Section 16: CA Real Estate Math

Question 1

What’s included in a total debt ratio? (aka. debt-to-income ratio, back-end ratio)

Answer 1

all recurring (or installment) debt that will last longer than 10 months, such as monthly mortgage, car, credit, and loan payments

Question 2

total debt ratio equation

Answer 2

( total of monthly debt obligations / monthly gross income ) x 100

Question 3

What’s included in the housing ratio? (aka. front-end ratio)

Answer 3

monthly housing obligation (principal, interest, taxes, insurance) and homeowners or condo association fees

Question 4

housing ratio equation

Answer 4

[ ( Principal + interest + taxes + insurance + association fees ) / monthly gross income ] x100

Question 5

loan-to-value (LTV) ratio

Answer 5

the amount being borrowed compared to the value of a property (either the appraised value or sales price– whichever is LESS)

Question 6

LTV ratio equation

Answer 6

(amount financed / property value) x100

Question 7

loan origination fee

Answer 7

fee(s) charged by a lender for processing or originating a loan

Question 8

loan origination fee equation

Answer 8

loan amount x origination rate
*** 95% = 0.95

Question 9

principal

Answer 9

the actual amount borrowed

Question 10

interest

Answer 10

the cost of borrowing money from someone else

Question 11

term

Answer 11

the amount of time over which a loan will be repaid

Question 12

payment

Answer 12

most mortgage loans are paid off using monthly installments (or payments); usually include Principal, Interest, Taxes, and Insurance (PITI)

Question 13

amortization

Answer 13

the process of paying off a loan over time