20 free SAFE MLO Test practice questions

Correct answer: D · By Thursday, the third business day after receiving the application

Under 12 CFR 1026.2(a)(3)(ii), the six pieces of information listed in the stem make up an application for a TRID loan. Regulation Z's commentary to § 1026.19(e)(1)(iii) says the Loan Estimate must be delivered not later than three business days after the creditor receives the application. For this rule, a business day is a day the creditor's offices are open for substantially all business functions. Counting from Monday: Tuesday is day 1, Wednesday day 2, and Thursday day 3, so the Loan Estimate must be delivered or mailed by Thursday. Same-day delivery is allowed but not required. Ten business days and waiting for underwriting would both be late. Asking for pay stubs first does not delay the deadline once the six items are in hand.

Look for this next time: Six pieces of information make a TRID application; the Loan Estimate is due within three business days after receipt.

Correct answer: B · The origination charge, because it is paid to the creditor itself

Under 12 CFR 1026.19(e)(3)(i), an estimated charge is in good faith only if the amount paid does not exceed the amount originally disclosed, and the official commentary applies this zero tolerance to fees paid to the creditor, a mortgage broker, or an affiliate of either, among others. The origination charge therefore cannot rise at all without a valid changed circumstance or another permitted revision. Recording fees and charges for unaffiliated third-party services the consumer chose from the creditor's written list fall under § 1026.19(e)(3)(ii): together they may not rise by more than 10 percent of the total disclosed, so the title search and the recording fee are measured as a group, not one by one. Property insurance premiums fall under § 1026.19(e)(3)(iii), where the estimate only has to reflect the best information reasonably available when it was made. The outline lists tolerances among mortgage terms.

Look for this next time: Fees paid to the creditor have zero tolerance; recording fees and third-party fees from the creditor's list share a 10% limit.

Correct answer: A · Tuesday of that week

Under 12 CFR 1026.19(f)(1)(ii), the creditor must ensure the consumer receives the Closing Disclosure no later than three business days before consummation. For this timing rule, Regulation Z's precise definition of a business day applies: every calendar day except Sundays and the federal legal public holidays. Counting back three business days from a Friday consummation gives Thursday, Wednesday, and then Tuesday, so Tuesday is the latest day the consumer can receive it. Because Saturday counts as a business day under this definition, a closing set for a Monday would need receipt by the Thursday before (Saturday, Friday, Thursday). Receipt on Wednesday or Thursday leaves too little time and pushes the closing back. Handing over the Closing Disclosure at the closing table is too late. The creditor is responsible for making sure the consumer receives it in time.

Look for this next time: The consumer must receive the Closing Disclosure three business days before consummation: Tuesday for a Friday closing.

Correct answer: C · Within 30 days after receiving the completed application

12 CFR 1002.9(a)(1)(i) requires a creditor to notify an applicant of its action within 30 days after receiving a completed application concerning the creditor's approval of, counteroffer to, or adverse action on the application. Here the completed application arrived March 3, so notice of the denial is due within 30 days of that date. Three business days is the Loan Estimate deadline under TRID, not the ECOA notice deadline. Sixty days is too long for a completed application. The notice is required whether or not the applicant asks for it, and Regulation B also sets what an adverse action notice must contain.

Look for this next time: Under Regulation B, notify the applicant of action on a completed application within 30 days.

Correct answer: B · No, because a referral is not a compensable service under Section 8

12 CFR 1024.14(b), which implements RESPA Section 8, says no person shall give and no person shall accept any fee, kickback, or other thing of value under an agreement or understanding that settlement service business involving a federally related mortgage loan will be referred. Regulation X adds that a referral of a settlement service is not a compensable service. A flat $200 per referred loan is exactly that kind of payment. Disclosure does not cure it, there is no dollar threshold below which kickbacks are allowed, and the prohibition does not depend on whether the borrower's costs go up. Regulation X does permit payments for services actually performed, but sending business is not a service. Both the giver and the receiver can be liable.

Look for this next time: RESPA Section 8 bars paying or accepting anything of value for referring settlement service business.

