Chapter 10 - Real Estate Finance Flashcards
1
Q
Principal
A
Original amount of the loan borrowed that must be repaid by the end of the loan term.
2
Q
Home Loan Interest
A
The charge in dollars for the use of money over a period of time / The amount that the lender charges for providing the loan, which is typically expressed as a percentage of the original loan amount
3
Q
Loan Amortization
A
The liquidation of a financial obligation on an installment basis (i.e., Process of reducing/paying off a debt by making regular payments over the time period/term of the loan)
4
Q
Debt Service
A
amount of funds needed to repay the interest and principal on the loan for a particular time period
5
Q
PITI
A
Principal, Interest, Taxes, and Insurance - typically represents the full amount of a monthly mortgage payment, which includes the escrow amount for real estate taxes and homeowner’s insurance
6
Q
Equity
A
value of your home less the amount that remains on your mortgage
7
Q
Usury
A
illegal practice of lending money at an unreasonably high interest rate (greater than that permitted by law)
8
Q
Discount / Mortgage Points
A
The amount of money the borrower must pay the lender to get a mortgage at a stated interest rate (i.e., prepaid interest, “buying down the rate” - fees that can be paid directly to the lender at the time of the loan closing that will reduce the interest rate.)
- -On a typical mortgage, a lender usually reduces the interest rate of the loan by 1/4% per point paid. Homeowners can usually purchase 1 point for 1% of the original mortgage amount (NOT the purchase price).
- -The borrower does not have to opt-in to paying discount points, but doing so will reduce their monthly loan payments since their interest rate will be lowered.
9
Q
Rate of Return / Yield
A
amount of annual income from an investment, which is typically expressed as a %. OR The interest earned by an investor on an investment (or by a bank on money it has loaned).
10
Q
Loan Origination Fees
A
expenses the mortgage lender charges for setting up, securing, and closing a home loan - these fees pay for all the research and setup of the home loan by the lender for the borrower. These fees are required to be disclosed on the Good Faith Estimate and they include expenses such as reviewing the loan app, verifying info, pulling credit reports, the appraisal fee, origination fee, processing/underwriting fee, flood certification fee, and tax service fee.
–Vary by lender, but are typically 0.5% - 1% of the home loan (NOT the purchase price)
11
Q
Loan Value
A
amount of money that the borrower receives that s/he must repay
12
Q
Federal Home Loan Mortgage Corporation (FHLMC) (Freddie Mac)
A
An independent stock company which creates a secondary market in conventional residential loans and in FHA and VA loans by purchasing mortgages.
13
Q
Federal National Mortgage Association (FNMA) (Fannie Mae)
A
A New York stock exchange company. It is a public company that operates under a federal charter and is the nation’s largest source of financing for home mortgages. Fannie Mae does not lend money directly to consumers, but instead works to ensure that mortgage funds are available and affordable, by purchasing mortgage loans from institutions that lend directly to consumers.
14
Q
Federal Reserve System - “The Fed”
A
The federal banking system of the United States under the control of central board of governors (Federal Reserve Board) involving a central bank in each of twelve geographical districts with broad powers in controlling credit and the amount of money in circulation.
15
Q
Government National Mortgage Association (GNMA) (Ginnie Mae)
A
A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD) that guarantees securities backed by mortgages that are insured or guaranteed by other government agencies.
16
Q
Primary Mortgage Market
A
The marketplace whereby loans are originated.
17
Q
Secondary Mortgage Market
A
The market where lenders sell their loans to the large secondary marketing agencies (FNMA, FHLMC, and GNMA) or to other investors.
18
Q
Promissory Note
A
Following a loan commitment from the lender, the borrower signs a legally binding note, promising to repay the loan under stipulated terms. The promissory note establishes personal liability for its payment (The evidence of the debt.) and outlines the terms of the loan, such as the amount, interest rate, and due dates.
19
Q
Acceleration Clause
A
A condition in a real estate finance instrument giving the lender the power to declare all sums owed to the lender immediately due and payable upon the happening of an event, such as sale of the property, or a delinquency in the repayment of the note.
20
Q
Amortized Loan
A
A loan to be repaid, interest and principal, by a series of regular payments that are equal or nearly equal, without any special balloon payment prior to maturity.
21
Q
Escalator Clause
A
The right reserved by the lender to increase the amount of the payments and/or interest upon the happening of a certain event. Specific conditions for this clause will be listed, such as cost of living increases.
