[2025] New MLO exam Free Sample Questions to Practice

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NEW QUESTION # 84
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. 20%
• B. 25%
• C. 15%
• D. 10%

Answer: B

Explanation:
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)

NEW QUESTION # 85
According to the Truth in Lending Act (TILA), which of the following advertising statements does not require additional disclosures to supplement the advertisement?

• A. "Come in today for your free consultation"
• B. "Payments as low as $600 for a $100,000 mortgage"
• C. "15-year and 30-year mortgages available"
• D. "Only 1 point up front to get you in a home"

Answer: A

Explanation:
Under TILA's advertising rules (Regulation Z), general statements such as "Come in today for your free consultation" do not trigger the requirement for additional disclosures. This type of advertisement does not include specific loan terms like payment amounts, interest rates, or other terms that would require further explanation.
* Advertisements with terms like "Payments as low as $600" (A) or "1 point up front" (B) are triggering terms under TILA and would require additional disclosures about the APR, loan term, and other conditions.
References:
* Truth in Lending Act (TILA), 12 CFR Part 1026 (Regulation Z)
* CFPB Advertising Guidelines on TILA

NEW QUESTION # 86
A consumer with HIV/AIDS is protected from lending discrimination by the:

• A. Dodd-Frank
• B. Equality Act
• C. Employment Non-Discrimination Act
• D. Fair Housing Act

Answer: D

Explanation:
The Fair Housing Act prohibits discrimination in housing based on disability. Federal courts and HUD have consistently ruled that HIV/AIDS qualifies as a disability under the Act.
"The Fair Housing Act prohibits discrimination in housing based on disability, including HIV/AIDS."
- U.S. Department of Justice; HUD Fair Housing Act Overview
References:
HUD, Housing Discrimination and Persons with HIV/AIDS
DOJ, The Fair Housing Act

NEW QUESTION # 87
It is acceptable for a lender to request a co-applicant in which of the following situations?

• A. The borrower's future income is dependent on the co-applicant.
• B. The borrower will not qualify for the loan on their own.
• C. The co-applicant is gifting money to the borrower to make a down payment on a purchase-money mortgage
• D. The co-applicant will be residing in the house with the borrower.

Answer: B

Explanation:
It is acceptable for a lender to request a co-applicant if the borrower will not qualify for the loan on their own based on their income, credit score, or other financial factors. A co-applicant, such as a spouse or family member, can help strengthen the application by adding additional income or improving the credit profile, which may help the borrower meet the lender's qualification requirements.
* Other situations (B, C, D) such as future income, residency, or gifting funds do not necessarily require a co-applicant and are not acceptable reasons to mandate one.
References:
* Equal Credit Opportunity Act (ECOA), 12 CFR Part 1002
* Fannie Mae Selling Guide on co-borrowers

NEW QUESTION # 88
The upfront premium charged on an FHA mortgage transaction to protect a creditor in the event of borrower default is an example of:

• A. private mortgage insurance
• B. force-placed hazard insurance.
• C. government mortgage insurance.
• D. optional credit life insurance.

Answer: C

Explanation:
The upfront premium charged on an FHA mortgage is an example of government mortgage insurance.
This upfront mortgage insurance premium (UFMIP) is required for FHA loans and protects the lender (creditor) in the event of borrower default. FHA loans are insured by the Federal Housing Administration (FHA), a government agency.
* Private mortgage insurance (D) is used for conventional loans, while optional credit life insurance (A) and force-placed hazard insurance (B) are unrelated to FHA loans.
References:
* FHA Single Family Housing Policy Handbook
* HUD Guidelines on UFMIP

NEW QUESTION # 89
In a federally related mortgage loan transaction, a charge for a settlement service by a person for which no services or nominal services are performed is prohibited:

• A. unless it is paid by the mortgage loan originator on the borrower's behalf.
• B. only if it is paid by the borrower's real estate agent.
• C. unless it is paid by the seller or the seller's real estate agent.
• D. regardless of the sources of payment.

Answer: D

Explanation:
Under RESPA (Real Estate Settlement Procedures Act), it is illegal to charge a fee for a settlement service if no services or only nominal services are performed. This is true regardless of who pays the fee, whether it's the borrower, seller, real estate agent, or any other party. RESPA prohibits unearned fees, kickbacks, or payments for referrals in federally related mortgage transactions.
* Even if someone other than the borrower pays, the charge is still illegal if it is not justified by actual services performed.
References:
* RESPA Section 8 - Prohibition on kickbacks and unearned fees
* CFPB RESPA Guidelines

NEW QUESTION # 90
Which of the following responses describes the purpose of an appraisal in satisfying requirements for underwriting?

