Chapter 11 — Self-Check Quiz
Twenty-five questions: multiple choice and short answer, written in the style of the SAFE MLO test
where the material is exam-relevant. Work them without the chapter open. The answer key is in the
collapsed block at the bottom.
Every threshold below is stated as it is commonly applied. On a live file, confirm the current
requirement in the applicable guide.
1. A borrower is paid bi-weekly and grosses \$2,415.00 per pay period. Gross monthly income is:
- A. \$4,830.00
- B. \$5,232.50
- C. \$5,522.50
- D. \$6,037.50
2. A commissioned borrower earned \$36,000 in commission two years ago and \$30,000 last year. The
monthly commission income that may be used to qualify is:
- A. \$2,750.00
- B. \$2,500.00
- C. \$3,000.00
- D. \$0.00
3. (Short answer) State, in order, the three questions an underwriter asks about any dollar of
income.
4. Which of the following income components is generally not averaged?
- A. Overtime
- B. Commission
- C. Current base salary
- D. Shift differential
5. A borrower paid twice a month receives how many paychecks per year, and a borrower paid every
two weeks receives how many?
- A. 24 and 24
- B. 24 and 26
- C. 26 and 24
- D. 26 and 26
6. (Short answer) A Verification of Employment shows five years of overtime income and the
employer has indicated the overtime is not likely to continue. How much overtime income may be
used, and which of the three questions produced that result?
7. Form 4506-C is used to:
- A. Verify a borrower's employment directly with the employer
- B. Authorize the lender to obtain the borrower's tax transcripts from the IRS
- C. Report the borrower's non-taxable income to the investor
- D. Request an amended return from the borrower's tax preparer
8. Which transcript most directly corroborates a W-2 the borrower handed you?
- A. Tax return transcript
- B. Tax account transcript
- C. Wage and income transcript
- D. Record of account transcript
9. (Short answer) Why is a paystub, standing alone, insufficient to establish overtime income —
even when the paystub shows a large year-to-date overtime figure?
10. A rental property is leased at \$1,600.00 per month and has a PITIA of \$1,410.00. Applying a
75% factor to gross rents, the effect on the borrower's application is:
- A. \$1,200.00 of monthly income
- B. \$190.00 of monthly income
- C. \$0.00 — the rental washes out
- D. A \$210.00 monthly liability
11. (Short answer) Explain the purpose of the non-taxable gross-up in two sentences, without
stating a percentage.
12. A borrower discloses that they receive long-term disability income. The loan officer may:
- A. Ask the nature and severity of the disability to assess continuance
- B. Ask for medical records supporting the borrower's condition
- C. Document the amount, the source, and whether the benefit has a stated end date
- D. Decline to count the income because its continuance cannot be established
13. A Verification of Employment reports \$22.50 per hour and a contracted 40-hour week. Monthly
base income is:
- A. \$3,600.00
- B. \$3,750.00
- C. \$3,900.00
- D. \$4,875.00
14. (Short answer) A loan officer multiplies a bi-weekly gross by two. By what percentage is the
borrower's income understated, and why is the error the same percentage on every bi-weekly file?
15. A borrower has held a second job for fifteen months, producing \$720 a month. The most likely
treatment is:
- A. Count it in full; the income is documented and current
- B. Count half of it as a compensating factor
- C. Generally do not count it; a two-year history is commonly required
- D. Count it only if the primary employer confirms it
16. The purpose of a verbal Verification of Employment obtained shortly before closing is to:
- A. Establish the two-year history of variable income
- B. Confirm that the borrower is still employed
- C. Break base pay out from bonus and commission
- D. Satisfy the Ability-to-Repay rule's points-and-fees test
17. (Short answer) A borrower receives alimony under an order with 30 payments remaining,
documented by eleven months of bank statements. Is it likely to be countable? Name the test it turns
on.
18. A commissioned salesperson receives a 1099 rather than a W-2. For mortgage purposes, the
income is generally analyzed as:
- A. Wage income with a 24-month average
- B. Self-employment income, under a different documentation standard
- C. Non-taxable income eligible for a gross-up
- D. Bonus income requiring an employer continuance statement
19. (Short answer) State what changes about the method when variable income has declined year
over year, and state the one-sentence reason.
20. A seasonal worker earns \$33,600 in W-2 wages, all of it during eight months of the year.
Monthly qualifying income is:
- A. \$4,200.00
- B. \$2,800.00
- C. \$2,240.00
- D. \$33,600.00 ÷ the number of months worked in the most recent season
21. (Short answer) The chapter says the underwriter is "forecasting, not auditing." Explain what
that sentence changes about how you read a two-year income history.
22. Which of the following is least likely to be qualifying income?
- A. Commission documented by two years of W-2s and a VOE breakout
- B. Social Security documented by an award letter and matching deposits
- C. Cash tips with no third-party record
- D. A pension documented by a benefit statement with no end date
23. (Short answer) A borrower's employment history shows a 45-day gap between employers. What does
this commonly trigger, and what makes such a gap survivable?
24. Overtime income was \$5,400 two years ago and \$6,600 last year. The monthly overtime income
that may be used to qualify is:
- A. \$550.00
- B. \$500.00
- C. \$450.00
- D. \$0.00 — overtime may never be used
25. (Short answer) Name three documents that must be reconciled against each other before you
submit a W-2 wage earner's income, and state in a few words what each one proves that the others
cannot.