22
Q
Prepayment Penalty
A
The charge payable to a lender by a borrower under the terms of the loan agreement if the borrower pays off the outstanding principal balance of the loan prior to its maturity. Penalty cost is usually a percentage of the amount borrowed of a certain number of months’ worth of interest payments.
–interest is how lenders make money
23
Q
Secured vs. Unsecured Loans
A
- -Secured loans are backed by collateral (for example, with home buying, collateral is generally the home itself)
- -Unsecured loans are given based on personal credit history & financial security of an individual (for example, credit cards and personal loans are unsecured)
24
Q
Straight Note / Term Loan / Interest-only Loan
A
A non-amortizing loan in which a borrower repays the principal in a lump sum at maturity (balloon payment) while interest is paid in installments or at maturity. These loans are beneficial to borrowers unlikely to remain in their home for a long time, but they end up paying higher interest rates. The borrower must be confident in one of the following:
- -s/he will be able to pay off the principal in full at the end of the term
- -s/he will be able to sell the home to repay the loan at the end of the term
- -s/he will be able to secure a traditional home loan at the end of the term to pay off the term loan
25
Full vs. Partial Amortization
Full amortization - amount of interest & principal paid by the borrower is spread out over the entire term of the loan, with each monthly payment, and the principal is reduced to $0 at the end of the loan (initially more is paid towards interest, but towards the end, the borrower is paying more towards principal)
Partial amortization - accrued interest and some of the principal is paid during the loan term, but not enough for the loan balance to be $0 at the end. The final payment of the principal balance at the end of the term is referred to as a balloon payment.
26
Alienation Clause (aka Due-on-Sale Clause)
A clause in a contract giving the lender certain rights in the event of a sale or other transfer of a mortgaged property. Provides protection to the lender and prevents the borrower from assigning the loan's debt to another person without the lender's prior approval (i.e., when home is sold, loan is paid in full; new home buyer will need to obtain their own loan).
27
Assignment
The transfer to another of any property in possession or in action, or of any estate or right therein. A transfer by a person of that person’s rights under a contract, but not the title.
EX: all of the interest in the original loan being transferred to another bank - it is very common for banks to "sell" mortgages in order to free up assets
28
Assignment of Rents
A provision in a mortgage or deed of trust under which the lender may, upon default by the trustor, take possession of the property, collect income from the property's tenants, and apply it to the loan balance and the costs incurred by the lender.
29
Assumption of Mortgage
The taking of a title to property by a grantee wherein the grantee assumes liability for payment of an existing note secured by a mortgage or deed of trust against a property, becoming a co-guarantor for the payment of a mortgage or deed of trust note.
- -lender is given this right, borrower is not
- -buyer takes over the mortgage loan, with the lender's permission, and takes primary responsibility for it from that time forward. The seller may also retain a secondary liability unless the lender agrees to a novation (transfer of the responsibility of the loan to the buyer)
30
Default
Failure to fulfill a duty or promise or to discharge an obligation.
EX: failure to make on-time home loan payments
31
Defeasance Clause
The clause in a mortgage that gives the mortgagor the right to redeem the mortgagor’s property upon the payment of the mortgagor’s obligations to the mortgagee. States that the borrower is given full title to the property once they've satisfied all terms of the mortgage and repaid the loan.
32
Hypothecate
To pledge a thing (real estate) as security (collateral) without the necessity of giving up possession of it.
33
Mortgage
A legal instrument recognized by law by which property is hypothecated (i.e., pledged) to secure the payment of a debt or obligation.
- -piece of paper that home buyer signs and gives to his/her lender, creating a lien on the home
- -outlines the amount of money borrowed, interest rate, and other details such as the right of the lender to take possession of their property upon default and the obligation to pay property taxes and insurance
34
Mortgagee
One to whom a mortgagor gives a mortgage to secure a loan or performance of an obligation; a lender or creditor. They do not hold title of the home, but can utilize the mortgage to obtain ownership should a default occur.
--Right to foreclose, take possession of the property after foreclosure, and assign the mortgage (generally done in the secondary market)
35
Mortgagor
One who gives a mortgage on his or her property to secure a loan or assure performance of an obligation; a borrower.
--Responsible for payment of debt, home insurance, and real estate taxes; maintaining the property's value; and obtaining permission from the lender before making significant change to the property (i.e., home additions or significant renovations)
36
Satisfaction of Mortgage (Release of Mortgage)
The discharge of a mortgage from the public records upon payment of the debt. Once the legal recording of the transaction is public (lender's responsibility to file mortgage with the county's clerk), the borrower owns the property free and clear of any loan.
