Chapter 17 Flashcards
What will be the maximum loan granted on a commercial building with a lending value of $5,550,000 and yielding a net operating income of $360,000 per year, where the lender requires a debt coverage ratio of 1.35 and a 60% loan-to-value ratio. The loan will be amortized over 20 years with annual payments and the interest rate is 7% per annum, compounded annually. Round your answer to the nearest $1,000.
(1) $2,814,000
(2) $3,330,000
(3) $3,592,000
(4) $2,825,000
4
Allison Gunther, a prospective home buyer, has applied for a mortgage loan to finance the purchase of a townhouse listed at $276,000. The market value of the townhouse is $275,000 and the lender has assigned a $270,000 lending value to it. The lender requires a loan-to-value ratio of 80%. Calculate the maximum loan allowable under the lender’s loan-to-value ratio constraint.
(1) $220,000
(2) $216,000
(3) $221,000
(4) $225,000
2
Brad Jones, a prospective home buyer, has applied for a mortgage loan to finance the purchase of a townhouse listed at $276,000. The market value of the townhouse is $275,000 and the lender has assigned a $270,000 lending value to it. Assume that the monthly payments on Mr. Jones’ loan are agreed to be
$1,120 and annual property taxes are $2,500. Calculate the minimum level of the borrower’s annual income necessary to support these monthly payments, if the lender’s gross debt service ratio is 32%.
(1) $50,000.00
(2) $75,000.00
(3) $49,812.50
(4) insufficient information to calculate
3
A pre-approved mortgage for a residential property:
(1) will always guarantee the borrower’s interest rate for 365 days.
(2) calculates the minimum loan that the borrower qualifies for.
(3) is based on the borrower’s current financial situation and a satisfactory credit review.
(4) is based on a formula provided by the Fair Isaac Corporation
3
Which of the following are included in the residential borrower qualification process?
A. the collection of information about the borrower and the property
B. the evaluation of the applicants’ ability to meet the terms of a mortgage and the amount of their income
C. the analysis of the real property pledged as security for the loan
D. the analysis of the applicants’ credit report
(1) A and C only
(2) B and C only
(3) A and D only
(4) All of the above
4
A property is listed for $133,333 but the market value, as estimated in a recent appraisal, is $127,500. The property’s lending value is estimated to be $120,000. Jay and Joan purchase the home for $128,500 subject to mortgage of $84,000.
What loan to value ratio was applied by the lender with whom Jay and Joan negotiated the mortgage? (Assume that the loan to value ratio was the binding constraint on the loan size.)
(1) 67.5%
(2) 70%
(3) 72%
(4) 75%
2
Flower Garden Company wants to borrow money to build a head office building in Victoria. The company plans to occupy one floor of the building and rent out the rest. They project that the building’s net operating income for the next five years will be $600,000 per year. Current mortgage terms on office building projects are j1 = 5.5%, amortized over 20 years with quarterly payments. Orca Bank feels that Flower Garden Company is optimistic in their net operating income projections and has therefore set the required debt coverage ratio at 1.4. Which of the following represents Flower Garden’s maximum allowable loan (rounded to the nearest $1,000).
(1) $7,218,000
(2) $5,226,000
(3) $4,043,000
(4) $10,243,000
2
If Jeff applies for a mortgage loan with gross income of $3,000 per month, property taxes are estimated at
$200 per month, and the lender’s permitted gross debt service ratio is 30%, what can Jeff afford to pay for monthly principal and interest?
(1) $840
(2) $750
(3) $700
(4) $620
3
Given the following information, calculate the minimum annual income a buyer must have in order to qualify for a $42,500 loan.
Interest rate: 11 1/4% per annum, compounded semi-annually
Term: 5 years
Amortization period: 25 years
Payments: Monthly
Maximum Gross Debt Service Ratio: 27%
Property Taxes: $600 per annum
(1) $20,728.89
(2) $18,506.67
(3) $19,490.52
(4) $5,596.80
1
Jason Buyer offers $345,000 to purchase a house, subject to obtaining an acceptable first mortgage. A lender has appraised the property at $340,000, requires an 80% loan to value ratio, and a 28% gross debt service ratio. Property taxes are $2,200 per annum and Mr. Buyer’s gross income is $75,000 per year.
What is the maximum amount (rounded to the nearest dollar) this lender will advance if the interest rate is j2 = 5%, the amortization period is 25 years, and payments are made monthly?
(1) $272,000
(2) $269,370
(3) $275,280
(4) $267,420
2
A property is listed for $133,333 but the market value, as estimated in a recent appraisal is $125,000. The property’s lending value is estimated to be $120,000. Jay and Joan purchase the home for $128,500 subject to a mortgage of $84,000.
What loan-to-value ratio was applied by the lender with whom Jay and Joan negotiated the mortgage? (Assume that the loan-to-value ratio was the binding constraint on the loan size.)
