Math Formulas + Notes Flashcards
Housing Ratio
HR=Total Mortgage (Expenses)Payment
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Gross Monthly Income
*How to find Monthly Income:
# paid by the hr • hrs worked • 52 weeks / 12 Months
*Anything 28% or lower is good, highest is 36%
EX. If the borrowers monthly gross income was $6,000 and the monthly housing expenses were:
First mortgage payment is $900, monthly property tax is $110, monthly hazard insurance is $28 and monthly mortgage insurance is $60.
What is the housing ratio or front end ratio?
Loan To Value Ratio
LTVR=Amount of Mortgage(Loan Amount)
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Appraised Value of Property
*Anything less than 80% is good, if higher, it’s a high LTV
Loan to Value
LTV=Amount of Mortgage(Loan Amount)
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Purchase Price or Appraised Value
(Whichever is lower)
EX: A borrower is purchasing a condo for $100,000, the appraised value is $125,000. The loan amount is $90,000, which means they put a $10,000 down payment. What is the LTV?
=$90,000
____________ =90% High LTV
$100,000
Debt to Income (Two ways)
Front End DTI=
Total housing expenses(PITI)
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Gross monthly Income
P.I.T.I (Principal, Interest, Taxes, Insurance) (It is the Total Housing Expense)
EX. A borrowers qualifying income is $3,000, while their P.I.T.I is $900. What is their Front End DTI?
=$900
________=0.30 (times 100) =30%
$3,000
Debt To Income (2nd way)
Back End DTI=
Total Debt+P.I.T.I
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Gross monthly Income
*Alimony, Child Support, things shown on credit report are included as Debt. Not utilities, cell phone payments, or other living expenses.
EX. A borrower has a car payment of $300, a credit card payment of $45, and a cell phone payment of $100. While their qualifying income is $3,000 with a P.I.T.I of $900.
What is the Back End DTI?
- Add the car payment, credit card payment, and P.I.T.I
$300+$45+$900= $1,245
Back End DTI=
$1,245
________= .42 (times 100) 42%
$3,000
Debt To Income Ratio
DTIR=Total Fixed Monthly Expenses
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Gross Monthly Income
*Anything less than 43% is good, 36% is preffered (28%-36%)
EX.
John’s monthly bills and income are as follows:
mortgage: $1,000
car loan: $500
credit cards: $500
gross income: $6,000
Total monthly debt = $2,000
$2,000 / $6,000 = 0.33 %
Combined Loan To Value or Total Loan To Value
CLTV=1st lien(Current balance) (Primary loan) + 2nd lien (Equity Line of Credit) (Secondary loan,
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Current Appraised Value of Property
EX. A borrower is purchasing a home for $200,000. To secure the property, they provided a down payment of $50,000 and received 2 mortgages. One for $100,000 (Primary) and one for $50,000 (Secondary). What is their CLTV?
- $100,000+$50,000= $150,000$150,000
=___________= 75%
$200,000
High Total Loan to Value
HTLTV: Credit Value
_____________
Home Value
High Credit Loan to Value
same as CLTV.
HCLTV=1st lien(Current balance) (Primary loan) + 2nd lien (Equity Line of Credit) (Secondary loan,
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Current Appraised Value of Property
Equity
Equity=Home Value - Principal Owed = Home Equity
Interest in a HELOC
P • R • T = Interest
(Principal, Rate, Time Period)
Daily Periodic Rate
DPR = APR
______________________=DPR
# of days in the year
Discount Points
1 point = 1% of the loan value
EX 1.
You have a $100,000 loan and you pay, 1 discount point to the loan value.
How much would you pay up front?
= 1 / 100 = 0.01
= $100,000 • 0.01 = $1,000 up front
EX2.
30 year mortgage for $160,000 loan at 7% interest, the lender offers to reduce the rate by 0.25% per discount point. You offer 2 discount points.
2 / 100= 0.02
0.02 • $160,000 = $3,200
(Each point was $1,600)
= 7% - 0.50% = 6.50%
Another way in solving for Discount Points
EX3.
The interest rate on a borrowers loan was 7%. The buyer also paid 2 points. What was the lenders effective yield?
*It’s asking what’s the lenders effective yield, so remember that each point increases the lenders yield by 1/8th of a percent.
-So 2 points = 2/8ths
-2/8 = 0.25
=0.25 + 7% = 7.25% Effective Yield
Another way in solving for discount points
EX4.
A borrower qualifies for a loan at 6.5%. The prevailing rate is 7%. How many points will be paid to “buy down” the interest rate on behalf of the buyer?
-Prevailing rate = 7%
-Buyer qualifies for 6.5%
= 7 - 6.5 = 0.5
Buydown = 0.5% also known as 4/8ths
=4 points
Another way in solving for discount points + Origination fee
EX5.
The borrower is putting 10% down on a $180,000 sales price. She is paying 2.5 discount points and 1% origination fee. What is the total of the origination fee in discount points she is paying ?
