Mortgage Loan Originator (MLO) Licensing Practice Test

Question: 1 / 605

In a completion escrow account, what is the minimum estimated repair cost that must be held in trust by a lender?

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90%

120%

In a completion escrow account, lenders typically require funds to be held in trust to cover anticipated repair costs associated with a property. The correct choice indicates that the minimum estimated repair cost that must be held in a completion escrow account is 120%. This ensures that there are sufficient funds available to not only cover the immediate estimated repairs but also any potential overruns that could arise during the repair process.

When estimating repair costs, it is prudent to build a buffer into the budget, hence the 120% requirement. This practice helps safeguard the lender’s investment by mitigating risks associated with cost overruns or unforeseen expenses related to the repairs. By maintaining a trust amount above the base estimate, it facilitates a smoother transaction and ensures that the property is adequately restored to meet the expected value.

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