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Mortgage Processing > Qualifying Basics > Flashcards

Qualifying Basics Flashcards

1
Q

What is the PITI?

A

Principal, Interest, Taxes, Insurance- i.e. monthly payment

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2
Q

What is the Housing ratio?

A

Front ratio- PITI / Gross monthly income

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3
Q

What is the Total Debt to Income ratio?

A

Back ratio- (PITI + Monthly debt) / Gross monthly income

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4
Q

What does the DTI do?

A

Helps determine ability to pay PITI from available income

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5
Q

What is the maximum qualifying house payment?

A

The most a borrower can pay per month based on their income and debts

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6
Q

How do you calculate the maximum qualifying house payment?

A

Monthly income multiplied by the max housing or back ratio to get PITI

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7
Q

Do all agencies have the same qualifying ratios?

A

No. Refer to cheat sheet for ratios

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8
Q

What income qualifies under conventional agency guidelines?

A

Salaried as shown on paystubs; commission and bonus average of 2 years; part time and overtime average of 2 years; social security, child support, alimony must continue for 3 years

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9
Q

How much installment debt needs to be left for it to count against the borrower?

A

More than 10 months, unless it would severely impact initial ability to repay mortgage

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10
Q

Is daycare counted as debt in conventional loans?

A

No

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11
Q

How much legal debt needs to be left for it to count against the borrower?

A

More than 10 months, unless it would severely impact initial ability to repay mortgage

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12
Q

Do income and debt guidelines differ for FHA loans?

A

Not from convenitonal guidelines

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13
Q

What are the income requirements for VA Loans?

A

Must be employed in same field; if career change has taken place, must wait 12 months

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14
Q

How much should homeowners insurance be?

A

100% of home value

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15
Q

What is mortgage insurance?

A

Protects lenders from default

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16
Q

What is the LTV threshold that triggers PMI?

A

80%

17
Q

What are the different types of PMI?

A

Monthly (in PITI); Financed (in total loan amount); Lender paid (increased in rate)

18
Q

What is cash to close?

A

Total borrower has to pay for financing

19
Q

What makes up the cash to close amount?

A

Down payment, closing costs, prepaids, discount points, mortgage insurance/funding fee

20
Q

What are discount points?

A

Points borrower can purchase to lower rate

21
Q

What is a 2/1 buydown?

A

Rate is lower by 2 points the first year, then one point the next

22
Q

What affects cash to close amount?

A

Purchase price, down payment, interest rate, loan term, type of loan, and seller contributions

23
Q

What is subordinate financing?

A

Any type of loan secured by borrower’s property that is recorded after first loan

24
Q

Why do subordinate financing?

A

Avoid MI, Pay off debt, access equity in homes, and gain additional tax deduction

25
Q

What are two types of subordinate financing?

A

Fixed rate second mortgage and HELOC

26
Q

What is another name for a HELOC?

A

Piggyback second

27
Q

What is an 80/10/10 financing?

A

80% first mortgage, 10% second mortgage, 10% down

28
Q

How do you calculate the subordinate financing amount?

A

Subtract first mortgage and down payment from sales price

29
Q

What is interim financing?

A

When borrower is between buying new house and selling old house and doesn’t have down payment (proceeds from sale) in hand; anticipated amount can be worked into second mortgage

30
Q

What is another name for a fixed rate second mortgage?

A

True second mortgage, closed

31
Q

What is a subordination agreement?

A

Legal document used to prioritize the claim of one party in favor of another- necessary when first and second mortgages are closed together and when first is refinanced

32
Q

What is ineligible for second mortgages?

A

No negative amortization; no wrap around agreement that combines the first and the subordinate financing

Mortgage Processing (9 decks)

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