Correct answer: D · 7.00%, the index plus the margin

On an adjustable-rate mortgage, the fully indexed rate is the index value plus the margin stated in the note. Step 1: the index is 4.25%. Step 2: the margin is 2.75%. Step 3: 4.25% + 2.75% = 7.00%. Because the stem says the caps would not limit this adjustment, the new rate is 7.00%; if a cap were lower, the rate would rise only to the cap. The difference between the index and the margin has no role in the calculation. The index alone ignores the lender's margin, which stays fixed for the life of the loan. The start rate applies only until the first adjustment. The content outline lists adjustable-rate mortgages among the loan products and financial calculations tested.

Look for this next time: Fully indexed rate = index + margin, subject to any rate caps in the note.

Correct answer: A · HECMs are only for homeowners 62 and older, so she does not qualify yet

The CFPB describes a Home Equity Conversion Mortgage as a special type of home loan only for homeowners who are 62 and older. At 58, she does not meet the age requirement, so the originator should say so plainly and not suggest workarounds. A minimum age of 55 is not the HECM rule. A HECM does not require the home to be paid off first; an existing mortgage can be paid off from the loan proceeds. Military service is a basis for VA loans, not HECMs. The originator can discuss other options suited to her situation and age. The content outline lists reverse mortgages among the mortgage loan products tested.

Look for this next time: HECM reverse mortgages are only for homeowners 62 and older.

Correct answer: C · $312,000, which is 78% of the original value

The CFPB explains that a servicer generally must end PMI automatically when the principal balance is scheduled to reach 78 percent of the home's original value, if the borrower is current. Original value is generally the lower of the contract price or the appraised value at purchase, here $400,000. Step 1: 0.78 × $400,000 = $312,000. The 80 percent point, $320,000, is when she may ask in writing to cancel PMI, if she has a good payment history, certifies there are no junior liens, and can show the value has not declined. Seventy-five and 70 percent are not Homeowners Protection Act thresholds. PMI must also end at the midpoint of the amortization schedule if she is current. FHA, VA, and lender-paid insurance follow different rules.

Look for this next time: PMI: borrower may request cancellation at 80% of original value; automatic termination at 78% if current.

Correct answer: A · Verify the income it relies on with reasonably reliable third-party records

12 CFR 1026.43(c)(1) requires a creditor to make a reasonable, good-faith determination at or before consummation that the consumer will have a reasonable ability to repay the loan according to its terms. Section 1026.43(c)(4) requires the creditor to verify the amounts of income or assets it relies on using third-party records that provide reasonably reliable evidence, such as tax returns, an IRS tax-return transcript, W-2s, payroll statements, or financial institution records. A signed statement alone is not third-party verification, which is why so-called stated-income loans do not meet the rule. A strong credit score shows payment history, not income. The verification duty does not depend on the loan-to-value ratio. The content outline places qualified and non-qualified mortgage programs under general mortgage knowledge.

Look for this next time: Ability-to-repay requires verifying relied-on income or assets with reasonably reliable third-party records.

Correct answer: D · 90.0%, using the $340,000 appraised value

Loan-to-value is the loan amount divided by the property's value. On a purchase, value is generally taken as the lower of the contract price and the appraised value; the CFPB uses the same convention when it defines a home's original value for PMI. Step 1: the lower figure is the $340,000 appraisal. Step 2: $306,000 ÷ $340,000 = 0.90, or 90.0%. Dividing by the $350,000 contract price gives about 87.4%, which understates the lender's risk because the property is worth less than the price. Averaging the price and the appraisal ($345,000) gives about 88.7%, but lenders do not average the two figures. Dividing the value by the loan ($340,000 ÷ $306,000 ≈ 111.1%) turns the ratio upside down. The content outline lists LTV calculation scenarios under financial calculations.

Look for this next time: On a purchase, LTV generally uses the lower of the contract price or the appraised value.

