Texas Real Estate State Practice Exam

When can lenders deny traditional financing?

1. If income is commission based

2. If the borrower is from a certain geographic area

3. Based on credit score alone

4. If the property is located in a rural area

The correct answer is: If income is commission based

Lenders can deny traditional financing if a borrower's income is commission-based due to the variability and unpredictability that comes with such income. Commission-based income may make it challenging to ascertain a borrower's long-term earning potential since it can fluctuate significantly from month to month or year to year. As a result, lenders often require a more substantial history of income to ensure the borrower has the capability to meet mortgage repayments consistently. They may look for a stable income that can be easily verified and relied upon for sustained periods, which is why commission income can pose difficulty for potential borrowers in securing financing. In relation to the other choices, geographic location and the rural status of a property can influence financing options but are not outright disqualifications for traditional financing. Lenders typically cannot deny financing solely based on geographic location due to fair lending laws. Additionally, while credit scores are a critical factor in the loan approval process, decisions can involve multiple aspects of a borrower's financial profile rather than being based solely on the credit score.