Mortgage Loan Originator (MLO) Licensing Practice Test

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In advertising for closed-end transactions, what does 'DP' stand for?

  1. Down payment

  2. Discount points

  3. Deposit of payment

  4. Debt payment

The correct answer is: Down payment

In the context of advertising for closed-end transactions, 'DP' commonly refers to a down payment. A down payment is the initial amount paid upfront when acquiring a property, which is typically expressed as a percentage of the total purchase price. This concept is crucial in mortgage transactions, as it signifies the borrower's investment in the property and affects the loan-to-value (LTV) ratio. A larger down payment generally results in lower LTV, which can lead to better loan terms, such as lower interest rates. In advertising, emphasizing the down payment amount can attract potential buyers by clarifying the investment required at the onset of a loan, helping them understand the financial commitment needed to proceed with a mortgage. This makes 'down payment' the most relevant and widely recognized interpretation of 'DP' in this context. The other meanings, while they may relate to financial transactions, do not correctly align with standard terminology used in mortgage advertising for closed-end transactions.