Mastering Mortgage Math Course Guide

LOAN PROCESSOR & MLO
MORTGAGE MATH:
PROBLEMS & SOLUTIONS
MORTGAGE MATH:
PROBLEMS & SOLUTIONS
LOAN PROCESSOR AND LOAN OFFICER SKILLS TRAINING
CALCULATING THE
LOAN-TO-VALUE
Question #1
Cindy is purchasing a house that’s worth $300,000 and has a loan
amount of $240,000. What would be the loan-to-value?
SOLUTION:
CALCULATING THE LOAN-TO-VALUE
Since we know that we’re being asked to find the LTV or
loan-to-value, we need to use the following equation:
LTV = loan amount / purchase price
Normally, we would use the lower of the purchase price and the
appraised value but in this case we are told that the home is worth
$300,000 so we will assume this is the appraised value.
By replacing the numbers we’re given we will find that:
$240,000 / $300,000 = 0.80 which is also 80%
So now we can confirm that Cindy’s loan-to-value is 80%.
CALCULATING THE
LOAN-TO-VALUE
Question #1
SOLUTION:
$240,000 / $300,000 = 0.80 which is also 80%
CALCULATING THE
LOAN-TO-VALUE
Question #2
Tony is purchasing a home for $500,000 but the appraised value is
$495,000. If the loan amount is $400,000, what would be his LTV?
SOLUTION:
It’s very important to find out exactly what information you’re
given and what you’re being asked for. Since we have the purchase
price and the appraised value, we have to use the lowest of the
two which in this case is:
The purchase price of $500,000 > $495,000 appraised value
Now that we know what number to use for the value, we have to
plug it into the equation:
LTV = loan amount / appraised value
LTV = $400,000 / $495,000
LTV = 0.8080
LTV = 80.8%
CALCULATING THE
LOAN-TO-VALUE
Question #3
If a borrower comes into your office and says they want to
refinance their current mortgage on which they owe $100,000 and
they think the value of the home is about $300,000, what would
be the LTV?
SOLUTION:
It’s always a good idea to verify the value of a home by going to a
website like zillow.com or realtor.com but in this case we will use
the information provided. Since we know what the value of the
home is and what the loan amount is, we will simply enter this
information in our loan-to-value formula.
LTV = loan amount / appraised value
LTV = $100,000 / $300,000
LTV = 0.3333
LTV = 33.33% or approximately 33%
CALCULATING THE
LOAN-TO-VALUE
Question #4
If you decide to buy a condo for $180,000, that appraises for
$200,000 and only put a 5% down payment, what would be your
LTV or loan-to-value?
SOLUTION:
There are several numbers being provided in this example. First of
all, we need to confirm what the loan amount is. If you’re giving a
5% down payment, that means you are financing 95% of the
purchase price so that we can have 100% of the purchase price.
100% - 5% (down payment) = 95% LTV
Since we know the loan-to-value is 95%, we are done with this
problem but if we didn’t know what the percentage of the down
payment was, we would have to use the LTV equation.
CALCULATING THE
LOAN-TO-VALUE
Question #5
Sammy is purchasing a home for $424,000 but the appraised value
is $405,000. If the loan amount is $390,825, what would be his
LTV?
SOLUTION:
In this case, Sammy can choose to renegotiate the purchase price
so that it matches the appraised value or he can pay for the
difference out of pocket. For financing purposes, the lender will
use the lower of the purchase price or appraised value so we will
use $405,000 as the home value to determine the LTV.
Loan-to-value = $390,825 / $405,000
Loan-to-value = 0.965
Loan-to-value = 96.5%
Sammy is financing 96.5% which is normally the LTV on an FHA
loan.
CALCULATING THE
LOAN-TO-VALUE
Question #6
Carla is buying a multi-family home for $330,000, which only
appraises for $297,000. What would be the LTV if the loan amount
is $250,000?
SOLUTION:
Again, we have a similar loan scenario where the property being
purchased doesn’t appraise and this reason we will use the lower
of the two to calculate the LTV. It doesn’t matter what type of
property is being purchased, you will always use the lower of the
purchase price and appraisal to calculate the loan-to-value.
LTV = $250,000 / $297,000
LTV = 0.84
LTV = 84%
Carla is financing 84% of the appraised value and will have to
negotiate the price down to the appraised value or pay for the
difference.
CALCULATING THE
LOAN-TO-VALUE
Question #7
If a borrower tells you they want to finance 90% of a property they
are purchasing for $279,000, what would be the loan amount?
SOLUTION:
In this case, we will use the same LTV formula but will reorganize
the numbers to calculate the loan amount.
If the loan-to-value = 90%, and we know the purchase price, we
can do the following calculation:
90% = loan amount / $279,000
We will simply move the $279,000 to the other side of the
equation to find the loan amount.
90% x $279,000 = loan amount
0.90 x $279,000 = $251,100 = loan amount
There are more ways to obtain this figure but I wanted to show
you how to move the numbers within the same formula.
CALCULATING THE
LOAN-TO-VALUE
Question #8
Fiona is refinancing her home that is worth $450,000 but she
thinks it’s worth $600,000. What would be her loan-to-value if she
currently owes $278,000 to the bank in the form of a mortgage?
SOLUTION:
Even if FIona thinks her home is worth more, you always have to
go based off the appraised value which in this case is $$450,000 to
calculate the LTV. Let’s do the math:
LTV = $278,000 / $450,000
LTV = 0.617
LTV = 61.7%
It’s important to mention that as long as the borrower’s LTV is
under 80%, they won’t have mortgage insurance as long as it’s
not an FHA loan, which will help keep their debt-to-income ratio
lower. We will see how to calculate the DTI or debt-to-income
ratio in the next examples.
CALCULATING THE
LOAN-TO-VALUE
Question #9
Heather is purchasing a condo for $80,000 and only has enough
for a 5% down payment. If the appraised value comes back at
$85,000, what would be the loan amount?
SOLUTION:
This is a two part solution because we first have to determine the
LTV by subtracting the total percent by 5%.
100% - 5% = 95%
Now we know the loan-to-value is 95% and can now find the loan
amount by multiplying this by the lower of the purchase price or
appraised value.
Loan amount = $80,000 x 95%
Loan amount = $80,000 x 0.95 = $76,000
Heather’s loan amount will be $76,000 and her down payment is
$4,000 since we can subtract the purchase price and the loan
amount to figure this out.
CALCULATING THE
LOAN-TO-VALUE
Question #10
If a realtor calls you and needs for you to determine what the loan
amount will be for a borrower they have who’s purchasing a single
family residence for $700,000 and is coming in with a 20% down
payment, how would you calculate the loan amount?
SOLUTION:
Since we know the borrower is coming in with a 20% down
payment, we can figure out what the LTV is by subtracting the
total percentage by the down payment.
100% - 20% = 80% = LTV
Now that we know the loan-to-value we can figure out the loan
amount by doing the following calculation:
Purchase price x 80% = loan amount
$700,000 x 0.80 = $560,000
You can tell the realtor that the borrower will be financing
$560,000 and can move on to quoting an interest rate once you
confirm more confirmation.
CALCULATING THE
LOAN-TO-VALUE
Question #1
SOLUTION:
CALCULATING THE
COMBINED LOAN-TO-VALUE
$240,000 / $300,000 = 0.80 which is also 80%
CALCULATING THE
(CLTV)
Question #11
Kim wants to refinance but doesn’t know if she qualifies. She has a
first mortgage for $220,000 and a second mortgage for $30,000. If
her appraised value is $400,000, what would be her CLTV or
combined loan-to-value?
SOLUTION:
Since we have two mortgages, we will need to add both of Kim’s
mortgages to determine her combined loan-to-value. Let’s add her
first mortgage and second mortgage:
$220,000 + $30,000 = $250,000 = total loan amount
Now that we have the total loan amount, let’s use this number to
figure out the CLTV.
CLTV = $250,000 / $400,000
CLTV = 0.625 or 62.5%
CALCULATING THE
(CLTV)
Question #12
Tommy wants to buy a boat and needs to take cash out of his
home which is considered a “cash-out refinance” but has a first
mortgage for $70,000 and a second mortgage for 12,000. If his
home is worth $215,000 and he wants to take out $50,000, what
will be his CLTV?
SOLUTION:
As you may have noticed, we have to add both mortgages since
Tommy has a first and second mortgage to determine the
combined loan amount plus the cash he wants to take out of his
home..
$70,000 + $12,000 + $50,000 = $132,000
The total loan amount will be $132,000 and with this we can
calculate the CLTV.
CLTV = $132,000 / $215,000 = approximately 61.39%
CALCULATING THE
(CLTV)
Question #13
If a borrower comes into your office and wants to purchase a
house for $300,000 but wants to make sure he has a first
mortgage for $240,000 and a second mortgage for $45,000, what
would be his CLTV?
SOLUTION:
Since we know this borrower has two mortgages, we need to add
both mortgages to get the total loan amount.
First mortgage + second mortgage = total loan amount
Now we can calculate the combined loan-to-value.
CLTV = $295,000 / $300,000 = 0.95
CLTV = 95%
CALCULATING THE
(CLTV)
Question #14
What would Adam’s CLTV be if he has a first mortgage for 478,000
and a second mortgage for $33,000 and wants to take out $20,000
from his home’s equity? His appraised value is $800,000.
