Chapter 12 — Self-Check Quiz

Assets, Reserves, and the Down Payment

Twenty-six questions. Multiple choice and short answer, written in the style of the SAFE MLO test where the material is exam-relevant. Answer key is collapsed at the bottom — work the whole set before you open it.

Where a question involves the Linden Street file, use the frozen figures: contract \$385,000.00, loan \$365,750.00 at 6.625%, PITI + MI \$3,033.72, gross monthly income \$10,500.00, verified assets \$38,000.00, cash to close \$25,376.34.

1. Which of the following best states the underwriter's question about a borrower's assets?

  • A. Does the borrower have enough money to close?
  • B. Where did the money come from, and is it a loan?
  • C. Has the borrower held the money long enough?
  • D. Is the borrower's income sufficient to have saved this amount?

2. Sourcing and seasoning are:

  • A. two words for the same requirement
  • B. sequential steps, sourcing first
  • C. independent tests — one of documented origin, one of time in the account
  • D. terms that apply only to gift funds

3. A borrower deposited \$7,000 in currency fourteen months before application. The lender is reviewing 60 days of statements. This money is:

  • A. sourced and seasoned
  • B. seasoned but not sourceable
  • C. sourced but not seasoned
  • D. neither, and it must be removed from the file

4. Which field distinguishes a Verification of Deposit from a borrower-supplied bank statement?

  • A. the account number
  • B. the date the account was opened
  • C. the average balance for the preceding two months
  • D. the institution's routing number

5. Short answer. A VOD returns a current balance of \$18,900.00 and a two-month average balance of \$4,725.00. In one sentence, what is the underwriter's first question?

6. Reserves are correctly expressed in:

  • A. dollars
  • B. a percentage of the loan amount
  • C. months of PITI
  • D. a percentage of the down payment

7. On the Linden Street file, reserves after closing are \$12,623.66 against a PITI + MI of \$3,033.72. Reserves in months are approximately:

  • A. 2.45
  • B. 3.12
  • C. 4.16
  • D. 6.82

8. Which statement about gift funds is correct?

  • A. A gift becomes a loan only if there is a written repayment agreement.
  • B. A gift is money for which no repayment is expected in any form.
  • C. A gift may come from any party as long as the letter is signed by both sides.
  • D. A gift never requires documentation of the donor's ability to give.

9. Which of the following is generally not an acceptable gift donor?

  • A. the borrower's grandparent
  • B. the borrower's employer, under programs that permit it
  • C. the listing agent on the transaction
  • D. the borrower's domestic partner, under programs that permit it

10. Short answer. Name the six required elements of a gift letter.

11. Earnest money on a purchase transaction is:

  • A. a fee retained by the closing agent
  • B. a credit at closing that also must be sourced as an asset
  • C. an asset that does not require documentation because it is already delivered
  • D. a seller concession

12. A borrower wrote a \$5,000 earnest-money check on a checking account not listed on the application. The consequence is:

  • A. none; earnest money is exempt from asset verification
  • B. the account must now be documented, including any deposits inside the window
  • C. the earnest money must be returned and re-paid from a verified account
  • D. the loan officer must issue a revised Loan Estimate

13. Which asset requires the file to establish that the borrower is permitted to access the money before it can be counted for closing?

  • A. a money market account
  • B. a certificate of deposit
  • C. an employer-sponsored retirement account
  • D. a savings account held jointly with a spouse who is also a borrower

14. Short answer. A borrower's 401(k) shows a \$70,000 balance: \$48,000 in employee contributions and \$22,000 in employer contributions that are 50% vested. What is the vested balance, and what document do you request next?

15. A program applies a discount to a non-liquid asset's value. The reason is:

  • A. to penalize borrowers who do not hold cash
  • B. to account for taxes, penalties, and market movement between the statement and closing
  • C. to reduce the loan amount
  • D. to satisfy the Real Estate Settlement Procedures Act

16. Proceeds of a digital-asset sale that land in a borrower's checking account are:

  • A. exempt from sourcing because the exchange records exist
  • B. a large deposit like any other, requiring documentation of the sale and the transfer
  • C. never usable on any program
  • D. usable only if the borrower still holds an equivalent balance on the exchange

17. Before business funds may be used, most programs require the file to establish (choose the best answer):

  • A. the borrower's ownership percentage only
  • B. that the business is profitable
  • C. access to the funds, and that the withdrawal will not harm the business
  • D. that the business account has been open at least two years

18. Short answer. Name the double-counting error a loan officer can commit with a self-employed borrower's business account, and say why an underwriter finding it is worse than the original asset question.

19. On the Linden Street file, gross monthly income is \$10,500.00. How many dollars of new monthly obligation add one percentage point to the back-end ratio?

  • A. \$52.50
  • B. \$105.00
  • C. \$210.00
  • D. \$1,050.00

20. A \$4,900 deposit that cannot be sourced is backed out of verified funds. Verified assets fall from \$38,000.00 to \$33,100.00 against an unchanged cash to close of \$25,376.34. Reserves become approximately:

  • A. \$7,723.66, or 2.55 months
  • B. \$12,623.66, or 4.16 months
  • C. \$7,423.66, or 2.45 months
  • D. \$4,900.00, or 1.62 months

21. The cleanest way to transfer gift funds is:

  • A. cash handed to the borrower well before application
  • B. a personal check deposited into the borrower's account
  • C. a cashier's check purchased by the donor
  • D. a wire from the donor's account directly to the closing agent

22. Short answer. Explain, in two sentences, why a paper check deposited into a savings account creates a sourcing condition that the identical amount arriving by employer direct deposit would not.