• A. To ensure that the market value is appropriate for the loan amount
• B. To allow the seller a final opportunity to cancel the transaction
• C. To ensure that the home is not an outlier to its comparables
• D. To allow the borrower a final opportunity to negotiate terms of the loan

Answer: A

Explanation:
The purpose of an appraisal in mortgage underwriting is to determine the current market value of the property being used as collateral for the loan. This is to ensure the loan amount does not exceed the value of the property and to protect the lender's interest in case of default.
"An appraisal provides an opinion of the property's market value, which is essential for the lender to determine if the property adequately secures the loan."
- Fannie Mae Selling Guide, B4-1.1-03: Appraisal Report Forms and Exhibits References:
Fannie Mae Selling Guide, Appraisal Requirements

NEW QUESTION # 91
Which of the following sources of funds is acceptable to utilize for down payments, closing costs or financial reserves?

• A. Foreign assets located outside of the U.S. or its territories
• B. Virtual currency funds
• C. Community second funds
• D. Personal unsecured loans

Answer: C

Explanation:
Community second funds are an acceptable source of funds for down payments, closing costs, or financial reserves. These are subordinate loans provided by housing finance agencies, nonprofits, or government entities to help borrowers meet the required down payment or closing costs. These funds are often offered to low-to-moderate income borrowers or first-time homebuyers as part of affordable housing programs.
* Virtual currency (A), such as Bitcoin, is not an acceptable source due to its volatility and challenges in verifying its stability.
* Personal unsecured loans (C) are generally not allowed, as they increase the borrower's debt and reduce their financial stability.
* Foreign assets outside of the U.S. (D) are not typically acceptable unless they can be easily liquidated and transferred to the U.S.
References:
* Fannie Mae Selling Guide on acceptable sources of funds
* Freddie Mac Guidelines for down payment and closing costs

NEW QUESTION # 92
A lender is permitted to accept the employment information provided by the borrower on the initial loan application without asking for a letter of explanation in which of the following circumstances?

• A. The borrower has been employed by the same company for three years.
• B. The residence is more than 120 miles from the work location on a refinance.
• C. The borrower lacks a history in an industry that requires specific skills.
• D. A recent college graduate holds a high-level position in the organization.

Answer: A

Explanation:
Lenders are permitted to accept the employment information provided by the borrower on the initial loan application without asking for a letter of explanation when the borrower has a stable employment history, such as being employed by the same company for three years or more. This provides sufficient documentation of employment stability, reducing the need for further explanation.
* Other options (A, B, C) involve situations where the employment status or job stability may raise concerns, thus requiring additional documentation or explanation.
References:
* Fannie Mae Selling Guide on employment verification
* Freddie Mac Employment History Guidelines

NEW QUESTION # 93
Which of the following data should not be included in a borrower's personal data collected under the Home Mortgage Disclosure Act (HMDA)?

• A. Ethnicity
• B. Race
• C. Sex
• D. Religion

Answer: D

Explanation:
Under HMDA (Regulation C), lenders must collect and report applicant data including race, ethnicity, and sex, but not religion. Collecting data on an applicant's religion would be prohibited by the Equal Credit Opportunity Act (ECOA).
"The data reported under HMDA includes the applicant's ethnicity, race, sex, and income... religion is not collected or reported."
- 12 CFR § 1003.4(a); Regulation C
References:
CFPB, HMDA Data Collection
12 CFR § 1003.4(a)

NEW QUESTION # 94
A borrower obtains a 2-1 buydown mortgage loan with a 30-year term and a 6% note rate. The borrower's payments will be calculated based upon which of the following?

• A. 4% interest in year 1, 5% interest in year 2 and 6% interest in years 3 through 30
• B. 4% interest in year 1 and 6% interest in years 2 through 30
• C. 4% interest in years 1 and 2 and 6% interest in years 3 through 30
• D. 5% interest in years 1 and 2 and 6% interest in years 3 through 30

Answer: A

Explanation:
A 2-1 buydown provides for a reduced interest rate for the first two years:
Year 1: Note rate minus 2% (6% - 2% = 4%)
Year 2: Note rate minus 1% (6% - 1% = 5%)
Years 3-30: Note rate (6%)
"In a 2-1 buydown, the interest rate is reduced by 2% the first year and 1% the second year. The third and subsequent years, the rate is the note rate."
- SAFE MLO National Test Study Guide; CFPB Mortgage Glossary
References:
CFPB, Buydowns
SAFE MLO National Test Study Guide

NEW QUESTION # 95
Which of the following must be included on all residential mortgage loan application forms?