Answer key — work the questions first.
**1. B — \$5,232.50.** Bi-weekly is 26 periods: \$2,415.00 × 26 = \$62,790.00 ÷ 12 = \$5,232.50.
A (\$4,830.00) is the ×2 error.
**2. B — \$2,500.00.** The income **declined** (\$36,000 → \$30,000), so the 24-month average of
\$66,000 ÷ 24 = \$2,750.00 is not usable; the most recent year governs: \$30,000 ÷ 12 = \$2,500.00.
A is the trap answer.
**3.** (1) Is it stable — does it have a history? (2) Is it likely to continue — commonly a
three-year forward expectation? (3) Can it be documented by a third party the underwriter will
believe?
**4. C — current base salary.** Base is taken at the current rate. Averaging applies to variable
income.
**5. B — 24 and 26.** Semi-monthly is 24; bi-weekly is 26. Confusing the two is the most common
income-arithmetic error in origination.
**6.** **Zero.** The income fails **question 2 (continuance)**. Length of history cannot cure a failed
continuance test — five years of a thing that is ending is still a thing that is ending.
**7. B.** Form 4506-C authorizes the lender to obtain tax transcripts through the IRS's Income
Verification Express Service. Confirm the current form and process; the IRS has revised both.
**8. C — the wage and income transcript**, which reports the information returns (W-2s, 1099s, and
similar) filed *about* the taxpayer. A tax return transcript shows line items from the return as
filed.
**9.** A paystub proves the current rate and the current-year pattern. It cannot prove the **history**
(that requires two years of W-2s and the VOE breakout) and it cannot prove **continuance** (that is
the employer's statement on the VOE). A large year-to-date figure is evidence about a period that has
already ended.
**10. D — a \$210.00 monthly liability.** \$1,600.00 × 0.75 = \$1,200.00 adjusted gross rents;
\$1,200.00 − \$1,410.00 = −\$210.00. A negative result is not zero income; it is a debt.
**11.** Non-taxable income leaves the household more spendable money per dollar of gross than taxable
income does, so a ratio computed on gross income understates the non-taxable borrower's real
capacity. The gross-up raises verified non-taxable income by a program-specified percentage so the
two borrowers can be compared on the same footing — it does not give the borrower more money.
**12. C.** You may document the amount, the source, and any stated end date. You may not inquire into
the nature or severity of a disability. D is wrong because continuance for such benefits is normally
established from the award letter.
**13. C — \$3,900.00.** \$22.50 × 2,080 = \$46,800.00 ÷ 12 = \$3,900.00.
**14.** **7.69%.** Multiplying by 2 counts 24 periods when there are 26; the shortfall is 2 ÷ 26 =
7.69%. It is a proportional error, so it is the same percentage regardless of the borrower's pay
rate — which is exactly why it goes unnoticed.
**15. C.** A part-time or second job commonly requires a two-year uninterrupted history. Fifteen
months generally will not count. Verify the requirement for your program and read the automated
findings.
**16. B.** The verbal VOE answers question 2 in real time: is this borrower still employed *now*, days
before the loan funds. Timing requirements are program-specific; verify.
**17.** Likely **not countable**. It turns on **continuance** — commonly around a three-year (36-month)
forward expectation, and 30 remaining payments falls short. Receipt is well documented, so questions
1 and 3 are satisfied; question 2 is not. Verify the current requirement.
**18. B.** A 1099 commissioned salesperson is generally analyzed as self-employed, with different
documentation, history, and expense treatment. That analysis belongs to Chapter 32. Ask early which
form the borrower receives.
**19.** When variable income declines, the 24-month average is **not** used and the **lower, most
recent** figure governs. The reason: the underwriter is forecasting, and a forecast built on an
average that includes a better year that has already ended would project income the borrower is no
longer earning.
**20. B — \$2,800.00.** \$33,600 ÷ 12. The divisor is twelve because the borrower must make twelve
mortgage payments, not eight.
**21.** It changes the purpose of the history from proof to prediction. You are not confirming that
the borrower earned the money; you are asking whether the pattern supports an expectation that it
keeps arriving. That is why continuance is a separate test from history, why declining trends are
treated asymmetrically, and why an employer's forward-looking statement can outweigh years of
backward-looking evidence.
**22. C — cash tips with no third-party record.** They fail question 3. Note that tips *reported on a
W-2* are documentable and are treated as variable income.
**23.** A gap of roughly thirty days or more commonly requires a written letter of explanation; longer
gaps may require a period back at work before income is considered stable. What makes a gap survivable
is a specific, ordinary reason — school, a medical event, parental leave, relocation, a plant closure
— stated plainly and, where possible, supported by a document. Requirements vary by program; verify.
**24. B — \$500.00.** The income rose, so the 24-month average is usable: (\$5,400 + \$6,600) ÷ 24 =
\$12,000 ÷ 24 = \$500.00. Note that the average is *lower* than the most recent year (\$550.00) — the
conservative figure, as always.
**25.** (a) **The paystub** — the current rate and the year-to-date pattern. (b) **Two years of W-2s**
— the prior-year totals that establish history. (c) **The written VOE** — dates, position, the
base/overtime/bonus/commission breakout that lets you average components separately, and the
employer's view of continuance. None of the three can do another's job, and when they disagree, the
explanation for the disagreement is what belongs in the file.