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NMLS Certification
MLO Exam
NMLS.MLO.v2025-09-30.q84 Dumps

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Question 1

Which of the following statements describes an advantage of a purchase money second mortgage?

A.The borrower pays two mortgage payments.
B.The borrower avoids paying into the escrow account.
C.The borrower avoids paying private mortgage insurance
D.The borrower's loan closes faster than a regular mortgage.

Correct Answer: C

A purchase money second mortgage allows a borrower to avoid paying private mortgage insurance (PMI) by using a second loan to cover part of the down payment. This structure, often referred to as a "piggyback loan", is commonly used when a borrower does not have a 20% down payment but wants to avoid PMI, which is typically required for loans with less than 20% down.
* The borrower makes payments on both the primary mortgage and the second mortgage, but by keeping the loan-to-value (LTV) on the first mortgage below 80%, they can avoid PMI.
References:
* Fannie Mae Selling Guide on purchase money mortgages
* Freddie Mac Guidelines on private mortgage insurance

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Question 2

Maximum available flood insurance structure coverage for a residential property from the National Flood Insurance Program is what amount?

A.£250,000
B.£500,000
C.$750,000
D.$1,000,000

Correct Answer: A

The maximum available flood insurance structure coverage for a residential property under the National Flood Insurance Program (NFIP) is £250,000. The NFIP is a federal program that provides flood insurance to property owners in participating communities.
* The £250,000 limit applies specifically to residential property structures. For contents coverage, the maximum is $100,000.
Higher coverage limits, such as $500,000 or $1,000,000, may be available through private insurers, but the NFIP itself caps coverage at $250,000 for structures.
References:
* National Flood Insurance Program (NFIP)
* FEMA Flood Insurance Manual

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Question 3

When there is no tax return history for a rental property, the Federal Housing Administration (FHA) requires gross rental income to be documented and reduced by what percentage?

A.10%
B.15%
C.20%
D.25%

Correct Answer: D

When there is no tax return history for a rental property, FHA guidelines require lenders to reduce the gross rental income by 25% to account for vacancies and maintenance.
"If there is no history of rental income on the borrower's tax returns, the lender must reduce the market rent by 25% before considering it as effective income."
- HUD 4000.1 FHA Single Family Housing Policy Handbook
References:
HUD 4000.1, FHA Rental Income Requirements (see Rental Income)

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Question 4

A loan that is meant to be offered to prospective borrowers with poor credit history is generally referred to by which of the following terms?

A.Balloon
B.Subprime
C.Fixed-rate
D.Interest-only

Correct Answer: B

A subprime loan is a type of loan offered to borrowers with low credit scores or other risk factors. These loans typically have higher interest rates to compensate for increased risk.
"Subprime loans are made to borrowers who have poor or limited credit histories and pose a higher risk of default."
- SAFE MLO National Test Study Guide
References:
CFPB, Subprime Mortgage Definition

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Question 5

Which of the following service providers is a mortgage loan originator permitted to require a borrower to use in obtaining a mortgage?

A.An appraiser
B.A title company
C.A home inspection company
D.A homeowners insurance provider

Correct Answer: A

According to RESPA (Regulation X), a borrower generally has the right to choose their own settlement service providers. However, the appraiser is selected by the lender (not the borrower), and the borrower is required to use the appraiser chosen by the lender to ensure appraisal independence and lender risk management.
"A lender may require the use of a particular appraiser to perform the appraisal for a loan."
- RESPA, 12 CFR § 1024.2(b); Appraiser Independence Requirements
References:
CFPB, Your Home Loan Toolkit
Fannie Mae, Appraiser Independence Requirements

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