SOLUTION:
In order to calculate the CLTV, we need to add up all the loan
amounts so that we have the total loan amount. For this, we need
to do the following calculation:
$478,000 + $33,000 + $20,000 = $531,000 = total loan amount
Now, we can calculate the combined loan-to-value.
CLTV = $531,000 / $800,000
CLTV = 0.6637
CLTV = 66.37%
CALCULATING THE
(CLTV)
Question #15
If a borrower wants to purchase a home for $500,000 but wants to
finance no more than 90% and doesn't want to have mortgage
insurance, what would need to be their first and second mortgage
amounts?
SOLUTION:
In order to prevent the borrower from having mortgage insurance,
we will need to break the total loan amount into two mortgages,
one for 80% and the second for 10% so that together they add up
to 90%.
$500,000 x 80% = $400,000 = first mortgage loan amount
$500,000 x 10% = $50,000 = second mortgage loan amount
If we add $400,000 + $50,000 we will get the total loan amount
of $450,000, which will be 90% of the purchase price.
CALCULATING THE
(CLTV)
Question #16
If Linda’s CLTV is 85%, where she has a first mortgage for $80,000
and a second mortgage for $5,000, what would be the appraised
value?
SOLUTION:
As you can see, we are being asked for the appraised value and
have been given the CLTV which is 85%. First, we will need to add
up all the mortgages to get the total loan amount.
$80,000 + $5,000 = $85,000
Now, we will use the equation to calculate the CLTV and figure out
the appraised value.
CLTV = total loan amount / appraised value
85% = $85,000 / appraised value
Appraised value = $85,000 / 0.85 = $100,000
CALCULATING THE
(CLTV)
Question #17
If Miguel’s CLTV is 95%, where his first mortgage is $160,000 and
his second mortgage is $30,000, what would be the purchase
price?
SOLUTION:
Again, we need to find the total loan amount so we will add up all
the mortgages.
First mortgage + second mortgage = total loan amount
$160,000 + $30,000 = $190,000
If, we use the formula: CLTV = total loan amount / purchase price
(since we don’t have an appraised value)
95% = $190,000 / purchase price
Purchase price = $190,000 / 0.95 = $200,000
CALCULATING THE
(CLTV)
Question #18
Virginia is looking to refinance her home which she thinks is worth
$1,200,000. If she has a first mortgage for $550,000 and a second
mortgage in the form of a line of credit for $78,000, what would
be her CLTV?
SOLUTION:
First, let’s add up all of Virginia’s mortgages to determine the
combined or total loan amount. Even though she has a second
mortgage in the form of a line of credit, it’s still considered a
second mortgage.
$550,000 + $78,000 = $628,000, now we have to find the CLTV.
CLTV = total loan amount / appraised value
CLTV = $628,000 / $1,200,000 = 0.5233
CLTV = 52.33%
CALCULATING THE
(CLTV)
Question #19
Violet has a first mortgage for $415,000, a second mortgage for
$77,000, a third mortgage for $15,000, and wants to take out
$10,000. If she is doing a cash-out refinance and you have an
appraised value for $660,000, what is her CLTV?
SOLUTION:
Believe or not, some people do have third mortgages. They usually
have higher interest rates and possibly a balloon payment so it’s a
good idea to refinance and have just one mortgage with a low
interest rate to save money and reduce the mortgage payment. In
this case, we will need to add up all of Violet’s mortgage and cash
out to figure out her total loan amount.
$415,000 + $77,000 + $15,000 + $10,000 = $517,000
Let’s calculate the CLTV now that we have the total loan amount.
CLTV = $517,000 / $660,000 = 0.7833 = 78.33%
CALCULATING THE
(CLTV)
Question #20
Jake is refinancing his home which appraised for $400,000 but
insists it’s worth $450,000. If he has a first mortgage for $245,000
and is cashing out $60,000, what is his actual CLTV?
SOLUTION:
Even though you may have borrowers that think their home is
worth much more, you always have to go by the appraised value.
Since Jake is taking cash out of his home, we need to add this
amount to the first mortgage by adding:
$245,000 + $60,000 = $305,000
Now, we can calculate the CLTV:
CLTV = $305,000 / $400,000 (appraised value)
CLTV = 0.7625 = 76.25%
Jake’s CLTV in this case is 76.25%.
CALCULATING THE
LOAN-TO-VALUE
Question #1
SOLUTION:
CALCULATING THE
DEBT-TO-INCOME RATIO
$240,000 / $300,000 = 0.80 which is also 80%
CALCULATING THE
DEBT-TO-INCOME (DTI)
Question #21
If Michael has a monthly income of $4,500 and has the following
monthly debt payments. What is his DTI?
PITI: $1,500
Car payment: $250
Credit card payments: $125
SOLUTION:
First of all, we need to figure out what the total debt payments are
so that we can then calculate the debt-to-income ratio.
Car payment + credit card payments =
$1,500 + $250 + $125 = $1,875
DTI = total monthly debt obligations / gross monthly income
DTI = $1,875 / $4,500 = 0.4166
DTI = 41.66%
CALCULATING THE
Question #22
Determine what the debt-to-income ratio would be in this case.
Carlos wants to purchase a home that has a principal, interest,
taxes, and insurance payment (PITI) of $1,830 and has $470 in
other monthly payments that appear on his credit report. His
gross monthly income is $6,000.
SOLUTION:
Since we know that Carlos has $1,830 and $470 in monthly debt
obligations, we can simply add these together and move on to
calculating the DTI.
$1,830 + $470 = $2,300
Let’s use this information to now calculate the DTI:
DTI = $2,300 / $6,000
DTI = 0.3833
Carlos has a DTI of 38.33%.
CALCULATING THE
Question #23
Richard owns a home and has a PITI payment of $2,100. His gross
annual income is $120,000. If he has the following monthly debt
obligations, what would be his DTI?
Child support: $750
Car payment: 160
Student loan payments: $350
SOLUTION:
Let’s start by adding all his monthly debt obligations.
$2,100 + $750 + $160 + $140 + $350 = $3,500
Before we calculate the DTI, we need to convert Richard’s annual
income to monthly income by dividing by 12.
$120,000 / 12 = $10,000
Richard’s gross monthly income is $10,000.
CALCULATING THE
Question #23
SOLUTION:
Now, let’s calculate Richard’s debt-to-income ratio using the
information we have.
DTI = total monthly debt obligations / gross monthly income
DTI = $3,500 / $10,000
DTI = 0.35
DTI = 35%
CALCULATING THE
Question #24
Jane has an annual salary of $48,000 per year and has the
following monthly debt payments, what would be her DTI?
Principal and interest payment: $825
Annual property taxes: $2,400
Annual homeowners insurance payment: $720
SOLUTION:
In this case, we’re going to start by converting Jane’s annual salary
to monthly income by dividing by 12.
$48,000 / 12 = $4,000 is her gross monthly income
This is what we will use to determine her DTI but before that, we
need to find out what her total monthly debt payments are.
CALCULATING THE
Question #24
SOLUTION:
To add up all of Jane’s monthly debt obligations we need to
convert any debts that show as an annual payment, to a monthly
payment.
Monthly property taxes = $2,400 / 12 = $200
Monthly homeowners insurance = $720 / 12 = $60
Let’s add:
$825 + $200 + $60 + $350 = $1,435 = total monthly payments
Now that we have the total “monthly” debt obligations, we can
calculate the DTI.
DTI = $1,435 / $4,000
DTI = 0.3587 = 35.87%
If we would have forgotten to convert the property taxes and
insurance payments to monthly payments, the DTI would have
been completely wrong and a borrower that would have qualified
for a loan would have been denied.
CALCULATING THE
Question #25
Carla is trying to qualify for a home loan but the bank tells Carla
that her DTI is above 51% and needs to be under 50% to qualify
for a home loan. If she has a PITI payment of $1,500 and credit
card payments of $310 per month, by how much do her monthly
debt payments need to go down to if she has a monthly income of
$3,500?
SOLUTION:
Let’s start by figuring out what 50% of her gross monthly income is
so that we can work the numbers backwards and find out what
the maximum is that her debt payment can be.
$3,500 x 50% = $1,750
Right now her total debt payments are:
$1,500 + $310 = $1,810
If we subtract her current debt payments by her maximum
allowed we would get: $1,810 - $1,750 = $60
CALCULATING THE
Question #25
SOLUTION:
Carla has two options:
1. She can search for a less expensive home.
2. She can pay down her credit cards so that her payment is
at least $60 less.
Assuming Carla chooses option 3, she would need to pay down her
credit cards so that the monthly payment is no more than $250
per month. To figure this out, we did the following:
$310 - $60 = $250
Let’s double check to make sure Carla’s DTI is less than 50%.
DTI = $1,500 (PITI) + $250 (credit cards) / $3,500
DTI = 50%, but we need to make sure the DTI is under 50% since
that is what the bank is requiring so she will need to pay down her
credit cards to the point that the payment is no higher than $249
instead of $250. Let’s confirm this is correct:
DTI = $1,500 + $249 / $3,500 = 0.4997 = 49.97%
CALCULATING THE
Question #26
If Candice has the following monthly payments and income, what
is her DTI? Also, would she qualify for a mortgage if the maximum
DTI she can have is 57% for an FHA loan?
