Qualifying Basics Flashcards
What is the PITI?
Principal, Interest, Taxes, Insurance- i.e. monthly payment
What is the Housing ratio?
Front ratio- PITI / Gross monthly income
What is the Total Debt to Income ratio?
Back ratio- (PITI + Monthly debt) / Gross monthly income
What does the DTI do?
Helps determine ability to pay PITI from available income
What is the maximum qualifying house payment?
The most a borrower can pay per month based on their income and debts
How do you calculate the maximum qualifying house payment?
Monthly income multiplied by the max housing or back ratio to get PITI
Do all agencies have the same qualifying ratios?
No. Refer to cheat sheet for ratios
What income qualifies under conventional agency guidelines?
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
How much installment debt needs to be left for it to count against the borrower?
More than 10 months, unless it would severely impact initial ability to repay mortgage
Is daycare counted as debt in conventional loans?
No
How much legal debt needs to be left for it to count against the borrower?
More than 10 months, unless it would severely impact initial ability to repay mortgage
Do income and debt guidelines differ for FHA loans?
Not from convenitonal guidelines
What are the income requirements for VA Loans?
Must be employed in same field; if career change has taken place, must wait 12 months
How much should homeowners insurance be?
100% of home value
What is mortgage insurance?
Protects lenders from default
What is the LTV threshold that triggers PMI?
80%
What are the different types of PMI?
Monthly (in PITI); Financed (in total loan amount); Lender paid (increased in rate)
What is cash to close?
Total borrower has to pay for financing
What makes up the cash to close amount?
Down payment, closing costs, prepaids, discount points, mortgage insurance/funding fee
What are discount points?
Points borrower can purchase to lower rate
What is a 2/1 buydown?
Rate is lower by 2 points the first year, then one point the next
What affects cash to close amount?
Purchase price, down payment, interest rate, loan term, type of loan, and seller contributions
What is subordinate financing?
Any type of loan secured by borrower’s property that is recorded after first loan
Why do subordinate financing?
Avoid MI, Pay off debt, access equity in homes, and gain additional tax deduction
What are two types of subordinate financing?
Fixed rate second mortgage and HELOC
What is another name for a HELOC?
Piggyback second
What is an 80/10/10 financing?
80% first mortgage, 10% second mortgage, 10% down
How do you calculate the subordinate financing amount?
Subtract first mortgage and down payment from sales price
What is interim financing?
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
What is another name for a fixed rate second mortgage?
True second mortgage, closed
What is a subordination agreement?
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
What is ineligible for second mortgages?
No negative amortization; no wrap around agreement that combines the first and the subordinate financing