= 10% of $180,000 = $18,000
$180,000 - $18,000 = $162,000
$162,000 • 0.035 = $5,670 as the answer
(how to get 0.035)
= 2.5 + 1 = 3.5
3.5 / 100 = 0.035
(to get the answer you add the discount points with the origination fee in these types of questions)
How to calculate a Down Payment
EX.
A borrower purchases a home for $120,500 and is putting down 10%. If the borrower has already paid $2,500 in EARNEST money, what is the rest of the down payment at closing?
=$120,500 • 0.10 = $12,050
=$12,050 - $2,500 = $9,550 as the rest of the down payment
- Earnest money means money paid to confurm a contract
How to find a borrowers interest rate on an FHA Annually Adjusting ARM
On an FHA annually adjusting ARM, assume that the starting rate was 5%, the Margin is 2.5%, the Index in 6 months is 3%, the Index in 12 months is 3.5%, the Index in 18 months is 3.25%. What is the borrowers interest rate in 18 months?
= 2.5% + 3.5% = 6% at 18 months
- Here the loan adjust ANNUALLY.
So you only need the index at 12 months. - You add the Margin and Index at 12 months
How to find the Note Rate
EX.
What is the note rate for a $150,000 loan with a 2/1 buy down when the borrowers start with a payment rate of 4% for 12 months, then 6% for the rest of the payment term?
=6%
*The note rate is the interest rate after the buy down which in this example is 6%.
*Note Rate is the % you pay for the use of funds often expressed as a yearly %, as mentioned on a promissary note or document.
Interest only loan
EX.
For an interest only loan of $180,000 with a 5% interest rate, how much is the dollar amount of interest for 7months?
Interest Only Rate/Loan=
Loan amount • Rate / 12 Months
(First find the interest for the year)
- $180,000 • 0.05% = $9,000
(how to get the monthly interest)
$9,000 / 12 months = $750
$750 • 7 months = $5,250 in interest over 7 months
Finding income
EX.
Sherry makes $35,000 a year, plus her second job where she has been doing for 2 years and makes $12 an hour for 15 hours a week. Julio is on Social security and makes a nontaxable $1,500 a month. whats their income together monthly?
*when it’s Nontaxable you mutliply the number by “1.25”
Sherry: $35,000 yearly / 12 months= $2,916.67
$12 • 15 hrs • 52 weeks / 12 months = $780
Julio: $1,500 • 1.25 = $1,875
Together they make $5,571.67
Finding Income
EX.
Chris makes $20.50 an hr and works 40 hrs a week. Linda makes $18 an hr and works 40 hrs a week, plus 15 hrs of overtime a week. Whats their monthly income together ?
Chris: $20.50 • 40 hrs • 52 weeks / 12 months = $3,553.33
Linda: $18.00 • 40 hrs • 52 weeks / 12 months = $3,120
Overtime: $18.00 • 1.5 time and a half • 15 hrs • 52 weeks / 12 months = $1,755
Together they make $8,428.33
ARMS
EX.
A 5/6 ARM means the rate stays constant for the first 5 years and adjusts every 6 months.
Rate Caps on ARMS
2 is the periodic Rate Cap for all the subsequented justments there after.
*Rate Caps are used to protect the borrower from payment shock.
*Rate caps have 3 sections separated by the slashes “/.”
EX.
5/2/6
=The #5 is associated with the very first adjustment of the interest rate, called an Initial Rate Cap.
Lifetime Cap
EX.
5/2/6 = Lifetime Cap of 11
-11 can be found by adding the starting interest rate of 5 to the lifetime rate cap of 6 in order to have a maximum interest rate of 11.
What is not included in the APR
(TENACTS)
T- Title insurance
E-Escrow
N-Notary fee
A-Appraisal
C-Credit report
T-Termite inspection
S-Seller credit
What are 8 parameters for considering ATR (ability to repay)
MICE DOES
M-Monthly payment
I-Income
C-Credit
E-Employment
D-Debt equity ratio
O-Other debts
E-Expenses (Like insurance, PITI,etc)
S-Simultaneous loans
ECOA
ECOA is Reg B
Reg B deals with the Borrrower.
Every Borrower must have the equal opportunity to obtain credit.
HMDA
HMDA is Reg C
Deals with checks, HMDA checks for discrimination in origin, sex, race, etc.
RESPA
RESPA is Reg X
Remember it as REXPA.
TILA
TILA is Reg Z
Remember it as ZILA.
If a borrower is paid……
Annually = Annual gross income / 12 months
Monthly= no calculations needed
Twice Monthly= Paycheck X 2 pay periods
Bi-weekly= Bi-weekly gross pay X 26 pay periods in a year / 12 months
Weekly= weekly gross pay X 52 weeks / 12 months
Hourly= hourly gross pay X hrs worked per week X 52 weeks / 12 months
Whats not considered a liability?
Utilities and cell phone payments