PITI: $2,500
Car payment: $150
Alimony: $100
Gross monthly income: $7,000
SOLUTION:
To calculate the DTI we need to add up all of Candice’s monthly
debt payments:
$2,500 + $150 + $50 + $100 = $2,800
Now that we have her total monthly debt payments, let’s calculate
the DTI.
CALCULATING THE
Question #26
SOLUTION:
DTI = $2,800 / $7,000
DTI = 0.40
DTI = 40%
Candice’s DTI is 40%. Since her DTI is under 57%, she would
qualify for an FHA loan.
CALCULATING THE
Question #27
Hugh works at an IT company and makes $5,000 per month in
gross income. If his total monthly debts and housing obligations
are $3,800, would his DTI be under 50%? Also, if he has a
co-borrower, how much would the co-borrowers gross monthly
income need to be?
SOLUTION:
Since we know what his income is and what his monthly debt
payments are, we can calculate his DTI.
DTI = $3,800 / $5,000
DTI = 0.76 or 76%
Since Hugh’s DTI is 76%, he would not qualify for a mortgage so he
would definitely need a co-borrower to increase the total income.
CALCULATING THE
Question #27
To calculate the income the co-borrower will need to have to
qualify, we would simply multiply the total payments by 2 and
then subtract that by Hugh’s income.
$3,800 x 2 = $7,600
Now, we subtract this by Hugh’s income.
$7,600 - $5,000 = $2,600.
Since this will give us exactly a 50% DTI, we need to increase the
required co-borrowers income by $1 so that we have at least
$2,601 as the co-borrowers required monthly gross income after
all debt payments are made.
Just to clarify, we can actually add $0.01 and be under 50% but to
keep things simple, we are adding $1.
With this additional $1 increase, the total required income would
be $7,601. Let’s confirm the DTI is under 50%
DTI = $3,800 / $7,601 = 0.4999 or 49.99% so we are under 50%
and Hugh will be able to qualify for the mortgage.
CALCULATING THE
Question #28
Jamie is buying a duplex that has a renter in place that pays $1,400
in rent every month. If she’s going to be living at the duplex in one
of the units, what would be her DTI? Use the following income and
expenses:
Car payment: $200
PITI: $700
SOLUTION:
To calculate the DTI, we need to add up all of the monthly debt
payments first to confirm the total monthly debt payments.
$600 + $200 + $700 = $1,500
Now, we need to find out what the DTI is, but we also need to
include the rental income in our calculation.
CALCULATING THE
Question #28
To do this we need to subtract the rental income from the total
debt payments and then divide that by Jamie’s gross monthly
income.
Debt-to-income = ($1,500 - $1,400) / $2,000
Debt-to-income = 0.05
Debt-to-income = 5%
Even though we used 100% of the rental income, most banks or
lenders will use 75% of the rental income and when it’s been
received for the last 2 years and shows on your tax returns for the
past 2 years, you can use 90% of the rental income. There are
some exceptions and variations to what percentage is used
depending on the type of loan the borrower is getting and if rules
have become more flexible with different lenders.
CALCULATING THE
Question #29
What would be Yolanda’s DTI and would she qualify for a
mortgage if the max DTI in this case is 45%? Use the following
criteria:
Car payment: $400
Boat payment: $330
Personal loan: $500
Student loans: $600
PITI payment: $1,700
SOLUTION:
Since we know the maximum DTI is 45% and know what Yolanda’s
gross monthly income is $9,000, we can determine what the
maximum monthly debt payments can be for her to qualify.
CALCULATING THE
Question #29
$9,000 x 0.45 = $4,050
Now we know that her total monthly debt payments have to be
less than $4,050, we can add up her debts and see if she qualifies.
If we add up all her monthly debt payments, we get:
$400 + $330 + $500 + $600 + $1,700 = $3,530
Since $3,530 is less than $4,050, she will definitely qualify for this
mortgage.
Her DTI would be:
DTI = $3,530 / $9,000
DTI = 0.3922
DTI = 39.22%
CALCULATING THE
Question #30
Lance is refinancing and needs to have a DTI of 50% or less to
qualify and makes a gross annual income of $240,000. Does he
qualify?
Principal and interest payment: $1,495
Monthly homeowners insurance payment: $80
Monthly property tax payment: $366
Homeowners association payment: $170
Credit card payments: $1,200
SOLUTION:
We will need to follow a similar process to the last exercise to see
if Lance qualifies but first we need to convert his annual income to
monthly income by dividing by 12.
$240,000 / 12 = $20,000
CALCULATING THE
Question #30
SOLUTION:
$20,000 x 50% = $10,000, so now we know that her total monthly
debt payments have to be less than $10,000.
Now we need to add up all his monthly debt obligations:
$1,495 + $80 + $366 + $170 + $1,200 = $3,311
Since we know that his total debt payments have to be lower
than $10,000 and he only has $3,311 in monthly debt payments,
he would qualify for the home loan.
CALCULATING THE
LOAN-TO-VALUE
Question #1
SOLUTION:
DOWN PAYMENT REQUIREMENTS
$240,000 / $300,000 = 0.80 which is also 80%
DOWN PAYMENT
REQUIREMENTS FOR
BORROWERS
Question #31
Oscar is buying a home worth $450,000 and qualifies for 95%
financing. What will be his minimum down payment requirement?
SOLUTION:
If we know that the LTV is 95%, we will simply subtract 100% to
determine the percentage of the down payment.
100% - 95% = 5% is what Oscar is giving as a down payment.
If we multiply the purchase price or appraised value by 5% we will
get the dollar amount for the down payment.
$450,000 x 5% = $22,500
Oscar’s minimum down payment will be $22,500.
DOWN PAYMENT
REQUIREMENTS FOR
BORROWERS
Question #32
Nancy is purchasing a home and qualifies for an FHA loan where
she can finance 96.5% of the purchase price. If the purchase price
is $200,000, what is her down payment?
SOLUTION:
To solve this problem, we are going to use a different calculation
to get the same result.
Since we know the purchase price, we can multiply the LTV and
get the LTV dollar amount.
$200,000 x 96.5% = $193,000
Now, we can subtract the purchase price to the loan amount to
get the down payment that is being given by Nancy.
$200,000 - $193,000 = $7,000
Nancy is giving $7,000 in the form of a down payment.
DOWN PAYMENT
REQUIREMENTS FOR
BORROWERS
Question #33
Edward decided to purchase a home for $375,000 and was
approved for a loan for $337,500. What would his LTV and his
minimum down payment be?
SOLUTION:
We know that Edwards loan amount is $337,500 since that’s what
the bank approved him for and we know the purchase price so we
can find the loan-to-value.
Loan-to-value = $337,500 / $375,000
Loan-to-value = 0.90 or 90%
Since we know that the LTV is 90%, the down payment must be
10%. 100% - 90% = 10%. To find the down payment amount, we
would multiply the purchase price by 10%.
$375,000 x 10% = $37,500
DOWN PAYMENT
REQUIREMENTS FOR
BORROWERS
Question #34
If your borrower wants to buy a condo for $150,000 but was
approved for a maximum loan amount of $85,000. How much do
they need to come up with for a down payment?
SOLUTION:
A simple way to tackle this problem is to subtract the purchase
price from the loan amount and then see what the required down
payment would be. Let’s do the math.
$150,000 - $85,000 = $65,000
This borrower would need to bring $65,000 as their down
payment, which would represent a 43.33% down payment. How
did I get 43.33%? By doing the following calculation:
$65,000 / $150,000 = 0.4333 = 43.33%
This borrower is giving a 43.33% down payment.
DOWN PAYMENT
REQUIREMENTS FOR
BORROWERS
Question #35
Michael has been approved for a USDA loan which will finance
100% of the purchase price. If he wants to purchase a home that
has an asking price of $240,000, how much will he need to come
in with in the form of a down payment?
SOLUTION:
This is a trick question because Michael is getting 100% financing
which means he’s not required to provide a down payment. Even
though he doesn’t have to come up with a down payment, he will
have to bring enough funds to cover the closing costs. If for any
reason, Michael gets enough sellers contribution to cover his
closing costs, he won’t have to bring any money at closing which
would be an incredible purchase opportunity.
DOWN PAYMENT
REQUIREMENTS FOR
BORROWERS
Question #36
Kim made an offer on a triplex that’s selling for $410,000 but
appraises for $390,000. If Kim agrees to pay the difference
between the purchase price and the appraised value, how much
would she need to bring in the form of a down payment knowing
she was approved for 95% financing?
SOLUTION:
In this case, we need to subtract the purchase price and the loan
amount to determine the down payment Kim will be coming in
with but before that, we need to determine the loan amount. We
have to use the appraised value and the percentage being
financed to come up with the loan amount. Let’s do this now:
$390,000 x 95% = $370,500 is Kim’s loan amount.
Now that we know the loan amount, we can subtract the purchase
price from the loan amount and find the required down payment
amount.