37
Mortgage/Deed of Trust vs. Home Loan
a mortgage/deed of trust is the legal process/document involved in securing a home loan and legally tying its value to the home as collateral (basic IOU to the lender), whereas, a home loan is the financial product/transaction used to make the home purchase and the money owed that must be paid back
38
Lien Theory State
home buyer holds the deed to the property during the term of the loan, retaining both legal and equitable title; as a result, the foreclosure process is much more difficult for the lender. While it's possible for the lender to foreclose, it's a more complex process because the home buyer maintains legal ownership and title to the property thru out the loan term. Lien theory state are states with mortgages--home used as collateral!
39
Title Theory State
The buyer signs a Deed of Trust, making the lender the beneficiary in the agreement and the trustee holder of legal title to the property. The borrower retains equitable title, but gives away legal title. The third-party trustee holds legal title of the deed of trust and can process the sale of the home should default occur. There is no legal proceeding in a courtroom, speeding up the foreclosure process
40
Escrow Account
reserve account for taxes and insurance, controlled by the lender, that collects funds with each payment the borrower makes, that are held to pay home insurance or real estate taxes on the property. Commonly found clause when a home buyer purchases the property with a down payment < 20%. The lender will make these payments on time to protect the property.
41
Judicial Foreclosure
Occurs when the mortgage lender files documentation with the court system requiring that property be sold to satisfy a mortgage lien in a lien theory state. Lengthy & costly process for the lender.
--Exercised in WI, IL, IA, IN
Ex: if the mortgagor defaults on the loan, the lender can foreclose on the property by going thru the courts.
42
Beneficiary in a deed of trust
The lender on the security of a note and deed of trust.
43
Trustee in a deed of trust
The third party under a deed of trust who own legal title to the property. If the buyer defaults on the loan, the trustee will sell the property at an auction. Sometimes, the trustee is an escrow company.
44
Trustor in a deed of trust
One who borrows money from a trust deed lender, then deeds the real property securing the loan to a trustee to be held as security until the trustor has performed the obligation to the lender under terms of a deed of trust (i.e., home buyer)
45
Mortgage vs. Deed of Trust
- -Depends on the state
- -Mortgage transaction involves 2 parties; whereas a deed of trust transactions involves 3 parties
- -Foreclosure Process: In a deed of trust state, court system is not used directly, but a non-judicial foreclosure process is used--much more affordable and quicker for the lender. Borrower has very limited time to take action once the trustee sends them a warning letter of missed payment and auctions off the property. In a mortgage state, the court system is used for foreclosure and the buyer is favored.
46
Non-judicial foreclosure ("power of sale")
if the trustor (borrower) defaults on the loan, the beneficiary (lender) can foreclose on the property without going through the courts in deed of trust states. Lender favored!
- -exercised in MI, MN, NB
- -quicker process for the lender
- -less expensive for the lender
47
Junior Mortgage
A mortgage recorded subsequently to another mortgage on the same property or made subordinate by agreement to a later- recorded mortgage.
Ex: second mortgage or home equity line of credit
48
Priority of Lien
The order in which liens are given legal precedence or preference --> tax liens, special assessments, then mortgage liens
49
Recording
The process of placing a document on file with a designated public official for public notice in the county in which the property is located. Mortgages and deeds of trust get recorded; promissory notes do not get recorded by the title agency or lender.
50
Subordinate
the process in which the holder of a lien can change their priority through an agreement; The make subject to, or junior or inferior to. In some situations, a lender will demand this in order to have a higher priority and to reduce risk.
51
Subordination Agreement
An agreement by the holder of an encumbrance against real property to permit that claim to take an inferior position to other encumbrances against the property.
52
How do lenders determine how much risk a particular borrower presents?
Lenders want to balance risk with reward - they do so by analyzing the creditworthiness of a borrower - just how likely is this borrower to make payments on time and continue on with the loan for the entire length.
53
How do lenders make money?
Through interest and loan origination fees
54
What factors affect interest rates offered?
- -Term of the loan
- -Type of loan
- -Loan Amount (LTV Ratio)
- -Lender's cost to borrow money (Federal Funds Rate) - amount of interest banks charge each other to borrow or move money back and forth.
