Question 1

Which statement best describes a conforming loan?

Accepted Answer

A conforming loan generally meets the size and underwriting parameters required for purchase by Fannie Mae or Freddie Mac. Loan amount limits are a key part of that definition.

Question 2

What is a jumbo loan?

Accepted Answer

A jumbo loan is a mortgage that exceeds the applicable conforming loan limit. Because it falls outside standard GSE loan-size limits, underwriting can be more conservative.

Question 3

Which entities are the two main government-sponsored enterprises associated with conventional conforming loans?

Accepted Answer

Fannie Mae and Freddie Mac are the principal GSEs associated with purchasing conventional conforming loans. They are not the same as FHA, VA, or USDA insurance/guarantee programs.

Question 4

A borrower is applying for a conventional loan with 5% down. Which issue is most likely to arise?

Accepted Answer

Conventional loans with LTVs above 80% commonly require private mortgage insurance. This protects the lender against some default risk when the down payment is small.

Question 5

Under the Homeowners Protection Act, a borrower may generally request PMI cancellation on a conventional loan when the principal balance reaches:

Accepted Answer

On many conventional loans, the borrower may request PMI cancellation when the principal balance reaches 80% of the original value, subject to conditions such as payment history. Automatic termination is commonly tested at 78% if the loan is current.

Question 6

Which statement about automatic PMI termination is most accurate for many conventional loans?

Accepted Answer

For many conventional loans, PMI automatically terminates when the principal balance is scheduled to reach 78% of the original value, provided the loan is current. This is distinct from FHA mortgage insurance rules.

Question 7

A borrower asks whether Fannie Mae is a government agency that makes consumer mortgage loans directly. What is the best answer?

Accepted Answer

Fannie Mae is a government-sponsored enterprise that supports the secondary mortgage market by purchasing loans, not by directly lending to most consumers. SAFE exam questions often test this secondary-market role.

Question 8

Which scenario most strongly suggests a jumbo underwriter may ask for stronger compensating factors?

Accepted Answer

Because jumbo loans sit outside standard conforming limits, lenders often seek stronger compensating factors such as reserves, credit strength, or larger down payments. SAFE questions commonly frame jumbo loans as more conservatively underwritten.

Question 9

A home is worth $500,000. The first mortgage is $350,000, and a HELOC has a $75,000 line with $20,000 currently drawn. Which statement best distinguishes CLTV and HCLTV?

Accepted Answer

CLTV commonly uses current lien balances, so it includes the amount actually drawn. HCLTV is the broader exposure measure and uses the full available line amount on the HELOC, which is why it can be higher than CLTV.

Question 10

A property is worth $400,000. The first mortgage is $280,000, and a HELOC line limit is $60,000 with only $15,000 drawn. What are the CLTV and HCLTV?

Accepted Answer

CLTV uses current balances: ($280,000 + $15,000) / $400,000 = 73.75%. HCLTV uses the full line amount: ($280,000 + $60,000) / $400,000 = 85.00%.

Conventional Loans Practice Questions

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