DOWN PAYMENT
REQUIREMENTS FOR
BORROWERS
Question #36
SOLUTION:
$410,000 - $370,500 = $39,500
Kim’s down payment is $39,500.
Why would anyone pay more than the appraised value?
There can be a number of reason for this:
1. Homes in the are quickly increasing in value so the buyer
isn’t worried about the difference they are paying at the
moment.
2. There are no other homes like the one they are buying
since it could have additions or extras that may be harder
to build or include if done on another home such as a pool,
an underground well, a basketball court, tennis court, etc.
3. There might not be any other homes for sale in that
neighborhood since they rarely go on sale or they sell very
quickly.
DOWN PAYMENT
REQUIREMENTS FOR
BORROWERS
Question #37
Hans and Sarah are purchasing a home for $510,000 and are
required to come in with a 20% down payment since they’ll be
renting it out and will be considered an investment home. If the
appraisal comes back at $400,000 and the seller agrees to bring
the purchase price down to the appraised value, what would be
the minimum down payment they would have to come in with?
SOLUTION:
Since the sellers agreed to bring the price down to the appraised
value, we will use $400,000 to calculate the down payment. Since
they are giving 20% in the form of a down payment, we will do the
following calculation:
$400,000 x 20% = $80,000
Hans and Sarah will need to come in with $80,000 for their down
payment.
DOWN PAYMENT
REQUIREMENTS FOR
BORROWERS
Question #38
Peter and Jake decide to become investors and will be purchasing
a duplex for $320,000. If they’re approved for a first mortgage for
$200,000 and a second mortgage for $25,000, what will be the
minimum down payment they will have to come in with?
SOLUTION:
To begin, we need to find out what the total loan amount is so we
need to add the first and second mortgages:
Now, we can subtract the purchase price from the loan amount to
come up with the down payment.
$320,000 - $225,000 = $95,000
Peter and Jake will need to come in with $95,000 as their
required down payment amount.
DOWN PAYMENT
REQUIREMENTS FOR
BORROWERS
Question #39
Thomas was able to secure a VA loan and is purchasing a home for
$600,000, that appraised for $500,000. What will the lender
require Thomas to come in with in the form of a down payment to
be able to obtain financing?
SOLUTION:
Remember, VA loans allow 100% financing so we will assume
that’s the case. Thomas won’t be required to bring any funds for a
down payment unless he agrees to pay the difference between the
purchase price and the appraised value which is:
$600,000 - $500,000 = $100,000
Thomas technically shouldn’t have to come in with a down
payment but will have to pay the difference between the
purchase price and the appraised value which is $100,000.
DOWN PAYMENT
REQUIREMENTS FOR
BORROWERS
Question #40
Wilson is buying a home worth $1,200,000 and has been approved
for a loan amount of $500,000. What will be the down payment
required for Wilson to be able to obtain financing?
SOLUTION:
Since Wilson wants to buy this house, he will have to pay the
difference between the purchase price and the loan amount which
can be calculated by doing the following subtraction:
$1,200,000 - $500,000 = $700,000
Wilson will need to bring $700,000 (58.33%) as a down payment.
Obviously, this is not a normal situation you will have on a daily
basis but will happen and is an option when borrowers have the
cash and the desire to purchase a property they know is worth
buying.
CALCULATING THE
LOAN-TO-VALUE
Question #1
SOLUTION:
CALCULATING INTEREST-ONLY
MORTGAGE PAYMENTS
$240,000 / $300,000 = 0.80 which is also 80%
CALCULATING
INTEREST-ONLY MORTGAGE
PAYMENTS
Question #41
Irene is buying her first investment property and has been offered
a 7% interest rate. If her loan amount is $265,000, what will be her
interest-only payment?
SOLUTION:
Since interest-only payment calculations are straight forward, let’s
start with the equation:
Loan amount x interest rate / 12 = Interest-only payment
($265,000 x 7%) / 12
($265,000 x 0.07) / 12
$18,550 / 12 = $1,545.83
$1,545.83 is Irene’s interest-only payment.
CALCULATING
PAYMENTS
Question #42
Irene decided she wants to compare an interest-only mortgage
payment with a principal and interest mortgage payment of
$1,763 in which both are amortized over 30 years. If her loan
amount remains at $265,000 but is able to get a 6.5% rate on her
interest-only mortgage by doing her loan with you as her loan
officer, instead of your competition, will she have a lower payment
by having an interest-only loan or a principal and interest loan?
SOLUTION:
Let’s get started by calculating Irene’s new interest-only payment
based on a 6.5% interest rate.
($265,000 x 6.5%) / 12
$17,225 / 12
$1,435.42
CALCULATING
PAYMENTS
Question #42
Since Irene’s principal and interest payment would be $1,763 and
her interest-only payment would be $1,435.42, the interest-only
option is $327.58 lower and would be a better option when
purchasing an investment property. To get this number, you need
to do the following calculation:
$1,763 - $1,435.42
$327.58
CALCULATING
PAYMENTS
Question #43
Gabriel is buying and investment property worth $450,000 and is
putting a 20% down payment. What would be his interest-only
payment if he secures a 5.5% interest rate?
SOLUTION:
To find out what Gabriel’s interest-only payment is, we need to
find out what the loan amount is. Since the down payment
required is 20%, the loan-to-value should be 80%.
100% - 20% = 80%
Now that we know the LTV, let’s find out the loan amount by
multiplying this by the appraised value.
$450,000 x 80% = $360,000
The loan amount is $360,000 and is what we will use to determine
the interest-only payment.
CALCULATING
PAYMENTS
Question #43
SOLUTION:
Since Gabriel’s interest rate will be 5.5%, we can use this to
calculate the following:
$360,000 x 5.5% / 12
$360,000 x 0.055 / 12
$19,800 / 12
$1,650 will be Gabriel’s interest-only payment.
CALCULATING
PAYMENTS
Question #44
Sam wants to purchase a commercial building for $3.1M and has
been approved for an interest-only loan for $2.5M at a 5.2%
interest rate. What would be his interest-only payment?
SOLUTION:
We’re given the loan amount and the interest rate so we just need
to plug this numbers into our interest-only formula to determine
the interest-only payment.
$2,500,000 x 5.2% / 12
$2,500,000 x 0.052 / 12
$130,000 / 12
$10,833.33 is what Sam’s interest-only payment will be every
month.
CALCULATING
PAYMENTS
Question #45
Carl has an interest-only payment and has asked you to find him a
better interest rate than what he has which is a 6.5%. If his loan
amount is $362,000, what is his current interest-only monthly
payment and what would be the total interest he would pay over a
30 year term?
SOLUTION:
Since we have the loan amount and the interest rate, we just need
to calculate the interest only payment and then the interest over
30 years or 360 payments.
Loan amount x interest rate / 12 = IO (interest-only) payment
$362,000 x 6.5% / 12
$23,530 / 12
$1,960.83 is Carl’s interest-only payment
CALCULATING
PAYMENTS
Question #45
SOLUTION:
To calculate the total interest paid over the life of the loan which
would be 30 years, we can multiply the annual interest-only
payments or by multiplying the monthly interest-only payments by
360 months. 30 years = 360 months
$362,000 x 6.5% = $23,530 (annual interest payments)
$23,530 x 30 years = $705,900
Carl would have paid $705,900 over 30 years if he makes
payments for this long.
CALCULATING
PAYMENTS
Question #46
If Jake has an interest-only payment of $600 and has a loan
amount of $120,000, what is his interest rate?
SOLUTION:
In this case, we have to calculate the interest rate and to do this
we need to use the same interest-only formula.
$120,000 x interest rate / 12 = $600
$120,000 x interest rate = $600 x 12
Interest rate = $600 x 12 / $120,000
Interest rate = $7,200 / $120,000
Interest rate = 0.06 or 6%
CALCULATING
PAYMENTS
Question #47
If Dan has an interest-only payment of $1,250 and has an interest
rate of 5%, what would his loan amount?
SOLUTION:
We will need to use the interest-only formula again but will need
to solve for the loan amount in this example.
Loan amount x 0.05 / 12 = $1,250
Loan amount = ($1,250 x 12) / 0.05
Loan amount = $15,000 / 0.05
Loan amount = $300,000
Dan’s loan amount is $300,000.
CALCULATING
PAYMENTS
Question #48
Mike purchased an investment home and has an interest-only
payment of $3,125. If he has a loan amount of $750,000 and can’t
find his mortgage statement to see what rate he has, what is his
interest rate?
SOLUTION:
Since we’re being asked to find the interest rate, we will need to
use the interest-only equation and modify it so that we can find
what we are asked for.
Loan amount x interest rate / 12 = interest-only payment
Interest rate = Interest-only payment x 12 / Loan amount
Interest rate = $3,125 x 12 / $750,000
Mike’s interest rate is 5%.
CALCULATING
PAYMENTS
Question #49
What is Nick’s interest-only payment if he has a loan amount of
$320,000 and an interest rate of 8%?
SOLUTION:
IO payment = $320,000 x 0.08 / 12
IO payment = $25,600 / 12
IO payment = $2,133.33
Nick’s interest-only payment is $2,133.33.
CALCULATING
PAYMENTS
Question #50
Linda is purchasing a triplex for $500,000 and will be giving a 40%
down payment. If her interest-only payment is $2,500, what is her
interest rate?
