Finance - Donald Free School of Real...

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Finance

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Practical Application Pre-qualified - Buyer supplied information to the lender which is not verified and results in a rough estimate of price range.

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Practical Application Pre-approval - Includes an application and credit report and results in a specific loan amount for a specific buyer.

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Lender’s Criteria for making a loan 1.  Value of property as

determined by a professional appraisal.

2.  Buyer’s cash reserves for down payment, closing costs, and at least first few months of payments.

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Lender’s Criteria for making a loan 3.  Assurance that

monthly payments may be met:

•  Employment verifications or tax returns

•  Credit report

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Qualifying Ratios Front end ratio -compares monthly income to the monthly house payment.

Back end ratio - compares monthly income to the monthly house payment plus all other debt.

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Qualifying Ratios Manually Underwritten

Conventional loans: •  LTV exceeds 90%:

33% / 38%

•  LTV less than 90%: 31% / 43%

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Qualifying Ratios Manually Underwritten

FHA 31% / 43% VA loan 41% back end only

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Qualifying Ratios Automated Underwriting

Results in a higher debt to income ratio: Conventional loans 45% – 50%

FHA loans 50% - 55%

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Qualifying Ratios Automated Underwriting

Determines the maximum LTV ratios based on the merits of each individual borrower.

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Qualifying Ratios Front End Ratio Faye and Roger Roberts are applying for an FHA loan and want to borrow $145,000. Roger makes $52,000 per year and Fay works part-time earning $20,000 per year.

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Qualifying Ratios Front End Ratio

Their monthly payment will be $1,260 including principal and interest, taxes and insurance. The loan will be manually underwritten and the front end ratio should not exceed 31%.

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Qualifying Ratios Front End Ratio

Divide the monthly payment including principal interest, taxes and insurance by gross monthly income.

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Front End Ratio

Gross income: $52,000 + $20,000 = $72,000

$72,000 ÷ 12 = $6,000 $6,000 monthly income

Monthly payment: $1,260 ÷ $6,000 = .21 or 21%

Qualifying Ratios

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Qualifying Ratios Back End Ratio Faye and Roger have a car payment of $368 per month and Roger pays $800 per month in child support. The back end ratio should not exceed 41%.

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Qualifying Ratios Back End Ratio

Divide the monthly payment including principal, interest, taxes and insurance plus any other monthly charges by gross monthly income.

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Mortgage $1,260 Car payment $368 Child support $800 Total $2,428

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Total debt: $2,428 ÷ $6,000 = .4047 or 40.47%

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Student Narrative QUALIFYING PROBLEM

Click to Open and Complete the Interactive PDF

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Qualifying Worksheet 1.  Family Income (Gross Monthly)

__________________________________________ 2.  Family Installment Debts

______________________________________________________________________ Installment Debts SUBTOTAL: __________________________________________

3.  Family Housing Expense Monthly P & I: _________________________________________________________ Taxes: _______________________________________________________________ Insurance: ____________________________________________________________ PMI: _________________________________________________________________ Homeowners Assoc. Dues: _____________________________________________ Housing Expense SUBTOTAL: __________________________________________

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Qualifying Worksheet 1.  Family Income (Gross Monthly) ___ 56,000 + 40,000 = 96,000 ÷ 12 = 8,000 ______ 2.  Family Installment Debts

______________________________________________________________________ Installment Debts SUBTOTAL: __________________________________________


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__ Car Payment __ 366 _________ Credit Cards __ 621 _____________________ Installment Debts SUBTOTAL: ___________________ 366 + 621 = 987.00 ____


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3.  Family Housing Expense Monthly P & I: _______ 275,000 x .965 = 265,375 /.000 x 9.15 = 1,767.40 ____ Taxes: _______________________________________________________________ Insurance: ____________________________________________________________ PMI or MIP: ___________________________________________________________ Homeowners Assoc. Dues: _____________________________________________ Housing Expense SUBTOTAL: __________________________________________

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3.  Family Housing Expense Monthly P & I: _______ 275,000 x .965 = 265,375 /.000 x 9.15 = 1,767.40 ____ Taxes: ________________________________________ 3,720 ÷ 12 = 310.00 ____ Insurance: ____________________________________________________________ PMI or MIP: ___________________________________________________________ Homeowners Assoc. Dues: _____________________________________________ Housing Expense SUBTOTAL: __________________________________________

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3.  Family Housing Expense Monthly P & I: _______ 275,000 x .965 = 265,375 /.000 x 9.15 = 1,767.40 ____ Taxes: ________________________________________ 3,720 ÷ 12 = 310.00 ____ Insurance: __________________________________ 2,280.00 ÷ 12 = 190.00 ____ PMI or MIP: ___________________________________________________________ Homeowners Assoc. Dues: _____________________________________________ Housing Expense SUBTOTAL: __________________________________________

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3.  Family Housing Expense Monthly P & I: _______ 275,000 x .965 = 265,375 /.000 x 9.15 = 1,767.40 ____ Taxes: ________________________________________ 3,720 ÷ 12 = 310.00 ____ Insurance: __________________________________ 2,280.00 ÷ 12 = 190.00 ____ PMI or MIP: _____ 265,000 x .0175 = 4,644.0625 + 265,375 =

270,019.0625 x .0135 = 3,645.2573 ÷ 12 = _____ 303.77 ____ Homeowners Assoc. Dues: _____________________________________________ Housing Expense SUBTOTAL: __________________________________________

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3.  Family Housing Expense Monthly P & I: _______ 275,000 x .965 = 265,375 /.000 x 9.15 = 1,767.40 ____ Taxes: ________________________________________ 3,720 ÷ 12 = 310.00 ____ Insurance: __________________________________ 2,280.00 ÷ 12 = 190.00 ____ PMI or MIP: _____ 265,000 x .0175 = 4,644.0625 + 265,375 =

270,019.0625 x .0135 = 3,645.2573 ÷ 12 = _____ 303.77 ____ Homeowners Assoc. Dues: ______________________________________ 0 ____ Housing Expense SUBTOTAL: _____________________________ 2,571.17 ____

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Qualifying Worksheet 4.  Analysis:

Family Housing Expense _______ 2571.17 _______ ÷ _______ 8,000 _________ = _____ 0.321396 or >29% ______ Total Housing Expense #3 Total Monthly Income #1 5.  Analysis:

Total Living Expense ______________________ ÷ _______________________ = _____________________________ Total Housing Expense Total Monthly Income #1 Total Monthy Debt (#3 ÷ #2)

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Qualifying Worksheet 4.  Analysis:

Family Housing Expense _______ 2571.17 _______ ÷ _______ 8,000 _________ = ____ 0.321396 or >29% ______ Total Housing Expense #3 Total Monthly Income #1 5.  Analysis:

Total Living Expense _______ 3,358.17 _______ ÷ _______ 8,000 _________ = _____ 0.44477 or >41% ______ Total Housing Expense Total Monthly Income #1 Total Monthy Debt (#3 ÷ #2)

They Do Not Qualify on the Front End or the Back End

Finance - Donald Free School of Real...

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