23. A letter of explanation with no attachments:

  • A. satisfies most large-deposit conditions
  • B. satisfies the condition if signed and dated by both borrowers
  • C. tells you what document to request but clears nothing
  • D. is prohibited by Regulation B

24. Which of the following would a lender generally not count toward reserves?

  • A. a savings account balance remaining after closing
  • B. gift funds provided for the down payment
  • C. the discounted value of a brokerage account
  • D. a money market balance remaining after closing

25. Short answer. A borrower asks whether they should deposit \$9,400 of cash savings in several smaller amounts "so it doesn't look strange." State what you tell them and name the federal concern their suggestion touches.

26. Short answer. State, in one sentence each, what the following are and how each is verified: (a) sales proceeds, (b) bridge financing. Then say which one lands in the debt-to-income ratio and why.

Answer key **1. B.** A bank statement answers A in four seconds. The question that requires documentation is origin, because borrowed funds are a hidden obligation with a payment attached. (§12.2) **2. C.** Seasoning is time in the account; sourcing is documented origin. They fail independently — money can be seasoned and unsourceable, or unseasoned and perfectly sourced. (§12.2) **3. B.** It is thoroughly seasoned — it predates the documentation window, so nobody is looking at it. Currency can never be sourced because a third party cannot certify where it has been. Note that "seasoned" here means *unexamined*, not *proven*. (§12.2) **4. C.** The average balance for the preceding two months. It reveals recent arrivals without anyone having to read a transaction line. (§12.1) **5.** The current balance is four times the two-month average, so a substantial amount of money arrived recently — what was it, and where did it come from? (Acceptable variants: "what is the large deposit and can it be sourced?") (§12.1) **6. C.** Months of PITI. Dollars say nothing about a particular household; months answer "how long could they keep paying if the income stopped?" (§12.8) **7. C.** \$12,623.66 ÷ \$3,033.72 = 4.16 months. (Distractor A is the figure after a \$5,200 payoff; D is the same dollars measured against their old \$1,850.00 rent.) (§12.8) **8. B.** No repayment expected, in any form. The absence of a written agreement does not make an expected repayment a gift. (§12.4) **9. C.** A party who is paid when the sale closes. Such a "gift" is a price concession routed through a bank account and corrupts the sales price and the loan-to-value. (§12.4) **10.** Amount; donor identity and contact information; relationship to the borrower; the subject property; the express statement that no repayment is expected in any form; signatures and date. (Programs vary and some also require the donor's source account — verify.) (§12.4) **11. B.** Both at once. It reduces cash to close *and* it left an account, so the underwriter wants to see it leave. (§12.7) **12. B.** The account is now part of the file, with its statements and whatever deposits are inside them. The fifteen-second preventive question at application is "which account is the earnest money coming out of?" (§12.7) **13. C.** A retirement account. Many employer plans do not permit in-service withdrawals; the terms of withdrawal document answers it. (§12.5) **14.** \$48,000 + (50% × \$22,000) = \$48,000 + \$11,000 = **\$59,000 vested**. Next: the plan's terms of withdrawal, to establish whether the borrower may access it at all. (§12.5) **15. B.** Taxes, penalties, and market movement between the statement date and closing. The discount percentage varies by program and asset type and changes — verify, and quote the borrower the discounted figure. (§12.5) **16. B.** Converting does not source anything. You still need the exchange records showing what was sold, when, and by whom, plus the transfer and the deposit. Whether a program accepts digital assets at all varies and is changing — verify the guide and then the lender's overlay. (§12.5) **17. C.** Documented access — ownership percentage and, where relevant, other owners' consent — and evidence that the withdrawal will not harm the business, since the business is the source of the qualifying income. Requirements vary; verify. (§12.6) **18.** Counting the same dollars as income *and* as an asset. It is worse because an underwriter who finds it reopens the income calculation, which is a far larger problem than the asset question the loan officer was trying to solve. (§12.6) **19. B. \$105.00.** One percent of \$10,500.00. Divide gross monthly income by 100 and you have the price of a percentage point on any file. (§12.3) **20. A.** \$33,100.00 − \$25,376.34 = \$7,723.66; ÷ \$3,033.72 = 2.55 months. (C is the post-payoff figure from §12.8, not this one.) (§12.3) **21. D.** Donor's account directly to the closing agent. The money never touches the borrower's bank, so there is no large deposit to source at the borrower's end — one wire confirmation and the closing agent's receipt. (§12.4) **22.** An ACH or direct deposit carries the counterparty's identity — the employer's name — into the statement description automatically. A deposited paper check posts as the single word "DEPOSIT," with no payer, no account, and no institution, so the statement itself supplies no source. Same money, different documentation burden, purely because of how it arrived. (§12.3) **23. C.** The letter is the narrative; the documents are the evidence. Underwriters do not disbelieve letters — they cannot rely on them, because the author is the person whose money is in question. (§12.2) **24. B.** Gift funds. A gift is money for the transaction, not evidence the household can weather a bad month. Programs differ; verify — and note that on the Linden Street file the question is moot because the gift is fully consumed at closing. (§12.8) **25.** Tell them to deposit it in one transaction, and that the fix for cash is time rather than technique — it must sit long enough to fall outside the documentation window, which may move the purchase timeline. Their suggestion describes **structuring**, which is a federal crime under the Bank Secrecy Act, separate from and regardless of whether the money itself is entirely legitimate. Never suggest it, and never treat cash savings as a signal about the borrower's character. (§12.10) **26.** (a) **Sales proceeds** — net cash from the sale of a property the borrower owns, verified by the final settlement statement from *that* closing, never by a listing agent's estimate. (b) **Bridge financing** — short-term borrowing, usually secured by the departing residence, used to fund the down payment before that residence sells. Bridge financing lands in the debt-to-income ratio because it is openly borrowed money with a payment; unless a program specifically excludes it, that payment counts. Verify. (§12.9)