Chapter 13: Application Analysis - Application Ratios Flashcards
How do you calculate the LTV of a 1st Mortgage?
LTV = Mortgage Amount / Property Value
How do you calculate the LTV of a 2nd mortgage?
LTV = 1st Mortgage Amount + 2nd Mortgage Amount / Property Value
How do you use LTV to calculate the maximum loan amount?
Maximum Loan Amount = LTV x Property Value
How do you calculate the Gross Debt Service Ratio?
What is it used for?
Verifying that a payment meets the lender’s GDS ratio:
GDS = ((PITH) + (1/2)(Condo fee) / Income) x 100
How do you calculate the Total Debt Service Ratio?
What is it used for?
Verifying that a payment meets the lenders TDS Ratio:
TDS = ((PITH) + (1/2)(Condo Fee) + Other Debts)) / Income) x 100
How do you calculate the Maximum Mortgage Payment using TDS?
Maximum Mortgage Payment = (Max TDS x Income) - Taxes - Heat - (1/2)(Condo Fee) - Other Debts
What is the Definition of Gross Debt Ratio?
A Debt service ratio that measures the amount of shelter (housing) payments in comparison to the amount of gross income, expressed as a percentage.
PITH = Principal + Interest + Taxes + Heat
PITH + (1/2)(condo fee) / Gross Income
What is the definition of Total Debt Service Ratio TDS?
A debt service ratio that measures the number of shelter payments (Pith, Condo fees) and other debt payments in comparison to the amount of gross income, expressed as a percentage.
What is something to keep in mind when calculating TDS when the objective of the mortgage is for a client to pay off debts?
Do not include in your calculation of the ratio the debts that the mortgage is going to be used to pay off.
What is the definition of Other Debts?
Other debts can be defined as other obligations that, if the borrower failed to make a payment, would require monies to be paid to another party.
Example: Car Loan, Credit Card, LOC
Not Other Debts: Insurance