55
Pre-Approval
A step above pre-qualification, an evaluation of a potential borrower by a lender that determines whether the borrower qualifies for a loan from the lender, or the maximum amount that the lender would be willing to lend.
- -home buyer fills out a formal mortgage application, requiring a great deal of information (i.e., credit history, tax returns, income statements, debt, employment verification, etc.)
- -Neither the lender nor the borrower are committed to the loan, but a pre-approval letter is issued. Underwriters will still need to consider a specific home and the buyer's updated financials once you find the home.
56
Pre-Qualification
A process whereby a loan officer takes information from a borrower and makes a tentative assessment of how much the lending institution is willing to lend them.
- -lender will ultimately provide potential buyer with a pre-qualification letter stating the buyer is pre-qualified for a a loan and outlines the mortgage value.
- -Neither a promise of a loan or that the borrower is qualified for a loan yet because none of the buyer's personal finance information has been verified yet
57
Loan Commitment Letter
final step in the home buying process after underwriting is the bank issued letter to the home buyer telling them that they are approving their mortgage application. This is usually done after the home buyer has found a home they like and the bank is certain it will lend for the purchase of that specific home. Includes:
- -Description of the property
- -Amount of money to be borrowed
- -Who the home borrower is
- -Terms of the loan
- -Key conditions and contingencies
58
Underwriter
An individual at a lending institution who determines credit worthiness in order to qualify an applicant for a loan.
59
Underwriting
The criteria with which a lender determines the credit worthiness in order to qualify them for the loan.
- -capacity of the borrower - does this person have the financial resources to pay off home loan debt? Verifies employment records, assets owned, debt owed, credit history (repayment history), considers debt-to-income ratio, and considers collateral (value of the property being purchased should be high enough to cover the value of the loan)
- -Home buyer shouldn't do anything that could alter their credit report, income, or debts during the underwriting process (could take a few weeks or up to a few months)
60
Loan Commitment Letter Conditions to be Met
Conditions are specific steps that the parties involved must take before the loan can get final approval. These are often issued by the underwriter on the loan. As long as the conditions are met, the loan will move forward.
- -Proof of Mortgage Insurance
- -Proof of Homeowners' Insurance
- -Verification of debt being paid off
- -Proof that current home was sold
61
Property Closing
The loan is officially closed and in place during the physical signing of the documents with the home buyer. The closing of the property is only complete when the deed is then transferred by the home seller to the lender and the home buyer. That happens after the home buyer's lender funds the loan and sends the proceeds of the loan to escrow of the home seller directly.
62
Conventional Loan
A mortgage securing a loan made by investors without governmental underwriting, i.e., which is not FHA insured or VA guaranteed. This type of loan is customarily made by a bank or savings and loan association with guidelines in place from Fannie Mae and Freddie Mac
- -Typically requires a 20% down payment
- -More risk to the lender due to not being government backed; therefore, lenders will require stricter financial requirements and typically higher interest rates
- -More affordable from the viewpoint of the seller (no federal agency restrictions or required inspections)
63
Loan to Value Ratio (LTV)
The percentage of a property’s value (appraised value or sale price of the home, whichever of the two is less) that a lender can or may loan to a borrower.
- -amount of the loan that's requested compared to the appraised value of the home
- -LTV = Amount Borrowed / Appraised Value OR Sales Price (whichever is LESS)
- -tool for lenders to consider when assessing the amount of risk a borrower presents to the lender
- -calculation of how much risk is present when considering the amount of the loan requested compared to the value of the home
- - The higher the LTV, the lower the down payment & vice versa
64
Private Mortgage Insurance (PMI)
Mortgage guaranty insurance available to conventional lenders on the first, high risk portion of a loan (typically the first 20%) - PMI typically = 1/2 - 1% of the mortgage loan
- -Protects the mortgage lender; will pay the lender if and when the home itself is not worth enough to pay the lender for the total amount lost
- -How and when the lender will agree to the reduction and elimination of the PMI requirements depends on the lender's requirements and their decision about the borrower's qualifications
65
When there is a high Loan to Value Ratio (LTV), that means there is ____ risk to the lender than a lower LTV.
When there is a high Loan to Value Ratio (LTV), that means there is MORE risk to the lender than a lower LTV.
66
Fixed-Rate Mortgage
fully amortizing loan in which the interest rate on the note remains the same throughout the term of the loan.