Correct answer: B · 33.3%, housing plus the monthly debt payments

The back-end debt-to-income ratio compares all monthly debt obligations, including the proposed housing payment, with gross monthly income. Step 1: debts are $1,800 + $350 + $250 + $100 = $2,500. Step 2: $2,500 ÷ $7,500 = 0.333, or 33.3%. The front-end (housing) ratio is $1,800 ÷ $7,500 = 24.0%, which leaves out her other debts. The non-housing debts alone, $700 ÷ $7,500 ≈ 9.3%, leave out the housing payment. Utilities are living expenses, not debt obligations, so adding them to reach $2,700 ÷ $7,500 = 36.0% overstates the ratio. Loan programs set their own DTI limits, and the ability-to-repay rule requires the creditor to consider the consumer's DTI or residual income. The content outline lists debt-ratio calculation scenarios.

Look for this next time: Back-end DTI = (housing payment + monthly debt payments) ÷ gross monthly income; utilities are not debts.

Correct answer: C · $4,200

One discount point equals 1% of the loan amount, not of the purchase price. Step 1: 1% of $280,000 is $2,800. Step 2: 1.5 points is 1.5 × $2,800 = $4,200. In decimal form, 0.015 × $280,000 = $4,200. $1,400 is half a point, and $2,800 is a single point. $42,000 moves the decimal and equals 15% of the loan. Discount points are prepaid interest paid to lower the note rate, and they are disclosed in the Loan Estimate and Closing Disclosure as a percentage of the loan amount and in dollars. Whether paying points makes sense depends on how long the borrower keeps the loan. The content outline lists discount point calculations among financial calculations.

Look for this next time: One discount point is 1% of the loan amount: 1.5 points on $280,000 cost $4,200.

Correct answer: A · $591.78, for 12 days of interest

Step 1: annual interest is $300,000 × 0.06 = $18,000. Step 2: on a 365-day year, daily interest is $18,000 ÷ 365 = $49.3151. Step 3: March 20 through March 31, counting both days, is 12 days (31 − 20 + 1). Step 4: 12 × $49.3151 = $591.78. Leaving out the closing day gives 11 days and $542.47, which does not match the stated method. A 360-day year gives $50 a day and $600.00, which is a different convention than the stem specifies. A full month, $1,500, ignores the closing date. Lenders' day-count conventions vary, so read the question's stated method before you calculate. The content outline lists periodic and per diem interest, and closing costs and prepaid items, among financial calculations.

Look for this next time: Per diem interest = loan × rate ÷ days in year, multiplied by the number of days the question tells you to count.

Correct answer: B · Get documentation of the deposit's source before relying on the funds

Under 12 CFR 1026.43(c)(4), a creditor must verify the amounts of income or assets it relies on using reasonably reliable third-party records. If the down payment depends on this deposit, the source of the $15,000 matters: it could be her own savings moved from another account, a gift that needs documentation, or an undisclosed loan that would add a debt. Asking for documentation, such as the statement of the account it came from or a gift letter, lets underwriting rely on the funds properly. Ignoring a large recent deposit skips verification. Removing a statement from the file conceals information from the lender, which is an ethics violation. Telling her to move the money only hides its trail. The content outline covers qualification, processing, and underwriting.

Look for this next time: Source large recent deposits with documentation before relying on them for the down payment or reserves.

Correct answer: D · Not allowed: pay cannot be based on the rate; loan volume may be used

12 CFR 1026.36(d) prohibits paying a loan originator compensation based on a term of a transaction or a proxy for a term, and the interest rate is a term. The official commentary gives the example of a mortgage broker paying its originators more for a 7% loan than for a 6% loan, which is prohibited. The same commentary lists factors compensation may be based on, such as the originator's total loan volume, an hourly rate, and the long-term performance of the originator's loans. Disclosure on the Loan Estimate does not cure a prohibited compensation plan. A borrower's agreement does not either. Qualified mortgage status is a separate ability-to-repay question and does not make term-based pay permissible. The content outline lists MLO compensation rules under federal law and ethics.

Look for this next time: Loan originator pay may not vary with loan terms such as the rate; volume-based pay is permitted.