SOLUTION:
To find the solution to this problem, we need to first find out what
the LTV is and then the loan amount. If the down payment is 40%,
the loan-to-value must be 60%.
100% - 40% = 60%
Now, let’s find the loan amount.
Purchase price x LTV = loan amount
$500,000 x 60% = $300,000
Now we know that the loan amount is $300,000.
CALCULATING
PAYMENTS
Question #50
SOLUTION:
To calculate the interest rate, we will need to use the following
equation:
Interest rate = Interest-only payment x 12 / Loan amount
Interest rate = $2,500 x 12 / $300,000
Interest rate = $30,000 / $300,000
CALCULATING THE
LOAN-TO-VALUE
Question #1
SOLUTION:
CALCULATING THE PITI
$240,000 / $300,000 = 0.80 which is also 80%
CALCULATING THE PITIA
Question #51
Tracey is buying a home and wants to know what her total
mortgage payment will be including taxes and insurance. If she has
the following information, what would be her monthly payment if
we assume she won’t have mortgage insurance:
Principal monthly payment: $515
Interest monthly payment: $750
Property taxes (monthly): $320
Insurance (monthly): $120
SOLUTION:
In order to calculate the PITI payment we simply need to add each
one of these and make sure they’re on a monthly basis. To do this,
we will do the following calculation:
PITI = Principal + Interest + Taxes + Insurance
PITI = $515 + $750 + $320 + $120
$1,705 is Tracey’s PITI payment.
Question #52
Hugh and Anne are refinancing their home and have a current PITI
payment of $2,400. If they now have the following payments, how
much will they save per month?
Principal and interest monthly payment: $1,133
Insurance (monthly): 150
SOLUTION:
First, we need to calculate the new PITI payment and then we will
subtract the old PITI payment from the new PITI payment so
confirm how much HIgh and Anne will save on a monthly basis.
Let’s get started by calculating the PITI payment.
$1,133 + $300 + $150 = $1,583 = new PITI payment
Old PITI payment - New PITI payment = Savings
$2,400 - $1,583 = $817
Hugh and Anne will be saving $817 per monthly by refinancing.
Question #53
Beatriz is refinancing her condo and has a current PITIA payment
of $1,579 and does not have mortgage insurance. If she now has
the following payments, how much will they save per month?
Principal and interest monthly payment: $688
HOA payment(monthly): 250
Mortgage insurance payment: $75
SOLUTION:
In this case, we will do a very similar calculation but will need to
add the mortgage insurance to the new PITI payment.
PITI = $688 + $175 + $250 + $75
PITI = $1,188
Old PITI - New PITI = Savings
$1,579 - $1,188 = $391 is what Beatriz will save every month.
Question #54
What is Cindy’s principal and interest payment if her total PITIA
payment is $2,350, including mortgage insurance, and we have the
following criteria?
Homeowners insurance (monthly): $200
HOA payment(monthly): 250
Mortgage insurance payment: $75
SOLUTION:
In order to figure out Cindy’s principal and interest payment, we
will need to subtract the PITI from all her other payments which
will give us the solution. Let’s calculate this now.
PITIA - taxes - insurance - HOA - mortgage insurance (MI) = PI
$2,350 - $450 - $200 - $250 - $75 = Principal and interest
$1,375 is Cindy’s principal and interest payment every month.
Question #55
Gail is purchasing an investment home for $660,000 and is coming
in with a 20% down payment on an interest only loan. If she has
the following criteria, what would be her PITI payment and would
she have mortgage insurance:
Interest monthly payment: $2,200
Property taxes (annually): $8,640
Insurance (monthly): $240
SOLUTION:
First of all, since Gail is coming in with a 20% down payment, we
know her LTV will be 80% and so, she won’t have mortgage
insurance. Second, we need to add the interest, tax, and insurance
payments to come up with the PITI, which is really just PTI since
we don’t have a principal payment on an interest-only loan.
The property taxes are based on an annual payment so we need to
convert this to a monthly payment by dividing by 12.
$8,640 / 12 = $720
Question #55
SOLUTION:
Now that we know what the monthly tax payment is, we can
calculate the PTI by doing the following math:
$2,200 + $720 + $240 = PTI
$3,160 = PTI
Gail will have a PTI or principal, taxes, and insurance payment of
$3,160 every month.
Question #56
Victor is refinancing his home and has a PITI payment of $2,850.
He says he can’t remember his homeowners insurance premium
payment so you decide to find out what that number is by doing
the numbers backwards. Based on the information he gave you
below, what is his insurance payment?
Principal & interest payment: $2,200
SOLUTION:
This problem is asking for the insurance payment so we need to
subtract all the other factors from the PITI payment to come up
with the insurance payment. Let’s do the following:
$2,850 - $2,200 - $360 = Insurance payment
$290 is Victor’s homeowners insurance payment reflected on a
monthly basis.
Annually, his payment is $290 x 12 = $3,480
Question #57
Emma is refinancing her home and has a PITI payment of $3,340.
She doesn’t know what her property tax payment is so she asked
you to find out what that number is. If you have the following
information, what is her monthly property tax payment
SOLUTION:
This problem is very similar to the last one except we will solve the
tax payment this time.
PITI - principal and interest - insurance = taxes
$3,340 - $2,660 - $280 = taxes
$400 is Emma’s monthly tax payment
Her annually property taxes are $400 x 12 = $4,800
Question #58
If you have a borrower that has the following information, what
would be their PITIA payment?
Annual property tax payment: $3,600
Homeowners insurance (annual): $2,640
HOA annual payment: $2,400
SOLUTION:
This is commonly how you will be given the PITI information and
you will need to convert annual payment to monthly payments.
Let’s start by converting each annual payment to a monthly
payment except for the principal payment since it’s already
represented on a monthly basis.
(Annual taxes) $3,600 / 12 = $300
(Annual insurance) $2,640 / 12 = $220
(Annual HOA) $2,400 / 12 = $200
Question #58
SOLUTION:
Now we can use this information to calculate the PITIA:
PITIA = Principal and interest + tax + insurance + HOA
PITIA = $1,490 + $300 + $220 + $200
PITIA = $2,210
Question #59
If Tim is a loan originator and has a borrower with the following
loan information, what would be his PITIA payment?
Principal and interest payment: $898
Annual property tax payment: $1,800
HOA monthly payment: $75
SOLUTION:
You will notice that in this problem, not all of the loan criteria is on
a monthly basis so we need to convert anything that shows on an
annual basis to a monthly basis which in this case includes the
property taxes and the homeowners insurance.
(Taxes) $1,800 / 12 = $150
(Insurance) $1,020 / 12 = $85
Now that we have everything represented on a monthly basis, we
can move on to calculating the PITIA.
Question #59
SOLUTION:
PITIA = $898 + $150 + $85 + $75
PITIA = $1,208
Question #60
Janet needs to refinance very soon because she has an adjustable
rate mortgage that will expire shortly. If she has the following loan
information, what will be her new PITIA payment?
Property tax payment (monthly): $300
HOA monthly payment: $150
SOLUTION:
Since the information provided is shown on a monthly basis, we
won’t have to convert anything and can simply move on to
calculating the PITIA for this problem. Let’s use the equation for
PITIA:
PITIA = $1,589 + $300 + $200 + $150
Janet’s new PITIA payment is $2,239.
CALCULATING THE
LOAN-TO-VALUE
Question #1
SOLUTION:
CALCULATING THE COST
OF LOAN DISCOUNT POINTS
$240,000 / $300,000 = 0.80 which is also 80%
CALCULATING THE COST OF
DISCOUNT POINTS
Question #61
A borrower is approved for a mortgage for $400,000 and will have
to pay 0.5% in discount points to have a 3% interest rate. How
much will the borrower have to come out of pocket to pay for
discount points?
SOLUTION:
In order to find out how much a borrower would have to pay in
loan discount points, we need to use the equation below:
Cost to the borrower = Loan amount x Discount points (%)
Cost = $400,000 x 0.005
Cost = $2,000
The borrower will need to pay $2,000 in loan discount points in
order to have a 3% interest rate.
DISCOUNT POINTS
Question #62
Antonio has been prequalified for a 4% interest rate but wants to
have a 3.5% interest rate. If it will cost him 2% to buy down the
rate on a $240,000 loan, what will be his cost for the discount
points in dollar amounts?
SOLUTION:
Since Antonio is willing to pay for a lower rate, we will need to
provide him with the cost in dollar amounts and not just the
percentage so that he knows by how much his closing costs will go
up. Let’s use the loan discount point equation to calculate this
cost.
Cost to the borrower = Loan amount x Discount points (%)
Cost = $240,000 x 0.02
Cost = $4,800
Even though we’re provided with both, the current interest rate
and the interest rate Antonio wants to have, it’s irrelevant
information so don’t fall into the trap of focusing on the wrong
numbers to find the solution.
DISCOUNT POINTS
Question #63
Maria is buying her first home and was told by her loan officer that
she needs to have an interest rate of 3.5% or lower to be able to
qualify or else her DTI will be too high. In order to have this
interest rate, she will need to pay 1% in discount points on a
$150,000 loan. How much will this cost her?