- -monthly mortgage payments remain constant
- -principal part of each monthly mortgage payment increases over the term of the loan until the loan is fully amortized (and interest part will gradually decrease)
- -interest rates tend to be initially higher than adjustable rate and interest-only mortgages
67
Adjustable Rate Mortgage (ARM) / Variable-rate or Floating Mortgage
mortgage loan which bears interest at a rate subject to change during the term of the loan, predetermined or otherwise
- -initial monthly mortgage payments are calculated as if the loan is a 30 year fixed-rate mortgage (lower interest rates and payment requirements to start)
- -monthly mortgage payment increases once the interest rate adjusts and until the interest rate cap is reached
- -recommended for home buyers not planning on staying in your home for a minimum of 5-10 yrs
- -in times where interest rates are decreasing, adjustable rate mortgage borrowers are not required to refinance their loans in order to take advantage
- -RISKIEST type of mortgage because mortgage payment changes at an unpredictable rate, making it difficult to budget for.
68
Lifetime Interest Rate Cap on Adjustable-rate mortgages
maximum limit for the interest rate allowed
69
Negative Amortization Loan
occurs when the mortgage payment is not sufficient to cover the amount of interest accrued during the time period, meaning that the loan balance is actually increasing over time. The remaining unpaid accrued interest is added to the principal balance.
- -borrower must come up with cash to at least pay down the loan to less than the property's value before refinancing or selling or face considerably larger monthly payments
- -almost always involve adjustable interest rates
- -lower upfront costs
70
Periodic Interest Rate Cap on Adjustable-rate mortgages
maximum amount the interest rate can adjust once the initial interest rate period has passed.
71
Once the fixed-rate term has ended, an adjustable-rate mortgage interest rate will go up or down based on a predetermined ____ plus a set rate of ____
Once the fixed-rate term has ended, an adjustable-rate mortgage interest rate will go up or down based on a predetermined index plus a set rate of margin. Indices are likely to fluctuate over time (based on the LIBOR (London Interbank Offered Rate), 11th District Cost of Funds Index, or rates on one year constant maturity Treasury securities), whereas, the margin rate will remain the same (set by the lender).
72
FHA-Insured Loan
A mortgage loan in which payments are insured by the Federal Housing Administration.
- -3.5% down payment needed for 15-year or 30-year loans
- -Maximum 43% debt to income ratio
- -only available to first-time home buyers (some exceptions to this rule--i.e., home buyer who has not maintained a loan in the past 3 years)
- -only available for owner-occupied properties; not rental properties.
- -typically lower interest rates and fewer financial requirements (lower credit score required)
- -FHA requires the home to meet specific safety, security, and soundness standards--full FHA inspection will be necessary (pest, lead and mold free, safety railings, etc.)
- -if a home buyer obtains an FHA loan and defaults on it, the federal government covers some of those losses, limiting the impact on the lender
73
Mortgage Insurance Premium (MIP)
The amount paid by a mortgagor for mortgage insurance on an FHA-insured loan. 1.75% of the loan amount borrowed that must be paid up-front (or rolled into the mortgage) covering the life of the loan
74
VA Guaranteed Loan
A loan made to qualified veterans and their families for the purchase of real property wherein the Department of Veteran’s Affairs guarantees the lender payment of the mortgage.
- -more affordable, easier access
- -0% down, 100% financing available
- -interest rates are typically lower (less risk) and there are limits on closing costs (lower and may be paid by the seller)
- -no requirement for private mortgage insurance premiums
- -assumable, depending on the lender's requirements
- -minimum standards related to safety and health will be reviewed during the home inspection
75
Certificate of Eligibility
verification from the VA office that an individual has served in the Armed Forces or National Reserves, is currently serving actively or has been honorably discharged, and has served enough time to earn credit. This certification is needed to meet the specific eligibility requirements of a VA loan.
76
Reverse Mortgage Loan
This loan allows a homeowner who is 62 years old or older to borrow against the equity in his/her home while continuing to live in it. These loans are intended to help seniors age in their own homes and to qualify, a senior's name must appear on the title of the home and it must be his/her primary residence. The amount a senior can borrow is determined by their home's value, the amount they owe, and their age. These loans require no repayments until the home sells, the borrower leaves the home, or the borrower dies.
77
Strict Foreclosure
uses the court system, similar to judicial foreclosure, but occurs when the mortgage lender petitions the court and requests the borrower to be declared in default on their mortgage and allows the foreclosure process to begin
78
Deficiency Judgment
A judgment given by a court when the value of security pledged for a loan is insufficient to pay off the debt of the defaulting borrower--court ruling that the mortgage debtor must repay the outstanding balance that results from the difference between the funds from the sale of the home and the remaining balance from the mortgage
79
Deed in Lieu of Foreclosure
A deed to real property accepted by a lender from a defaulting borrower to avoid the necessity of foreclosure proceedings by the lender.
