CHAPTER 4: PROCESSING AND UNDERWRITING Flashcards
Assets are divided into two types
liquid assets used for down payment and closing costs
and long-term assets that can be used to cover the two months payments required for
reserves
To verify the assets the borrower has, you can use
bank statements, investment
statements, Verification of Deposits.
____________ cannot be used unless it is deposited into an account and has at least 60-day
seasoning
Cash
Additional down payment options are
Gift letter from a blood relative or significant other
and shows no requirement for repayment
a down payment assistance program
that assists first time homebuyers. The
assistance could come from, city, county or state programs.
Two types of income:
o stable income; and
o variable income
The income is verified with
1099’s, W-2’s, Paystubs, tax returns with a 4506T and a
Verification of Employment
__________ is required to provide continuity of income.
2-year history
Non-taxable income can be grossed up
25%, an example of non-taxable income is social
security benefits
There are six income calculations that are essential to know when we are talking about
calculating income.
o If the borrower is paid annually, the calculation is annual gross income/12
months.
o If the borrower is paid monthly, there is no calculation, use the annual gross
payment amount divided by 12 months.
o If the borrower is paid twice monthly, (an example would be they are paid on the
5th and the 20th of the month) the calculation is: the amount of each paycheck x 2
pay periods
o If the borrower is paid bi-weekly, then the calculation is (biweekly gross pay x 26
pay periods in a year)/12 months.
o If the borrower is paid weekly, then the calculation is (weekly gross pay x 52 pay
periods)/12 months
o If the borrower is paid hourly, the calculation is (hourly gross pay x average # of
hours worked per week x 52 weeks)/12 months
A borrower is considered self-employed if
they own 25% or more of a company. There is
a lot of additional analysis for self-employed borrowers to ensure continuity of income.
______________ must be disclosed by the borrower if they are not on the credit report
All liabilities
Any payment on liabilities that has less than ____ payments left do not have to be included
in the ______. The exception is a leased vehicle.
- 10
2. ratios
Things that are not considered liabilities include things like
utilities and cell phone
payments.
When calculating ratios, you have the front-end or housing ratio and back-end or overall
ratio. Each of the agency products all have different ratios to qualify for the loan.
o Conventional- 28 percent/36 percent
o FHA-31 percent/43 percent
o VA- Back end DTI of 41 percent with residual income calculation
o USDA - 29 percent/41 percent
• There is also loan to value which is considered a qualifying ratio. The maximum LTV on
the programs we discussed are:
o Conventional -97 percent (3 percent down payment)
o FHA- 96.5 percent (3.5 percent down payment)
o VA- 100 percent (0 down payment required)
o USDA-100 percent (0 down payment required)
The credit report that is pulled for underwriting a loan, is called _______, the merging
of the three credit agencies, ____________________.
- Tri-Merge
2. Experian, TransUnion and Equifax.
The underwriter will use the ______ credit score when underwriting.
Middle
What is the credit score range?
300-850
• Bankruptcies show on the credit report for
seven (7) years on Chapter 11 or 13 and ten
(10) year on a Chapter 7.
For a conventional loan, if a borrower’s credit report shows that a borrower has been
______ or more days late within _________months, the underwriter will deny
the loan, unless there are extenuating circumstances.
- sixty (60)
2. the past 12 Months
For a conventional loan, a borrower is prohibited from obtaining a loan
if they have had a
foreclosure reported on their credit within the previous seven (7) years
If there is a short sale and not a foreclosure, then the borrower must wait ______ years
from the short sale to obtain a new mortgage
four
Inquiries remain on a borrower’s credit for _____ years, but most of the time, the score
only takes it into account for _________.
- two (2)
2. twelve (12) months
FCRA (Regulation V)
is a federal law that regulates how consumer credit reporting
agencies (CRAs) use consumer’s information
How many credit reports can you have for free each year?
1.
All credit pulls must have a
permissible purpose – just because an MLO can pull a credit
report doesn’t mean it’s legal under FCRA
FCRA requires most things are removed within
seven (7) years, ten (10) years on
bankruptcies
FCRA requires an______________ disclosure. This disclosure must be given within ___
days of a credit decision.
- adverse action
2. 30
FACTA (amendment to FCRA) adds provisions
to improve the accuracy of consumers’
credit-related records
FACTA requires the provision
of risk-based pricing notices and credit scores to
consumers whose applications are denied or who receive less favorable offers of credit
Safeguard Rules requires
all files to be kept confidential and stored in a locked cabinet or
draw, when not in use. All files have to be kept for a period of at least three years before
being destroyed. The CD must be kept for at least five (5) years.
