Math for the NMLS Exam

Question 1

What are the equations for finding Annual and Monthly Interest Only Payments?

Answer 1

1. ) Loan Amount * Note Rate (Interest Rate) = Annual Interest Amount
2. ) Loan Amount * Note Rate (Interest Rate) / 12 = Monthly Interest Amount

Question 2

What are the equations for finding the Annual and Monthly Private Mortgage Insurance (PMI)?

Answer 2

1. ) Loan Amount * PMI Factor = Annual PMI

2. ) Loan Amount * PMI Factor / 12 = Monthly PM

Question 3

What are the calculations for finding the gross monthly income for Hourly Wage, Weekly, Bi-Weekly Salary, Semi-Weekly/Bi-Monthly Salary?

Answer 3

1. ) Hourly Wage * Hours Worked per Week * 52 (Weeks per Year) / 12 =Gross Monthly Income
2. ) Income earned within week * 52 (Weeks per year) / 12 = Gross Monthly Income
3. ) Bi-weekly pay * 26 (# of paydays per year) / 12 = Gross Monthly Income
4. )Semi-monthly salary * 24 (or divided by 2) = Gross monthly income

Question 4

What is the equation to calculate the down payment?

Answer 4

Sales price * percentage down payment = Down Payment

Question 5

What is the calculation to find Loan-To-Value (LTV) and Combined Loan-To -Value (CLTV)?

Answer 5

1. ) 1st Loan Amount / Lesser of the Sale Price or Appraised Value = LTV %
2. ) 1st Loan + 2nd Loan / Lesser of the Sale Price or Appraised Value = CLTV %

Question 6

What is Acquisition Cost?

Answer 6

It is the total amount needed to purchase property, including down payment, loan amount, and any allowable buyer-paid closing costs.

Question 7

Qualifying Standards: What is the Front-end ratio/Housing Expense Ratio (HER) & the Back-end ratio/Total Obligations Ratio (TOR) with equations for each?

Answer 7

1.) HER, Relationship of the borrower’s total monthly housing expense (PITI) to income, expressed as a percentage:
Total Housing Expense (PITI) / Gross monthly income = Ratio%

2.) TOR, Relationship of the borrower’s total monthly debt obligations (PITI) + long term debts) to income, expressed as a percentage. (10 payments or less do not count): PITI + Debt / Gross monthly income = Ratio%

Question 8

What are the Qualifying Ratios for Conventional Loans, FHA Loans, VA Loans, and USDA Loans?

Answer 8

1. ) Conventional: HER, 28%; TOR, 36%
2. ) FHA: HER, 31%; 43%
3. ) VA: HER, Not Used; TOR, 41%
4. ) USDA: HER, 29%; TOR 41%

Question 9

What are the 3 steps for determining the maximum mortgage amount?

Answer 9

1. ) Monthly Gross income * HER% = Max. PITI
2. ) Monthly Gross income * TOR% - Monthly Debt = Max. PITI
3. ) The lower of the two is the answer to the problem.