SC Residential Mortgage Underwriting
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1. Which of the following is the primary purpose of residential mortgage
underwriting?
A. To market loan products to borrowers
B. To determine the borrower’s eligibility and risk level for a mortgage
loan
C. To set property tax rates for residential properties
D. To appraise the physical condition of a home
Correct answer: B. Mortgage underwriting primarily evaluates a
borrower’s creditworthiness, capacity, collateral, and overall risk to
determine whether a loan should be approved under lender
guidelines.
2. In mortgage underwriting, the “Four Cs” typically include Credit,
Capacity, Collateral, and which of the following?
A. Compliance
B. Capital
C. Commission
D. Conditions only
, Correct answer: B. Capital is part of the Four Cs framework,
representing the borrower’s financial reserves and net worth used to
assess financial strength and loan risk.
3. Which ratio is most commonly used to assess a borrower’s ability to
manage monthly debt obligations? A. Loan-to-value ratio
B. Debt-to-income ratio
C. Price-to-earnings ratio
D. Gross rent multiplier
Correct answer: B. The debt-to-income (DTI) ratio measures a
borrower’s monthly debt payments relative to gross income and is
central to affordability analysis.
4. What is the primary function of a loan-to-value (LTV) ratio?
A. To compare borrower income to monthly debt
B. To measure property value against loan amount
C. To determine credit score eligibility
D. To calculate property tax obligations
Correct answer: B. The LTV ratio compares the loan amount to the
appraised value of the property and helps assess lender risk
exposure.
5. Which of the following best describes “capacity” in underwriting?
A. Borrower’s willingness to repay debt
B. Borrower’s legal ability to own property
C. Borrower’s income and ability to repay the loan
D. Lender’s internal capital reserves
Correct answer: C. Capacity refers to the borrower’s ability to repay
debt based on income stability, employment history, and cash flow.
6. Which document is most commonly used as the standard residential
mortgage application form?
A. HUD-1 Settlement Statement
, B. Form 1003 (Uniform Residential Loan Application)
C. IRS Form 1099
D. Deed of Trust
Correct answer: B. Form 1003 is the standardized application used to
collect borrower financial and employment information for
underwriting.
7. What is the primary purpose of an appraisal in the underwriting
process?
A. To verify borrower income
B. To determine property market value
C. To approve loan interest rates
D. To confirm credit history accuracy
Correct answer: B. An appraisal establishes the market value of the
property used as collateral for the mortgage loan.
8. Which of the following best describes “collateral” in mortgage
underwriting?
A. Borrower’s savings account balance
B. The property securing the loan
C. Borrower’s employment history
D. The lender’s internal risk model
Correct answer: B. Collateral refers to the real estate property
pledged to secure repayment of the mortgage loan.
9. Which factor would most directly affect a borrower’s credit risk
assessment?
A. Property zoning classification
B. Credit score and payment history
C. Local building codes
D. Appraisal inspection schedule
Exam Practice Questions And Correct
Answers (Verified Answers) Plus
Rationale 2026 Q&A| Instant Download
1. Which of the following is the primary purpose of residential mortgage
underwriting?
A. To market loan products to borrowers
B. To determine the borrower’s eligibility and risk level for a mortgage
loan
C. To set property tax rates for residential properties
D. To appraise the physical condition of a home
Correct answer: B. Mortgage underwriting primarily evaluates a
borrower’s creditworthiness, capacity, collateral, and overall risk to
determine whether a loan should be approved under lender
guidelines.
2. In mortgage underwriting, the “Four Cs” typically include Credit,
Capacity, Collateral, and which of the following?
A. Compliance
B. Capital
C. Commission
D. Conditions only
, Correct answer: B. Capital is part of the Four Cs framework,
representing the borrower’s financial reserves and net worth used to
assess financial strength and loan risk.
3. Which ratio is most commonly used to assess a borrower’s ability to
manage monthly debt obligations? A. Loan-to-value ratio
B. Debt-to-income ratio
C. Price-to-earnings ratio
D. Gross rent multiplier
Correct answer: B. The debt-to-income (DTI) ratio measures a
borrower’s monthly debt payments relative to gross income and is
central to affordability analysis.
4. What is the primary function of a loan-to-value (LTV) ratio?
A. To compare borrower income to monthly debt
B. To measure property value against loan amount
C. To determine credit score eligibility
D. To calculate property tax obligations
Correct answer: B. The LTV ratio compares the loan amount to the
appraised value of the property and helps assess lender risk
exposure.
5. Which of the following best describes “capacity” in underwriting?
A. Borrower’s willingness to repay debt
B. Borrower’s legal ability to own property
C. Borrower’s income and ability to repay the loan
D. Lender’s internal capital reserves
Correct answer: C. Capacity refers to the borrower’s ability to repay
debt based on income stability, employment history, and cash flow.
6. Which document is most commonly used as the standard residential
mortgage application form?
A. HUD-1 Settlement Statement
, B. Form 1003 (Uniform Residential Loan Application)
C. IRS Form 1099
D. Deed of Trust
Correct answer: B. Form 1003 is the standardized application used to
collect borrower financial and employment information for
underwriting.
7. What is the primary purpose of an appraisal in the underwriting
process?
A. To verify borrower income
B. To determine property market value
C. To approve loan interest rates
D. To confirm credit history accuracy
Correct answer: B. An appraisal establishes the market value of the
property used as collateral for the mortgage loan.
8. Which of the following best describes “collateral” in mortgage
underwriting?
A. Borrower’s savings account balance
B. The property securing the loan
C. Borrower’s employment history
D. The lender’s internal risk model
Correct answer: B. Collateral refers to the real estate property
pledged to secure repayment of the mortgage loan.
9. Which factor would most directly affect a borrower’s credit risk
assessment?
A. Property zoning classification
B. Credit score and payment history
C. Local building codes
D. Appraisal inspection schedule
