Which transaction type typically has the most restrictive lending guidelines and highest interest rates?
Correct Answer
C) Cash-out refinances
Cash-out refinances typically have the most restrictive guidelines including lower maximum loan-to-value ratios, higher credit score requirements, and higher interest rates. This is because they represent higher risk to lenders as borrowers are reducing their equity stake in the property.
Why This Is the Correct Answer
Cash-out refinances typically have the most restrictive guidelines including lower maximum loan-to-value ratios, higher credit score requirements, and higher interest rates. This is because they represent higher risk to lenders as borrowers are reducing their equity stake in the property.
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 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?
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