SOLUTION:
This happens often with borrowers that have lower credit scores
or that are buying investment properties since rates are usually
higher for these types of borrowers. To get started solving this
problem, you will need to use the discount point equation.
Cost = Loan amount x Discount points
Cost = $150,000 x 0.01
Cost = $1,500
Maria will have to pay $1,500 to have a 3.5% interest rate.
DISCOUNT POINTS
Question #64
Rachel is buying a home for $600,000 and is giving a 5% down
payment. She wants to have a 3.5% interest rate which will require
that she pay 2% in discount points. How much will she have to pay
to have that interest rate?
SOLUTION:
In this example, you will notice that we don’t have a loan amount
but we do have the purchase price of $600,000 which we will use
to figure out the loan amount. Since Rachel is giving a 5% down
payment, we will need to multiply 95% times the purchase price to
find the loan amount.
100% - 5% = 95% LTV
$600,000 x 0.95 = $570,000
The loan amount is $570,000 which we will now use to find the
cost to the borrower in discount points.
DISCOUNT POINTS
Question #64
SOLUTION:
To have a 3.5% interest rate, Rachel is paying 2% in loan discount
points so we will need to use the discount point equation.
Cost = $570,000 x 0.02
Cost = $11,400
Rachel will have to pay $11,400 in discount points.
DISCOUNT POINTS
Question #65
If Gwen is purchasing a condo for $180,000 and is giving a 20%
down payment and wants to have a 2.5% interest rate which will
require that she pay 1.5% in discount points. How much will she
have to pay to buy down the interest rate?
SOLUTION:
Since we know Gwen is giving a 20% down payment, we can easily
find the LTV by subtracting 100% of the purchase price by the 20%
down payment.
100% - 20% = 80% LTV
Now, we will use this to find out what the loan amount is:
Loan amount = purchase price x LTV
Loan amount = $180,000 x 80%
We will use this loan amount to find Gwen’s cost.
DISCOUNT POINTS
Question #65
SOLUTION:
Since we know Gwen is giving a 20% down payment, we can easily
find the LTV by subtracting 100% of the purchase price by the 20%
down payment.
100% - 20% = 80% LTV
Now, we will use this to find out what the loan amount is:
Loan amount = purchase price x LTV
Loan amount = $180,000 x 80%
We will use this loan amount to find Gwen’s cost.
Cost = $144,000 x 0.015 = $2,160
Gwen’s total cost for the discount points she is paying is $2,160.
Remember not to get tricked by the number that appears for her
interest rate since we won’t use that number to calculate anything
in this problem.
DISCOUNT POINTS
Question #66
If Stacey is purchasing a fourplex for $310,000 and is giving a 10%
down payment and wants to have a 4% interest rate which will
require that she pay 1.25% in discount points. What will be her out
of pocket cost to buy down the interest rate?
SOLUTION:
Don’t let the wording confuse you. Buying down the interest rate
is the same thing as paying discount points. In this example, we
are given the down payment percentage and can use this to find
the loan-to-value which in this case will be:
100% - 10% = 90% LTV
Since we know the LTV, we can easily calculate the loan amount:
Loan amount = $310,000 x 0.90
Let’s find the cost Stacey will have in discount points by using the
loan amount above.
DISCOUNT POINTS
Question #66
SOLUTION:
Cost to the borrower = $279,000 x 1.25%
Cost to the borrower = $279,000 x 0.0125
Stacey will have to pay $3,487.50 to buy down the interest rate in
order to have a 4% interest rate.
Even though this may sound like a lot, it simply depends on the
borrower’s overall situation and credit scores.
DISCOUNT POINTS
Question #67
If you have a borrower that is paying $2,000 in discount points to
have a 5% interest rate, what is the percentage she is paying in
discount points on a $200,000 loan?
SOLUTION:
Let’s discard any information that’s not relevant. The 5% interest
rate would be useful if we were calculating the borrowers
payment but to calculate the percentage paid in discount points
we need to have the cost of the discount points and the loan
amount which we have been given. Let’s use a variation of the
same equation we are using to find the cost.
Cost = loan amount x discount points (%)
Discount points (%) = Cost / loan amount
Discount points (%) = $2,000 / $200,000
Discount points = 1%
DISCOUNT POINTS
Question #68
Brad has to pay $3,000 in discount points to have a 3.75% interest
rate, what is the percentage he is paying in discount points on a
$100,000 loan?
SOLUTION:
Again, we will use the same process to find the solution for the
percentage in discount points Brad will be paying.
Cost to the borrower = loan amount x discount points (%)
Discount points (%) = $3,000 / $100,000
Discount points (%) = 3%
Brad will have to pay 3% in discount points to have a 3.75%
interest rate.
DISCOUNT POINTS
Question #69
David is paying $5,000 in discount points to have a 4.99% interest
rate, what is the percentage he is paying in discount points on a
$1,000,000 loan?
SOLUTION:
If David is paying $5,000 in discount points, we can use the loan
amount to find the percentage he is paying in discount points.
Discount points (%) = $5,000 / $1,000,000
Discount points (%) = 0.005
Discount points (%) = 0.5%
So now we know that David is paying 0.5% in discount points to
have an interest rate of 4.99%.
DISCOUNT POINTS
Question #70
Wanda is refinancing her home and has a 5.1% interest rate. She is
offered a 4.5% interest but will have to pay $2,500 to buy down
the interest rate. If she is paying 1% in discount points, what is the
loan amount?
SOLUTION:
To find the loan amount, we need to use the original discount
point equation.
Cost = Loan amount x discount points
Let’s solve for the loan amount by moving all the other factors to
one side of the equation.
Loan amount = Cost / discount points
Loan amount = $2,500 / 0.01 (which is really 1%)
Don’t pay attention to the 4.5% and 5.1% interest rates that
appear in the problem since they are only there to distract you.
CALCULATING THE
LOAN-TO-VALUE
Question #1
SOLUTION:
CALCULATING THE COST
OF LOAN ORIGINATION POINTS
$240,000 / $300,000 = 0.80 which is also 80%
LOAN ORIGINATION POINTS
Question #71
A borrower is applying for a mortgage loan and wants to know
what their total closing costs will be and wants to know exactly
how much they will have to pay for your services. If they have a
$150,000 loan amount and you charge 2.5% in loan origination
fees, how much will it cost them to do the loan with you?
SOLUTION:
Since we know the loan amount and we know the percentage
being charged in the form of loan origination points, we can use
the following equation to solve this problem:
Cost of the origination points = loan amount x loan origination
points
Cost of the origination points = $150,000 x 2.5%
Cost of the origination points = $150,000 x 0.025
Cost of the origination points = $3,750
Question #72
Mike is purchasing an investment property and is getting a hard
money loan. If the hard money lender is charging a 2% loan
origination fee and you will be charging a 1% origination fee on a
$125,000 mortgage, what will be the total cost to the borrower?
SOLUTION:
In this case, the lender and you are charging a loan origination fee
so we will need to add both origination fees to be able to solve for
the cost to the borrower in loan origination fees.
2% + 1% = 3% in total loan origination points
Now that we have this information, we can solve for the cost in
loan origination points.
points
Question #72
SOLUTION:
To calculate the loan origination points you will be charging, you
can simply do the same process but replace the origination points
to show 1%.
points
Question #73
Susana is purchasing a commercial property. If the commercial
lender is charging a 1.5% loan origination fee and you’ll be
charging a 1.5% origination fee on a $3,250,000 mortgage, what
will be her total cost?
SOLUTION:
Since we have two loan origination fees, we need to add both of
them to get the total loan origination fees to be able to solve for
the total cost to the borrower in origination fees.
Lender + your loan origination fee = Total origination fees
1.5% + 1.5% = 3% in origination fees
With this information we can calculate Susan’s cost.
Cost of the origination points = loan amount x origination points
Cost of the origination points = $3,250,000 x 0.03
Susan’s cost in the origination points is $97,500.
Question #74
Allen is purchasing a condo for $350,000 and is giving a 20% down
payment. If you will be charging a 2% loan origination fee, what
will be his total cost to do business with you?
SOLUTION:
Remember, the loan origination fee is based on the loan amount
and not the down payment so we need to find out the
loan-to-value so we can determine the loan amount.
100% - 20% = 80% loan-to-value
$350,000 x 0.80 = $280,000
With the loan amount of $280,000 we can calculate the cost.
Question #75
Yolanda is a first time home buyer that’s buying a home for
$365,000 and is giving $65,000 in the form of a down payment. If
she has to pay 1.75% in loan origination points, how much will she
have to pay?
SOLUTION:
You can solve this problem by first, finding the loan amount and
then calculating the cost to the borrower in origination points.
Let’s start by determining the loan amount. Since the down
payment is $65,000, we will subtract $365,000 from this amount.
$365,000 - $65,000 = $300,000 loan amount
Let’s find Yolanda’s cost for the 1.75% in origination points.
Question #76
If you have a borrower that’s paying $2,750 in loan origination
points for a loan amount of $100,000, what’s the percentage
they’re paying in origination points?
SOLUTION:
Notice what you’re being asked to solve. To find the percentage
paid in origination points, you will need to use the cost of
origination points equation and its variation.
