Mortage Loan Origination Flashcards
Standard Loan Applications
- Fannie Mae “Form 1003” - Uniform Residential Loan Application
- Freddie Mac “Form 65”
Underwriting
Underwriter “evaluates” the documentation, borrower information, and various risk factors to make a decision.
- Automated - Information fed into automated underwriting system (AUS)
- Manual - Done by individual who works for lender
**Fannie Mae’s automated underwriting system is “Desktop Underwriter” (DU)
**Freddie Mac has similar system called “Loan Product Advisor” (LPA)
Conventional/Conforming Loans
- Not insured (FHA) or guaranteed (VA) by a government entity
Qualifying ratios:
- Housing expense ratio (front end) - 28%
- Total debt to income ratio (back end) - 36%
**PMI required if LTV is greater than 80% or puts down less than 20% down.
**Late fee - 5% of the P&I ONLY
FHA Loans
- FHA “insures” mortgage loans made by “approved lenders”
- Down payment of 3.5% or LTV of 96.5%
Qualifying ratios:
- Housing expense ratio - 31%
- Total debt to income ratio - 43%
- “Sellers may contribute up to 6%” of the lesser of the “sales price” or the appraised value towards closing costs.
- Must occupy as principal residence within “60 days” of closing loan, for at least “12 months”
- “MIP” required regardless of down payment/UFPMI also required
- “NO” Prepayment Penalty Fee
- Late fee - 4% of the P&I ONLY
Veterans Administration Loans (VA)
“Guaranteed” through the Veterans Benefits Administration. The “max guaranty” is 25% of the purchase price or appraised value (whichever is lower)
- Veteran eligibility based on length of service with required documentation
- DD-214 discharge papers
- COE - Certificate of Eligibility (max. guaranty $106,025)
- Qualifying ratio: Total debt to income ratio - 41%
- Appraisals - Certificate of Reasonable Value (CRV) (NOV)
- “NO” down payment- “NO” Prepayment Penalty Fee
- Non refundable “variable funding fee” required at closing (waived for disabled vets and surviving spouses)
- Must occupy as principal residence within “60 days” of closing loan, for at least “12 months”
- Must have residual income
- “On a VA loan - lenders can charge a flat fee of up to 1% to cover lender cost”
- Late fee - 4% of the P&I ONLY
USDA Loans
Also known as “Section 502 Loans” - 100% Financing
- Provides financial support to low income homebuyers in rural communities of farm communities
- “Rural” can include small towns up to 35,000 people
- Administered by “the Department of Agriculture”.
- “NO” maximum loan amount/NO Prepayment Penalty Fee
- Late fee - 4% of the P&I ONLY
Sales comparison approach/Market Approach
- Compares property being appraised with other similar properties (com parables or comps) sold recently in the same market area; for residential properties
- “A minimum of three com parables” is required by most secondary market lenders to ensure an accurate appraisal from sufficient data.
Cost approach/Replacement Cost approach
Calculates cost of land, site improvements, and to build the structure, any depreciation; best for relatively new construction, vacant land and “unusual or special purpose” properties with few or no com parables and that do not produce income.
Also used when evaluating the cost to “replace property” that was damaged due to natural disasters.
Income approach (capitalization approach)
Estimates value by analyzing current or potential revenue compared to other similar properties; best for commercial or investment properties.
Employment Documentation
- “Self-employed” needs personal and corporate tax returns for a “minimum of 2 years”
- Wage-Earner - Should have continuous employment for at least “2 years” in the same field - if not - Changes for advancement or special education and training are acceptable
- “Alimony, child support”, and/or maintenance “do not” need to be listed as sources of income if a borrower does not want them considered. (Must continue for 3 years)
- Tax free/Public assistance income must be “grossed up” by 25% (increased)
- Rental income is calculated or (reduced) by “75%” to allow for “vacancy loss of 25”
- “4506T - Document used to order a transcript or summary of the borrower’s tax return
Income Calculations & Loan-To-Value (LTV)
Tips for test;
1. Always start with the gross monthly income
- Understand the difference between bi weekly and bi monthly
- When they give you sales price and appraised value, use the lesser of the two.
To convert hourly wages to monthly:
- Wage = Hourly Wage x Hours Worked per week x 52 (Weeks per year) divided by 12
- Bi-Weekly Salary = Bi-weekly Pay x 26 (# of Paydays per year) divided by 12
- Semi-monthly (or bi-monthly) Salary = Pay x 24 (# of Paydays per year) divided by 12
Loan to Value/Combined Loan to Value
- Loan to value (LTV) = 1st Loan Amount divided by “Lesser” of the Sales Price or Appraised Value = LTV%
- The combined loan to value (CLTV) = 1st Loan Amount + 2nd Loan Amount divided by “Lesser” of the Sales Price or Appraised Value = LTV%
Qualifying Standards
Front end ratio/housing expense ratio (HER)
*Relationship of the borrower’s total monthly housing expense (PITI) to income, expressed as a percentage
Formula: PITI divided by Gross Monthly Income = Ratio %
Back end ratio/total obligations ratio (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 - the only exception is a lease)
Formula: PITI + Debt divided by Gross Monthly Income = Ratio %
Determining Maximum Mortgage Amount/Payment
- To compute the maximum mortgage amount using the front end DTI for the appropiate program (FHA/CONV):
**Formula: Monthly gross income x FRONT RATIO = Maximum PITI
- To compute the maximum mortgage amount using the back end DTI for the appropiate program (FHA/CONV):
**Formula: Monthly gross income x BACK RATIO minus debt = Maximum PITI
- “The lower of the two is the answer to the problem”
**Tips
- If asked to calculate a “ratio” it’s always a division problem.
- If asked to calculate a “payment amount” it’s always a multiplication problem.
