Ch 9.3

Question 1

Quizlet

Answer 1

https://quizlet.com/47205440/practices-chapter-9-section-3-flash-cards/

Question 2

Income verification
1)
2)

Answer 2

1. lender verification

2. Applicant documentation

Question 3

To verify an applicant’s income, the lender sends a(n) _____ form to the applicant’s employer (it contains a release signed by the loan applicant)

Answer 3

Income verification form

Question 4

In order to verify income, the applicant gives the lender ___ forms for the previous ___ years and ___ stubs/vouchers for the previous ___-day period.

Answer 4

W-2
2 years
Payroll
30

Question 5

How does the lender confirm the income information provided by the applicant is correct

Answer 5

The lender confirms the information in the W-2 and payroll stubs/vouchers with a phone call to the employer.

Question 6

Commission income is verified with copies of the applicant’s ____ income tax returns for the previous ___ years.

Answer 6

Federal

2 years

Question 7

Self-employment income may be verified with ____ financial statements and ___ income tax returns for the previous ____ years.

Answer 7

Audited
Federal
2 yeara

Question 8

Alimony or child support is verified with a copy of the court ____ and proof (such as ____ or photocopies of the ____) that the payments have actually been received

Answer 8

Decree
Bank statements
Deposited checks

Question 9

Rental income is verified with recent ___ tax returns; copies of current ___ may also be required.

Answer 9

Income

Leases

Question 10

A co-signer signs the _____ but not the ____ since she doesn’t have an ownership interest in the property.

Answer 10

Promissory note

Mortgage

Question 11

A co-borrower who won’t have an ownership interest in the property = a ____

Answer 11

Cosigner

Question 12

_____ = limits a lender sets to make sure the applicant’s proposed monthly mortgage payment and other debt payments don’t exceed a certain percentage of his stable monthly income.

Answer 12

maximum income ratios

Question 13

All monthly debt payments as a percentage of monthly income = _____ ratio

Answer 13

Debt to income

Question 14

Monthly PITI payment as a percentage of monthly income = ____ ratio

Answer 14

Housing expense to income ratio

Question 15

Monthly mortgage payments include ___, ___, ___, ___ (PITI)

Answer 15

Principal
Interest
Taxes
Insurance

Question 16

An income ratio is expressed as a ___

Answer 16

%

Question 17

There are two types of income ratios:
1)
2)

Answer 17

1) the debt to income ratio and

2) the housing expense to income ratio.

Question 18

A debt to income ratio measures the monthly ___ payment plus any other ____ debt payments against the monthly income

Answer 18

Mortgage

regular installment

Question 19

A housing expense to income ratio measures the monthly __ payment alone against the monthly ___.

Answer 19

Mortgage

Income

Question 20

if your buyer’s proposed mortgage payment (PITI) is $957 and her stable monthly income is $3,300, her housing expense to income ratio would be ___% (aka The mortgage payment equals ___% of her monthly income)

Answer 20

29%
——
$ 957 Mortgage payment
÷$3300 Monthly income
= 0.29% Housing expense to incom ratio
——
$3,300 Monthly income
x 0.29 Housing expense to incom ratio
=$957 Mortgage payment=Monthly income

Question 21

Each type of loan program has its own ____ ratios

Answer 21

Maximum income ratios

Question 22

general example to show you how income ratios work.

Henry is applying for a mortgage. His annual salary is $46,000. This year he made an extra $1,100 in overtime, but that has not been a regular part of his earnings pattern.

For the last three years, Henry received an annual bonus of $600. Now calculate Henry’s stable monthly income.

Assume that his annual salary is acceptable income because he has a stable employment history.

You cannot add the overtime; he has not received it regularly, so it would not be considered stable monthly income.

However, he has received the annual bonuses for the past three years. So add $600 to his annual income.

Now divide $46,600 by 12 to get a monthly figure. $46,600 divided by 12 is about $3,880. This is Henry’s stable monthly income.

$ 46,000 Annual salary
$ X,XXX Overtime pay
\+$ 600 Annual Bonus 
=$46,600 Annual income
÷ 12 Months in year
=$ 3,880 Monthly income

Now it’s time to apply an income ratio.

Suppose that for the type of loan Henry wants, the lender won’t allow a housing expense to income ratio over 28%.

$3,880 times .28 (or 28%) equals $1,086.

This is the maximum monthly housing expense that Henry would qualify for under the lender’s housing expense to income ratio.

$3,880 Monthly income
x .28 Income ratio
=$____ Maximum monthly housing expense to qualify

Answer 22

$1,086

Question 23

To calculate someone’s net worth, you simply subtract his ___ from his ___.

Answer 23

Liabilities

Assets

Question 24

Assets - Liabilities = ___

Answer 24

Net worth

Question 25

A lender will always look at a mortgage loan applicant’s income in terms of ____ income.

Answer 25

Monthly*

Income received on any other basis will be converted to monthly income.

Question 26

When determining if the applicant has enough income to make the proposed loan payments, a lender may apply both a 1) ___ ratio and a 2) ____ratio.

Answer 26

1) maximum housing expense to income

2) maximum debt to income