Cost of the origination points = loan amount x origination
points(%)
Origination points(%) = Cost of the origination points / loan
amount
Origination points(%) = $2,750 / $100,000
Origination points(%) = 0.0275
This borrower is paying 2.75% in loan origination points.
Question #77
If Barbara is refinancing her home and has to pay $3,500 in loan
origination points, which is 0.5% of the loan amount, what is her
loan amount?
SOLUTION:
To solve for the loan amount we have to use the variation of the
loan origination equation.
points(%)
Loan amount = cost of the origination points / origination
points(%)
Loan amount = $3,500 / 0.5%
Loan amount = $3,500 / 0.005
Barbara’s loan amount is $700,000.
Question #78
Jim and Jane are refinancing their home and will have to pay 2% in
loan origination points for a loan amount of $313,000. How much
will they have to pay in loan origination points?
SOLUTION:
This question is straightforward. We will need to use the loan
origination points equation.
points(%)
Cost of the origination points = $313,000 x 2%
Jim and Jane will end up paying $6,260 in loan origination points.
Question #79
Indira and James are financing a duplex and have a loan amount of
$380,000. If they have to pay $7,600 in loan origination points,
what is the percentage they are paying in loan origination points?
SOLUTION:
To find the percentage being paid in loan origination points, we
will need to use a variation of the equation:
points(%)
Which in this case is:
Origination points(%) = cost of the origination points / loan
amount
Origination points(%) = $7,600 / $380,000
Origination points(%) = 2%
Indira and James are paying 2% in loan origination points.
Question #80
A husband and wife come into your office and want to know how
much you’ll charge them in loan origination points if they have a
$274,000 loan amount and don’t want to pay more than $5,000 in
origination fees. If you charge 2% in origination fees, will you be
charging them more or less than what they’re willing to pay?
SOLUTION:
Let’s go straight to calculating the loan origination points in dollar
amounts.
points(%)
Since they said they would pay no more than $5,000, you would
be charging them $480 over what they’re willing to pay so you
can either lower your origination points or see if they accept to
go forward with the loan.
CALCULATING THE
LOAN-TO-VALUE
Question #1
SOLUTION:
CALCULATING A
BORROWERS INCOME
$240,000 / $300,000 = 0.80 which is also 80%
CALCULATING A W2
EMPLOYEES INCOME
Question #81
If a borrower is paid $8,000 per month and is applying for a
mortgage for $500,000 and wants to keep their payments under
$2,500, what number would you use to determine their gross
monthly income?
SOLUTION:
Since this borrower is paid $8,000 per month, we would use
$8,000 as their gross monthly income to qualify for a $500,000
mortgage.
In this case, we don’t have to adjust the borrowers income simply
because their income is represented on a monthly basis and
requires no changes. If their income was on a weekly, bi-weekly,
bi-monthly, or other form, you would need to do some
calculations to be able to confirm their gross monthly income.
CALCULATING A W2
EMPLOYEES INCOME
Question #82
Francisca is buying a home and needs to be prequalified. When
she comes to you, she brings you her W2’s and pay stubs which
show a bi-monthly income of $3,450. What will be the income you
will use to determine if she qualifies or not?
SOLUTION:
Since Francisca is paid on a “bi-monthly” basis, we know that we
need to multiply her gross monthly by 2 to find her monthly
income and be able to determine if she qualifies or not for a
mortgage based on what her DTI ratio is.
Let’s get started.
Gross monthly income = Gross bi-monthly salary x 2
Gross monthly income = $3,450 x 2
Gross monthly income = $6,900
We will use $6,900 as Francisca’s gross monthly income to
determine her DTI.
CALCULATING A W2
EMPLOYEES INCOME
Question #83
James is purchasing a home and needs to be prequalified first. If
he’s paid a bi-weekly gross salary of $1,600. What is his gross
monthly income?
SOLUTION:
In order to calculate a borrowers bi-weekly income we need to use
the following equation:
Gross monthly income = (Gross bi-weekly income x 26) / 12
Let’s use the bi-weekly provided by James to determine his gross
monthly income.
Gross monthly income = ($1,600 x 26) / 12
Gross monthly income = $41,600 / 12
Gross monthly income = $3,466.66
James gross monthly income is $3,466.66 and this is what will be
used to calculate his debt-to-income ratio.
CALCULATING A W2
EMPLOYEES INCOME
Question #84
Ursula makes $21 per hour and works 40 hours per week. What is
her gross monthly income?
SOLUTION:
Since Ursula is paid per hour, we will need to use the following
equation to determine her gross monthly income:
Dollars per hour paid x 40 x 52 / 12 = Gross monthly income
Gross monthly income = $21 x 40 x 52 / 12
Ursula makes $3,640 in gross monthly income.
CALCULATING A W2
EMPLOYEES INCOME
Question #85
Lynn gets paid $13 per hour and works 40 hours per week. What is
her gross monthly income?
SOLUTION:
Knowing how to calculate the gross income for borrowers that are
paid on an hourly basis is important since you will do this often. In
this case Lynn is paid per hour so we will use the following
equation:
Dollars per hour paid x 40 x 52 / 12 = Gross monthly income
Now we know that Lynn makes $2,253.33 on a gross monthly
basis.
CALCULATING A W2
EMPLOYEES INCOME
Question #86
Hector gets paid as a 1099 independent contractor. He was paid
$120,000 on year 1 and $100,000 on year 2. What is his gross
monthly income?
SOLUTION:
Calculating the income for 1099 employees is different from
calculating the income for W2 employees which is why it’s
important to use the following equation:
(Schedule C net profits for year 1 + Schedule C net profits for year
2) / 2 = Gross annual income
Gross annual income = ($120,000 + $100,000) / 2
Gross annual income = $110,000
Now, we need convert the annual income to monthly income:
Monthly gross income = $110,000 / 12
Monthly gross income = $9,166.66
CALCULATING A W2
EMPLOYEES INCOME
Question #87
Ben and Carla are self employed and have their own business. If
they had a net profit, under schedule C of their personal income
tax returns, of $756,000 on year 1 and $345,000 on year 2. What is
their qualifying gross monthly income to be used to qualify for a
home loan?
SOLUTION:
Ben and Carla’s income will need to be solved using the
self-employment equation below.
Gross annual income = ($756,000 + $345,000) /2
CALCULATING A W2
EMPLOYEES INCOME
Question #88
If you have a borrower that’s paid a bi-weekly salary of $2,500 and
has received overtime income of $22,000 annually for year 1 and
$24,000 in year 2, what is the income you would use to prequalify
this borrower?
SOLUTION:
In this example, we will need to calculate the gross monthly
income and then we’ll calculate the overtime income. Let’s start
by using the bi-weekly salary equation:
Gross monthly income = $2,500 x 26 / 12
Now, we can find the overtime income.
(Overtime income year 1 + overtime income year 2) / 2 = Annual
overtime income
CALCULATING A W2
EMPLOYEES INCOME
Question #88
SOLUTION:
(Overtime income year 1 + overtime income year 2) / 2 = Annual
overtime income
Annual overtime income = ($22,000 + $24,000) / 2
Annual overtime income = $46,000 / 2
Annual overtime income = $23,000
We just have to convert on a monthly basis by dividing by 12.
$23,000 / 12 = $1,916.66
$1,916.66 is the overtime income we will add to the gross monthly
income
Gross monthly income + overtime income = Total income
$5,416.66 + $1,916.66 = $7,333.32
The income that will be used to calculate the borrowers DTI will
be $7,333.32.
CALCULATING A W2
EMPLOYEES INCOME
Question #89
Mariela is about to make an offer on a home and her realtor
referred her to you so that you may pre-qualify her and send them
a pre-qualification letter to provide with the offer. If Mariela
makes a bi-monthly salary of $3,450 and has received bonus
income for the last two years of $5,000, what is her qualifying
income to be used?
SOLUTION:
Since we know Mariela is paid on a bi-monthly basis, we will
simply need to multiply her income by 2 to get her gross monthly
income. Once we do this, we will need to add her bonus income.
Let’s start by calculating her gross monthly income.
Now, we need to find out what her monthly bonus income is.
CALCULATING A W2
EMPLOYEES INCOME
Question #89
SOLUTION:
We will use the following equation to calculate her bonus income:
(Bonus income year 1 + bonus income year 2) / 2 = Annual bonus
income
Annual bonus income = ($5,000 + $5,000) / 2
Annual bonus income = $10,000 / 2
Annual bonus income = $5,000
We need to find out how much her monthly bonus income is so
we can add that to her gross monthly income.
$5,000 / 12 = $416.66 bonus income per month
By adding Mariela’s gross monthly income to her monthly bonus
income we get:
$6,900 + $416.66 = $7,316.66
Mariela’s gross monthly income is $7,316.66.
CALCULATING A W2
EMPLOYEES INCOME
Question #90
Barbie is refinancing her condo and wants to know if she can take
some cash out. This means she’ll have a higher loan amount of
$430,000. She wants to know if she will qualify for the loan based
on her annual commission income of $250,000 which she receives
a 1099 for every year. If her income taxes show a net profit on her
schedule C for the last 2 years, what will be her gross monthly
income?
