Mortgage Loan Originator (MLO) Licensing Practice Test

To determine the mortgage amount one should subtract which value from the purchase price?

1. Appraised value

2. Down payment

3. Monthly income

4. Total loan amount

The correct answer is: Down payment

To determine the mortgage amount, one subtracts the down payment from the purchase price. The down payment is the portion of the purchase price that the buyer pays upfront out of their own funds. By subtracting this amount from the total purchase price, you arrive at the amount that needs to be financed through a mortgage loan. This understanding is crucial, as it dictates how much money the borrower will need to borrow to complete the home purchase. In contrast, the appraised value refers to the value determined by a qualified appraiser based on various factors, but it does not directly affect the mortgage calculation unless it is lower than the purchase price, which could influence loan approval or terms. Monthly income is relevant for assessing affordability or qualification but not for determining the loan amount itself. The total loan amount, while it reflects the final mortgage amount needed after the down payment is accounted for, is derived from this subtraction process and not used in the initial calculation. Thus, focusing on the down payment as the value being subtracted is a fundamental step in establishing the mortgage amount.