Correct answer: C · Prohibited coercion; asking to consider more data or fix errors is allowed

12 CFR 1026.42(c)(1) says no covered person shall directly or indirectly cause or attempt to cause the value assigned to a consumer's principal dwelling to be based on any factor other than the independent judgment of the person preparing the valuation, through coercion, extortion, inducement, bribery, or intimidation. Demanding a value and threatening future orders is pressure of exactly that kind; the rule's examples include seeking to influence the appraiser to report a minimum value and implying that future engagement depends on the value reported. Section 1026.42(c)(3) allows asking the appraiser to consider additional, appropriate property information or to correct errors in the valuation. The contract price is not a target the appraiser must reach. The borrower's wishes do not change the rule, and it applies whether or not a management company is involved.

Look for this next time: Never pressure an appraiser toward a value; you may ask them to consider more data or correct errors.

Correct answer: B · Not submit it as a primary residence; correct the occupancy and escalate

What she describes is occupancy fraud: misstating that a property will be a primary residence to obtain better pricing or terms than an investment property would receive. Once the originator knows the true plan, submitting the application as owner-occupied would mean knowingly passing a material misrepresentation to the lender, which can expose both the borrower and the originator to serious liability, including under federal criminal law for false statements on loan applications. The originator should explain that the application must reflect her actual occupancy, price it as an investment property if she proceeds, and follow the company's procedures for reporting suspected fraud. Proceeding because it is hard to prove, or staying silent, is still participation. Suggesting a false address adds a second misrepresentation. The content outline lists occupancy fraud under ethics.

Look for this next time: Never submit a loan as owner-occupied when you know the borrower will rent it out; that is occupancy fraud.

Correct answer: A · The down payment, the terms of repayment, and the APR

12 CFR 1026.24(d)(1) lists triggering terms for closed-end credit advertising: the amount or percentage of any down payment, the number of payments or period of repayment, the amount of any payment, and the amount of any finance charge. "$1,499 a month" is the amount of a payment, so § 1026.24(d)(2) requires the ad to also state the amount or percentage of the down payment, the terms of repayment over the full term of the loan, including any balloon payment, and the annual percentage rate, using that term, with a statement if the rate may increase after consummation. Adding the originator's NMLS identifier does not satisfy these disclosures. A rate-change statement alone is incomplete. The content outline lists advertising rules and triggering terms.

Look for this next time: Stating a payment amount in a mortgage ad triggers disclosure of the down payment, repayment terms, and APR.

Correct answer: C · At least 20 hours, with 3 federal law, 3 ethics, and 2 nontraditional

12 CFR 1008.105(d) requires an applicant for a state loan originator license to complete at least 20 hours of pre-licensing education approved by the NMLS, including at least 3 hours of federal law and regulations; 3 hours of ethics, which must include instruction on fraud, consumer protection, and fair lending issues; and 2 hours of training on lending standards for the nontraditional mortgage product marketplace. The 20 hours are not open to any topics, because those 8 hours are required. Eight hours, with 3 of federal law, 2 of ethics, and 2 of nontraditional lending, describes the annual continuing education requirement in § 1008.107, not pre-licensing education. The federal minimum is not 40 hours with half on state law, though a state may add its own requirements on top of the federal minimum.

Look for this next time: SAFE Act pre-licensing education: at least 20 hours, including 3 federal law, 3 ethics, and 2 nontraditional lending.

Correct answer: D · At least 6 months; NMLS applies a 180-day wait

12 CFR 1008.105(e)(2) allows an individual to take the test three consecutive times, with each retest at least 30 days after the preceding test, and says that after failing three consecutive tests the individual must wait at least 6 months before taking the test again. NMLS's MLO Testing Handbook implements this as a 30-calendar-day wait after the first and second failed attempts and a 180-calendar-day wait after every third failed attempt, after which a new cycle begins. So her next attempt can be no sooner than 180 days after May 1. Thirty days applies only after the first and second failures in a cycle. Three failures do not end eligibility for good; the cycle starts over after the wait. Ninety days is not the rule in either the regulation or the NMLS policy.

Look for this next time: After three consecutive failed SAFE MLO attempts, wait at least 6 months (NMLS: 180 days) before retesting.