NMLS SAFE MORTGAGE LICENSING EXAM
PREP 2026 LOAN ORIGINATION AND
MORTGAGE PROCESS OVERVIEW
◉ What does a 5/1 ARM mean?
Answer: The rate is fixed for 5 years and then adjusts annually.
◉ What is a balloon loan?
Answer: A loan with low periodic payments and a large lump-sum
payment due at the end.
◉ What is the formula for LTV?
Answer: Loan Amount / Appraised Value x 100.
◉ What is the front-end DTI formula?
Answer: Monthly housing expense (PITI) / Gross monthly income.
◉ What is the back-end DTI formula?
Answer: All monthly debts / Gross monthly income.
◉ What typical DTI ratios are listed for conventional and FHA?
, Answer: Conventional: 28% front / 36% back. FHA: 31% front /
43% back, with possible flexibility from compensating factors.
◉ When is PMI required on a conventional loan?
Answer: When LTV is above 80%.
◉ When does PMI cancel under the Homeowners Protection Act?
Answer: It auto-cancels at 78% LTV. The borrower can request
removal at 80% LTV.
◉ What is the FICO score range?
Answer: 300 to 850.
◉ What are the FICO score component weights?
Answer: Payment history 35%, amounts owed 30%, length 15%,
new credit 10%, mix 10%.
◉ What minimum credit scores are listed by loan type?
Answer: Conventional about 620; FHA 580 for 3.5% down or 500 for
10% down; VA/USDA have no official minimum but lenders often
want 620+.
◉ Which credit score is usually used for mortgage underwriting?
PREP 2026 LOAN ORIGINATION AND
MORTGAGE PROCESS OVERVIEW
◉ What does a 5/1 ARM mean?
Answer: The rate is fixed for 5 years and then adjusts annually.
◉ What is a balloon loan?
Answer: A loan with low periodic payments and a large lump-sum
payment due at the end.
◉ What is the formula for LTV?
Answer: Loan Amount / Appraised Value x 100.
◉ What is the front-end DTI formula?
Answer: Monthly housing expense (PITI) / Gross monthly income.
◉ What is the back-end DTI formula?
Answer: All monthly debts / Gross monthly income.
◉ What typical DTI ratios are listed for conventional and FHA?
, Answer: Conventional: 28% front / 36% back. FHA: 31% front /
43% back, with possible flexibility from compensating factors.
◉ When is PMI required on a conventional loan?
Answer: When LTV is above 80%.
◉ When does PMI cancel under the Homeowners Protection Act?
Answer: It auto-cancels at 78% LTV. The borrower can request
removal at 80% LTV.
◉ What is the FICO score range?
Answer: 300 to 850.
◉ What are the FICO score component weights?
Answer: Payment history 35%, amounts owed 30%, length 15%,
new credit 10%, mix 10%.
◉ What minimum credit scores are listed by loan type?
Answer: Conventional about 620; FHA 580 for 3.5% down or 500 for
10% down; VA/USDA have no official minimum but lenders often
want 620+.
◉ Which credit score is usually used for mortgage underwriting?
