Ch 9 Quizzes Flashcards
To count as stable monthly income, THIS type of compensation must be an established part of the loan applicant’s workplace earnings.
Commisions
Why do underwriters sometimes count only a percentage of rental income as stable monthly income?
To take the potential for vacancies and uncollected rents into account
Since child support payments usually end when the child turns 18, an underwriter probably won’t count them as stable monthly income if the child is over ___
15
T/F: Only the income of the applicant spouses will be considered in determining the maximum loan amount. Income earned by other persons, such as children or parents, is not acceptable
True
T/F: A job that will terminate in the near future is considered temporary, UNLESS there is no termination date
A job that will terminate in the near future, EVEN IF there is no termination date, is considered temporary, and income earned at the job cannot be considered stable income.
T/F: In order to determine the income of an applicant who is paid every 2 weeks, a lender would multiply the amount of the applicant’s paycheck by 24 and then divide it by 12.
FALSE — multiply by 26 (52/2=26)
T/F: There are two commonly used income ratios:
1) the housing expense to income ratio; and
2) the maximum payment to income ratio.
False
1) debt to income ratio (which considers all of the borrower’s regular installment debts), and
2) the housing expense to income ratio (which considers the monthly mortgage payment alone)
T/F: When a lender calculates a loan applicant’s income ratios, the housing expense includes PITI
True
PITI - principal-interst-taxes-insurance)
T/F: A mortgage lender may require a borrower to have cash reserves after making the downpayment and paying the closing costs.
True
T/F: In evaluating a loan applicant’s net worth, a lender will generally prefer liquid assets such as real estate over non-liquid assets like stocks or bonds.
false
Lenders do prefer liquid assets, but real estate is not a liquid asset, since it may take months to sell.
Stocks and bonds are liquid assets, since they can usually be sold very quickly.
T/F: A house is currently appraised at $200,000. The owners owe $145,000 on the mortgage. If they were to sell the property, selling expenses would be approximately $20,000. Their net equity is about $75,000.
False
To calculate net equity, subtract selling expenses and the value of all encumbrances from the home’s present value. In this case, the net equity would be $35,000 ($200,000 - $145,000 - $20,000 = $35,000)
T/F: A buyer may use a gift of money form a relative toward a downpayment, if it is accompanied by a letter that states that the funds do not have to be reapid
True
If a loan applicant lacks the liquid assets to close a loan, a gift of money from the applicant’s relatives may be used to make up the deficit. The gift must be confirmed with a gift letter stating that the money does not have to be repaid.
____ = A pattern of continually increasing liabilities and periodic “bailouts” through refinancing and debt consolidation is a red flag to lenders.
It suggests that the loan applicant has a tendency to live beyond a prudent level
Consolidation
Refinancing and merger of personal debts = examples of ____
consolidation
Seizure of items of personal property after the buyer defaults on payments = ____
Repossession