(1) 67.5%
(2) 70%
(3) 72%
(4) 75%
2
A potential borrower with an annual income of $58,000 and property taxes of $2,000 per annum has been told by a mortgage lender that the largest loan available will be $190,451. What is the maximum gross debt service ratio allowed by the lender given that the loan has monthly payments and is to be written at 5.5% per annum, compounded semi-annually and amortized over 25 years?
(1) 25%
(2) 27.5%
(3) 28.5%
(4) 30%
2
Lenders who are attempting to ration mortgage funds could:
(1) decrease their gross debt service ratio.
(2) decrease their interest rate on mortgage loans.
(3) increase their maximum loan to value ratio.
(4) increase the maximum amortization period available on mortgage loans.
1
What will be the maximum loan granted on a commercial building with a lending value of $3,500,000 and yielding a net operating income of $360,000 per year, where the lender requires a debt coverage ratio of 1.25 and an 80% loan-to-value ratio. The loan will be amortized over 20 years with annual payments and the interest rate is 7.5% per annum, compounded annually. Round your answer to the nearest $1,000.
(1) $2,936,000
(2) $2,800,000
(3) $3,036,000
(4) $2,590,000
2
With respect to an insured mortgage loan, which one of the following statements is FALSE?
(1) Default insurance is paid for by the borrower.
(2) The borrower can add the premium to the mortgage amount.
(3) If the borrower defaults, the insurance company will guarantee that the lender will recover all capital invested.
(4) The lender has only the personal covenant of the borrower and the value of the property for security.
4
The loan-to-value ratio is the ratio of:
(1) the annual payments on the loan divided by the market value of the mortgage.
(2) the actual amount of the mortgage (the amount paid to the borrower net of bonus or brokerage fees) divided by the actual value of the property.
(3) the market value of the mortgage divided by the market value of the property.
(4) the face value of the mortgage loan divided by the lending value of the property.
4
Given the following information, calculate the minimum annual income a buyer must have in order to qualify for a $150,000 loan.
Interest rate: 4.75% per annum, compounded semi-annually
Term: 5 years
Amortization period: 25 years
Payments: Monthly
Maximum Gross Debt Service Ratio: 32%
Property Taxes: $2,600 per annum
(1) $31,919.79
(2) $40,044.25
(3) $43,794.66
(4) $36,987.91
2
Douglas Maxwell, a prospective home buyer, has applied for a mortgage loan to finance the purchase of a townhouse listed at $176,000. The market value of the townhouse is $175,000 and the lender has assigned a $170,000 lending value to it. The lender requires a loan-to-value ratio of 80%. Calculate the maximum loan allowable under the lender’s loan-to-value ratio constraint.
(1) $136,000
(2) $140,800
(3) $139,000
(4) $127,000
1
Douglas Maxwell, a prospective home buyer, has applied for a mortgage loan to finance the purchase of a townhouse listed at $176,000. The market value of the townhouse is $175,000 and the lender has assigned a $170,000 lending value to it. The lender requires a loan-to-value ratio of 80%. Calculate the maximum loan allowable under the lender’s loan-to-value ratio constraint.
(1) $136,000
(2) $140,800
(3) $139,000
(4) $127,000
- Allison Lee, a prospective home buyer, has applied for a mortgage loan to finance the purchase of a townhouse listed at $176,000. The market value of the townhouse is $175,000 and the lender has assigned a $172,000 lending value to it. The lender requires a 30% gross debt service ratio and an 80% loan-to-value ratio. The purchaser’s annual income is $55,000, property taxes are $1,500 per annum and, if approved, the loan is to be repaid with monthly payments over 25 years. The interest rate is j2 = 6%.
Calculate the size of the monthly payment necessary to fully amortize the maximum loan amount based on the loan-to-value ratio constraint.
(1) $880.37
(2) $957.21
(3) $895.73
(4) $992.58
1
Allison Gunther, a prospective home buyer, has applied for a mortgage loan to finance the purchase of atownhouse for $175,000. Assume that the monthly payments on Ms. Gunther’s loan are agreed to be
$1,200 and property taxes are $1,500 per annum.
Calculate the minimum level of borrower’s annual income necessary to support these monthly payments based on the lender’s gross debt service ratio of 30%.
(1) $53,000
(2) $48,000
(3) $50,500
(4) insufficient information to calculate
1
Among other factors, the maximum amount that the buyer of a residential property may borrow is affected by:
(1) the buyer’s income.
(2) the lending value of the property.
(3) the prevailing mortgage interest rate.
(4) all of the above factors.
4
A potential borrower has inquired as to how large a mortgage loan she can “afford” with monthly payments of $850. If mortgage interest rates are currently 4% per annum, compounded semi-annually, with an amortization period of 25 years, calculate the maximum loan allowable.
(1) $140,268.58
(2) $145,628.43
(3) $153,657.94
(4) $161,590.75
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