• A. The maiden name of the borrower's mother
• B. A borrower's driver's license number
• C. The borrower's previous five year employment history
• D. A mortgage loan originator's unique identifier

Answer: D

Explanation:
Regulation Z (TILA) and the SAFE Act require that all mortgage loan applications include the MLO's unique identifier, which allows regulators and consumers to identify the MLO involved in the transaction.
"Each loan application must include the mortgage loan originator's name and unique identifier."
- 12 CFR § 1026.36(g); SAFE Act
Other listed information is not federally required on every mortgage application.
References:
CFPB, Loan Originator Identifier Requirements
SAFE MLO National Test Study Guide

NEW QUESTION # 96
What are the maximum basis points added to the average prime offer rate (APOR) that keep a loan's APR as a qualified mortgage under the Consumer Financial Protection Bureau's (CFPB's) Safe Harbor Rule?

• A. 85 basis points
• B. 150 basis points
• C. 300 basis points
• D. 100 basis points

Answer: D

Explanation:
A loan is a Qualified Mortgage (QM) with "safe harbor" legal protection if its APR does not exceed the average prime offer rate (APOR) by more than 100 basis points (1%) for a first-lien transaction.
"A covered transaction is a safe harbor QM if the APR does not exceed the APOR for a comparable transaction by 1.5 or more percentage points for first-lien transactions, or 3.5 percentage points for subordinate-lien transactions. For purposes of safe harbor protection, the threshold is 1 percentage point (100 basis points) above APOR."
- 12 CFR § 1026.43(e); CFPB QM/ATR Rule Summary
References:
CFPB, Qualified Mortgage and Ability-to-Repay Rule
SAFE MLO National Test Study Guide

NEW QUESTION # 97
The Equal Credit Opportunity Act (ECOA) defines the term "elderly" as anyone:

• A. 62 years of age or older.
• B. 70 years of age or older.
• C. 65 years of age or older.
• D. 60 years of age or older.

Answer: A

Explanation:
Under the Equal Credit Opportunity Act (ECOA), the term "elderly" is defined as anyone who is 62 years of age or older. This designation is significant in fair lending, as the ECOA prohibits discrimination based on age in any aspect of a credit transaction, including mortgage lending.
* ECOA protects borrowers from being denied credit or offered unfavorable terms based solely on their age, and it provides additional protections to borrowers considered "elderly." References:
* Equal Credit Opportunity Act (ECOA), 15 U.S.C. § 1691(a)
* CFPB Regulation B, 12 CFR Part 1002

NEW QUESTION # 98
Which of the following reasons is acceptable for denying a loan under the Equal Credit Opportunity Act (ECOA)?

• A. Receipt of child support
• B. Country of birth
• C. Marital status
• D. Immigration status

Answer: D

Explanation:
Under the Equal Credit Opportunity Act (ECOA), lenders can deny a loan based on immigration status, as it directly relates to the borrower's ability to legally reside and work in the country. Lenders must ensure that the borrower has the legal capacity to enter into a binding contract and that they are authorized to work in the
U.S. for the loan's duration.
* Receipt of child support (A), marital status (C), and country of birth (D) are protected characteristics under ECOA, meaning a lender cannot deny credit based on these factors.
References:
Equal Credit Opportunity Act (ECOA), 15 U.S.C. §1691
CFPB Regulation B

NEW QUESTION # 99
Which of the following applicant characteristics is legally permitted to be considered in evaluating credit risk?

• A. Whether the alimony payments the applicant relies on for income are likely to continue and to be consistently made
• B. Whether the applicant seems likely to have children
• C. Whether the applicant has a phone number listing in their name
• D. Whether the applicant's age makes them ineligible for credit-related insurance

Answer: A

Explanation:
Lenders may consider whether alimony, child support, or separate maintenance payments are likely to be consistently made, as this affects the borrower's ability to repay. Consideration of family status, phone listings, or age (except as required for legal capacity) is prohibited by the Equal Credit Opportunity Act (ECOA).
"A creditor must consider alimony, child support, or separate maintenance income to the extent that it is likely to be consistently received."
- 12 CFR § 1002.6(b)(5), Regulation B (ECOA)
References:
CFPB, Considering Alimony and Child Support
SAFE MLO National Test Study Guide

NEW QUESTION # 100
Which of the following entities is the primary regulatory authority for state-licensed, non-depository lenders?

• A. The Conference of State Bank Supervisors
• B. NMLS
• C. The Federal Trade Commission
• D. A state regulator

Answer: D

Explanation:
For state-licensed, non-depository lenders, the primary regulatory authority is the state regulator in the jurisdiction where the lender operates. Each state has its own agency or department responsible for overseeing licensing, compliance, and enforcement of mortgage laws for non-depository institutions.
* The NMLS (A) is the system used to manage licenses but is not a regulatory authority.
* The Federal Trade Commission (B) oversees federal consumer protection laws but is not the primary regulator for state-licensed lenders.
* The Conference of State Bank Supervisors (CSBS) (D) helps coordinate state regulation but does not directly regulate individual lenders.
References:
* SAFE Act, 12 USC §5101
* NMLS and State Regulator Guidelines

NEW QUESTION # 101
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