Math Formula/Conventional Mortgage Loans Flashcards
Formula : Housing Expense Ration (HER)
monthly PITI + PMI / monthly gross income = HER
Recommended mortgage loan is 28%
Formula : Total Obligations Ration (TOR)
PITI + PMI + LTO/ monthly gross income = TOR
A couple has a combined monthly gross of income of 6,737, a monthly mortgage payment of 1,420, a PMI premium of $96, and additional monthly obligations including the following :
Car Payment $460
Student Loan $200
Credit card $150
A. What is the couples housing expense ratio ? (HER)
B. What is the couples total obligation ratio ? (TOR)
C. Does the couple qualify for a conventional mortgage ?
A. To determine the couples HER, determine the monthly housing expenses :
$1,420 PITI + $96 PMI = $1,516 total monthly housing expense
Next divide the total monthly housing expenses by the monthly gross income ;
$1,516 / 6,737 monthly gross income = .2250 or 22.5 % HER
B. To determine the couples TOR, determine the monthly obligations :
PITI + PMI + LTO = $1516 +460 (car) +200 (loan) + 150 (credit) = $2,326
Next divide the total monthly obligations by the monthly gross income :
2,326 (total monthly obligations ) / 6,737 (gross income ) =.3452 or 34.5 %
C. To qualify for a conventional mortgage loan, the borrower must have an HER that does not exceed 28%. The borrowers HER is 22.5%. So the 22.5% of the borrowers monthly gross income pays the borrowers monthly housing expenses. The borrowers HER is below the threshold. The borrower meets the HER ratio requirement for a conventional mortgage.
To qualify for the a conventional mortgage loan, the borrowers TOR must not exceed 36%/ The borrowers TOR is 34.5% which is less than 36%. The borrower meets the TOR ratio requirement for a conventional mortgage.
