update, a quality-control reviewer encounters a Credit Analysis and Evaluation issue. Which response should avoid a shortcut that would misapply the rule?
A construction-to-permanent loan will disburse in 5 draws over 11 months before the permanent phase begins. Which Regulation Z appendix provides a disclosure method for multiple-advance construction transactions?
Before closing, the team discovers that a borrower asks which upfront charge can be collected before intent to proceed. What is the safest compliant answer?
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A construction-to-permanent note states that conversion requires completion, a certificate of occupancy, and no unresolved liens. Construction is finished, but a mechanic's lien remains. What should happen?
A branch manager asks about a loan file because a processor wants to omit known monthly obligations from underwriting. What should happen?
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