--legal transaction in which the property owner will transfer the title of that property to the lender - in exchange for this outright ownership, the homeowner is released from the home loan obligation
80
Foreclosure
Procedure whereby property pledged as security for a debt is sold to pay the debt in event of default in payments or terms.
81
Redemption in Foreclosure
Buying back one’s property after a judicial sale, making the home available to the homeowner prior to the sale of the home (not all states require this). This can be done by paying off the debt in full or paying off the purchase price of the home plus additional costs & interests
82
Short Sale
A distressed homeowner’s attempt to sell the real estate whereby the liens are greater than the value of the property.
- -property owner sells the home to a third party but does so at a rate that is less than what the total debt remaining on the home loan is
- -Lender must agree to final sales price!!!!
- -Homeowner must submit a loss mitigation application along with financial statements and questionnaires, proof of income, tax returns, hardship letter, etc. proving that they cannot continue to make payments
83
Mortgage Fraud
deliberate misrepresentation, misstatement, withholding, or omission of information and documentation in order to fund a real estate purchase. Any action that intentionally misrepresents an applicant's position in order to influence a financial institution's lending decision is considered mortgage fraud.
1. Fraud in order to create a profit
2. Fraud in order to obtain housing
1/123 mortgage applications involves some sort of mortgage fraud
84
Loan Servicing Costs
Portion of the mortgage loan payment paid to the lender for servicing the loan, including monthly statements, collecting payments, maintaining records, and taking care of any admin aspects of the loan.
85
Takeout Commitment
promise from the lender to offer your client permanent financing once they have satisfied the term of their interim loan or reached a certain milestone in their project - applies when your client has to take out a short-term interim loan that will eventually be changed to a traditional mortgage.
--Typical for home buyers who are building their own home or when someone has to pay for a new home before they sell their existing home
86
Estoppel Certificate
certificates signed by the tenant, verifying information about the lease agreement, particularly the amount of rent, the security deposit, and the length of their lease. Tenants also note if they have any grievances against their landlord or if their landlord owes them any money.
87
Buying a property "subject to purchase"
Property is subject to an existing mortgage - the buyer is taking over the seller's current mortgage without notifying the lender, so the seller is still legally responsible for the payment of the loan. The unpaid balance of the mortgage is counted as part of the buyer's purchase price.
88
Installment Sale Contract / Land Contract / Contract for Deed
seller financing in which the buyer agrees to pay the seller the purchase price for the property plus interest in installments over time, rather than all at once. With this type of agreement, the buyer takes possession of the property and equitable title immediately after the contract is signed; however, legal title continues to reside with the seller until the final payment has been made under the installment agreement.
- -good option for buyers that don't qualify for traditional financing and there are generally lower down payment requirements and closing costs
- -seller has the right to legally terminate the agreement, foreclose, and reclaim the property if the buyer defaults (quicker process than bank foreclosure)
- -seller also has the right to assign their interest to a 3rd party while the buyer is still making payments
89
Mortgage Calculator & Mortgage Payment Table
tools used to determine the monthly payment (principal + interest) on fully amortizing loans - need to know the loan amount, term, and interest rate in order to utilize the mortgage payment table:
1. Obtain the factor from the mortgage payment table
2. Divide the loan by $1,000
3. Multiply the factor by the previous number
90
Housing Expense Ratio / Front-end Ratio
- ratio underwriter uses to help determine if a borrower will qualify for a loan
- Total Monthly Housing Expenses / Total Gross Monthly Income
- only takes into account housing related expenses, such a monthly mortgage payments, property taxes, insurance, etc.
- According to FHA standards, borrower's total monthly housing expenses cannot > 31% of their gross monthly income
91
Debt-to-Income Ratio / Back-end Ratio
- ratio underwriter uses to help determine if a borrower will qualify for a loan
- takes into account all of borrower's monthly recurring financial obligations (i.e., student loans, car loans, credit cards, phone loan, etc.) in relation to their monthly income
- Total Monthly Expenses & Obligations / Total Gross Monthly Income
- According to FHA standards, borrower's total recurring monthly expenses & obligations cannot > 43% of their gross monthly income
