General Mortgage Knowledge — Study Notes

SAFE MLO domain weight ~20% · products, programs and the math

Loan programs compared

Conventional conforming: meets Fannie Mae / Freddie Mac standards and loan limits; private mortgage insurance (PMI) required above 80% LTV. Jumbo / non-conforming exceeds the limits.
FHA (HUD-insured): low down payment (3.5% with qualifying credit); upfront MIP (~1.75%) plus annual MIP — on most low-down-payment FHA loans, annual MIP lasts the life of the loan.
VA (guaranteed): eligible veterans/service members; typically no down payment, no monthly MI, a funding fee (waivable for service-connected disability), and a residual-income test.
USDA Rural Development: no-down-payment loans for moderate-income borrowers in eligible rural areas; upfront and annual guarantee fees.

Fixed vs ARM mechanics

Fully amortizing fixed: level payment; early payments are mostly interest, shifting toward principal over time.
ARM rate = index + margin. The index moves with the market (e.g., SOFR); the margin is fixed for the life of the loan.
Caps are quoted initial / periodic / lifetime (e.g., 5/2/5): the maximum change at the first adjustment, at each later adjustment, and over the life.
A "5/1 ARM" is fixed for 5 years, then adjusts annually. ARM applicants receive the CHARM booklet and program disclosures.
Rate lock: a commitment to an interest rate/points for a set period; lock expirations and float-downs are common scenario questions.

Nontraditional & niche products

Interest-only: no principal reduction during the IO period; payment jumps afterwards.
Payment-option / negative amortization: minimum payments below accruing interest grow the balance — heavily restricted post-crisis and excluded from QM.
Balloon: amortized payments with a large lump sum due at term's end.
Reverse mortgage (HECM): borrowers 62+, HUD-approved counseling required, no monthly principal-and-interest payment; loan repays from the home, and the borrower must maintain taxes, insurance and occupancy.
HELOC: open-end revolving credit secured by the home (draw period then repayment period), vs a closed-end fixed second (home equity loan).
Construction and bridge loans: short-term interim financing repaid by permanent financing or sale.

Mortgage insurance & the HPA

PMI (conventional): protects the lender on loans above 80% LTV.
Homeowners Protection Act: borrower may request cancellation at 80% LTV (original value, good payment history); PMI terminates automatically at 78% when current; final termination at the loan's midpoint regardless.
FHA's MIP follows FHA rules, not the HPA — a favorite trick distinction.

The math you must do quickly

LTV: loan ÷ lesser of price or appraised value. $285,000 loan on a $300,000 price = 95% LTV.
Discount points: 1 point = 1% of the loan amount, paid to lower the rate (a permanent buydown); a temporary buydown (e.g., 2-1) subsidizes early-year payments.
Per-diem interest: loan × rate ÷ 360 or 365 (per lender convention) × days from closing to month-end.
Monthly MI / annual fee: loan × annual factor ÷ 12.
PITI: principal + interest + 1/12 taxes + 1/12 hazard insurance (+ MI + dues for qualification).

Title, liens & security instruments

Note = the promise to pay; mortgage / deed of trust = the security instrument pledging the property. Deed-of-trust states use a trustee with power of sale (non-judicial foreclosure).
Lien priority generally follows recording order; property-tax liens prime almost everything; subordination agreements rearrange priority.
Title insurance: lender's policy (required, loan amount) vs owner's policy (optional, purchase price).

Memorize-these numbers

PMI: request cancel 80% / auto-terminate 78% / midpoint final
FHA: 3.5% min down, upfront MIP ~1.75%; HECM age 62+
1 point = 1% of loan amount; ARM margin never changes

For exam preparation reference only — condensed summaries. Program parameters (limits, fees, MI factors) change periodically; verify against current agency sources. Independent study aid, not affiliated with or endorsed by NMLS or CSBS.