Chapter 12 - Mortgage Underwriting And Borrower Qualification Flashcards
Lending value is:
A long term conservative estimate of the value of the property pledged as security for a loan.
Define mortgage loan default insurance
Mortgage loan default insurance insures the lenders in the event where the borrower can’t make his loan payments.
What is the purpose of a safety margin?
Safety margin ensures that the Net Operating Income (NOI) of a property is sufficient to cover the required mortgage payments.
Property Valuation (LTV formula)is capital Risk
Income is default risk
Gross Debt Service Ratio is equal to the percentage of GROSS INCOME income that is the maximum amount a MORTGAGOR is allowed to Pay Annually in principal interest, PROPERTY taxes.
The percentage of lending value which determines the maximum loan available is known as the loan to value ratio.
True
What is a sub prime mortgage?
A mortgage that is granted to a loan candidate who is considered high risk due to a combination of poor or limited credit rating, non verifiable income, previous consumer proposal and/or bankruptcy
Character, Capital, Capacity, Credit, and Collateral are known as the Five C’s of Credit.
True
Which of the following best describes debt service?
1) the making of mortgage payments by the borrower
2) the initiation of a mortgage loan
1) the making of mortgage payments by the borrower
What is an arms length transaction
Is a transaction in which the parties are not inclined toward making voluntary concessions to each other.
Define Credit Analysis
A credit analysis is an investigation of a loan applicants ability to repay a potential loan.
What is Borrower Residential Mortgage Qualification Formula
The lower of:
Maximum Mortgage Amount = Lending Value x LTV%. (Loan to Value %)
or
Find Maximum PMT: = (Income x GDSR) less Property Taxes.
Acronym PIGS
Use this Pmt amount to find PV of loan.
Income x
Gross income Gross Debt Service Ratio (GDSR) LESS Property Taxes
What is Borrower Commercial Mortgage Qualification Formula
The lower of:
Maximum Mortgage Amount = Lending Value x LTV%. (Loan to Value %)
or
Find Maximum PMT: = (Income divided by DCR
Acronym PIGS
Use this Pmt amount to find PV of loan.
Income (NOI) / yDebt Coverage Ratio (DCR)
5 Cs of Credit in qualifying
1/ Character - will borrower repay the loan , employment, length of residence, educational background
2/ Capital - how much money the borrower personally will invest in property
3/ Capacity - can borrower repay the loan. Lending constraints, debt service ratio
4/ Credit - what is the borrowers credit / repayment history
5/ Collateral- what is the additional security for the loan
Real property is pledged as security for loan
Two Constraints in Residential Borrowing
LTV and
- Gross Debt Service Ratio (GDSR) (Default Risk)
Loan to Value
— capital risk
— federally set @ 80% of LENDING VALUE Above this need mortgage insurance
- Lending Value times 80%
- PMT = (Income x GDSR)— Taxes
SECOND Mortgage
TDGSR. To calculate 2nd Mtg. Usually 40%
Pmt = (income x 40%) - taxes - 1st Mtg PMT.
- don’t forget to compare to Lending Value Constraint
Commercial
Lending Value x LTV Ratio
NOI divided by DCR