SOLUTION:
Since we know Barbie is paid with a form 1099, we will simply use
the average net profits for the last 2 years and then divide by 12 to
determine the gross monthly income. Let’s begin by using the
following equation:
($250,000 + $250,000) / 2 = $250,000
Since this is the annual income, we need to divide by 12.
CALCULATING A W2
EMPLOYEES INCOME
Question #90
SOLUTION:
Barbie’s gross monthly income is $20,833.33.
Even though we’ve been given her new loan amount, we aren’t
asked to solve anything else so we are done with this problem.
CALCULATING A W2
EMPLOYEES INCOME
Question #91
Mark is about to make an offer on a large home selling for $1.3M
but isn’t sure if he qualifies for a home that size. His bi-monthly
income is $3,700 and has received bonus income for the last two
years for $33,000 and $37,000. What is his gross monthly income?
SOLUTION:
First, let’s find Mark’s gross monthly income by multiplying his
bi-monthly income by 2.
$3,700 x 2
$7,400 = Mark’s gross monthly income
Second , we need to add his bonus income by doing the following
calculation:
(Bonus income year 1 + bonus income year 2) / 2 = Annual bonus
income
Annual bonus income = ($33,000 + $37,000) / 2
Annual bonus income = $35,000
CALCULATING A W2
EMPLOYEES INCOME
Question #91
SOLUTION:
To convert his annual bonus income to monthly income, we have
to divide by 12.
Monthly bonus income = $35,000 / 12
Monthly bonus income = $2,916.66
The last thing we need to do is add his salary income and his
bonus income to find his total gross monthly income.
Total gross monthly income = $7,400 + $2,916.66
Total gross monthly income = $10,316.66
CALCULATING A W2
EMPLOYEES INCOME
Question #92
Mindy and Dug made $140,000 on year 1 and $130,000 on year 2
in net profits from their business, which you already confirmed
from their schedule C on their last two years income tax returns.
What is their gross monthly income?
SOLUTION:
Since Mindy and Dug are self-employed borrowers that show
schedule C net profits, we will use the following equation:
Gross annual income = $270,000 / 2
Now, let’s convert this to a monthly basis by dividing by 12.
CALCULATING A W2
EMPLOYEES INCOME
Question #92
SOLUTION:
Monthly gross income = $135,000 / 12
Monthly gross income = $11,250
For qualification purposes Mindy and Dug have a monthly gross
income of $11,250.
Always check the first page of their income tax returns to verify if
they also paid themselves a salary or if they have additional
income so that you can add that income to their monthly gross
income that derived from their “net profits”.
This is important, so you don’t miss any important information.
CALCULATING A W2
EMPLOYEES INCOME
Question #93
If Tom makes $22 per hour and Samantha makes $31 per hour,
what is their total gross monthly income if we assume they have
both work for 40 hours?
SOLUTION:
Since both Tom and Samantha are paid per hour, we will need to
calculate their gross monthly income by doing the following
calculation for each one:
Tom’s income
Gross monthly income = Dollars per hour paid x 40 x 52 / 12
Tom has a gross monthly income of $3,813.33.
We still need to find Samantha’s gross monthly income and add
them together.
CALCULATING A W2
EMPLOYEES INCOME
Question #93
SOLUTION:
Samantha’s income
Samantha has a gross monthly income of $5,373.33.
If we add both of their incomes we will have their combined gross
monthly income.
$3,813.33 + $5,373.33 = $9,186.66
Their combined gross monthly income is $9,186.66 and this is
what we will use the qualify them for a home loan.
CALCULATING A W2
EMPLOYEES INCOME
Question #94
Jason could not qualify on his own for a mortgage so he had his
father and mother included in the loan. Jason makes $12 per hour,
his dad makes $44 per hour, and his mom makes $38 per hour.
What would be their total qualifying gross monthly income if we
assume they all work 40 hours per week?
SOLUTION:
To determine the gross monthly income for all three, we need to
find how much they each make on a monthly basis and then add
up all of their incomes. Let’s do this now.
Jason makes:
CALCULATING A W2
EMPLOYEES INCOME
Question #94
SOLUTION:
Jason’s dad makes:
Jason’s mom makes:
If we add all three of their incomes we will come up with their
combined gross monthly income.
$2,080 + $7,626.66 + $6,586.66 = $16,293.32
Their combined gross monthly income is $16,293.32.
CALCULATING A W2
EMPLOYEES INCOME
Question #95
Yu makes $58 per hour and works 40 hours per week. Her
husband, Ken has a bi-weekly salary of $2,430. What is their
combined gross monthly income?
SOLUTION:
In this case, we have to do two different calculations to find their
gross monthly income. Yu is paid on an hourly basis and Ken is
paid on a bi-weekly basis. Start by calculating Yu’s income.
Yu’s income:
Ken’s income:
CALCULATING A W2
EMPLOYEES INCOME
Question #95
SOLUTION:
If we add both of their incomes, we will have their combined gross
monthly income.
Yu’s income + Ken’s income
$10,053.33 + $5,265 = $15,318.33
CALCULATING A W2
EMPLOYEES INCOME
Question #96
Wilson is refinancing his home and makes both a salary and a
commission from two different jobs. His first job pays him a
bi-weekly salary of $1,350 and his second job has paid him an
average annual income of $43,500 for the last two years. What is
his total gross monthly income from both of his jobs?
SOLUTION:
Again, we have to calculate different payment frequencies for
which we will need two different equations.
Wilson’s first job:
CALCULATING A W2
EMPLOYEES INCOME
Question #96
SOLUTION:
Wilson’s second job:
Since his second job pays him an annual salary, we will just need to
divide by 12 now that we know that his average annual income is
$43,500.
$43,500 / 12 = $3,625
By adding his first job’s income with his second job’s income we
get:
$2,925 + $3,625 = $6,550
CALCULATING A W2
EMPLOYEES INCOME
Question #97
Ivette is paid as a 1099 independent contractor and made $98,000
on year 1 and $78,000 on year 2. What is her qualifying gross
monthly income?
SOLUTION:
Since Ivette is paid as a 1099 independent contract we will need to
take her net profits for year 1 and add it to year 2 and then divide
by 2 to get the average income for the last 2 years. That will be her
gross annual income so we will need to divide by 12 to get her
gross monthly income as shown below:
Gross annual income = (Schedule C net profits for year 1 +
Schedule C net profits for year 2) / 2
Now we need to convert this to a monthly income by dividing by
12.
CALCULATING A W2
EMPLOYEES INCOME
Question #97
SOLUTION:
Remember, this is based on what this borrower has on their
schedule C under net profits but if they have additional income
including W2 income, you will need to calculate the gross monthly
income and then add it to the net profit income for the last 2
years.
CALCULATING A W2
EMPLOYEES INCOME
Question #98
Quincy is paid a bi-monthly salary of $4,100 and Daisy is paid a
bi-weekly salary of $5,600. What is their combined gross monthly
income?
SOLUTION:
Since Quincy is paid twice per month, we will need to multiply his
income by two to find his gross monthly income and for Daisy we
will need to use the bi-weekly income equation. Once, we have
both of their incomes, we can add them together and find their
total gross monthly income. Let’s get started with this process.
Quincy’s income:
For Daisy, we will need to use the following equation:
CALCULATING A W2
EMPLOYEES INCOME
Question #98
SOLUTION:
By knowing what each one makes on a gross monthly basis, we
can add their incomes and find their total gross monthly income.
Total gross monthly income = $8,200 + $12,133.33
Total gross monthly income = $20,333.33
CALCULATING A W2
EMPLOYEES INCOME
Question #99
Jon is buying a triplex to rent out and generate additional income.
If he makes $30 per hour and will receive $2,400 from renting two
of the units in the triplex while living in the third unit, what will be
the total gross income he can use to qualify for a mortgage?
SOLUTION:
In this case, we will need to determine Jon’s gross monthly income
first and then we will calculate what his total qualifying income is
when we add the proposed rental income. When you work on
loans on properties that generate income such as a duplex, triplex,
and a fourplex, you will be allowed to use the rental income from
the units that will be rented. Many times, lenders will use 75% -
90% of this rental income for income calculation purposes but in
this example we will use 100% of the rental income to keep things
simple.
Let’s get started calculating the borrowers income by using the
following equation:
CALCULATING A W2
EMPLOYEES INCOME
Question #99
SOLUTION:
Now that we know the borrowers income, let’s add the rental
income.
$5,200 + $2,400 = $7,600
For qualifying purposes, Jon makes $7,600 per month and this is
what you will use to calculate the DTI.
CALCULATING A W2
EMPLOYEES INCOME
Question #100
Gordon, Joe, and Hank are applying for a home mortgage and all
three will be on the loan to increase the total income on the loan.
Gordon is the primary borrower, and Joe and Hank are
co-borrowers on the loan. Gordon makes $22 per hour and works
40 hours per week. Joe makes $2,300 bi-weekly and Hank makes
$3,200 per month. What is their total gross monthly income to be
used to qualify for the home loan?
SOLUTION:
We need to calculate the income for each one individually first and
then we will add their gross monthly income together to
determine their total qualifying gross monthly income.
Gordon’s income:
CALCULATING A W2
EMPLOYEES INCOME
Question #100
SOLUTION:
Joe’s income:
Hank’s income:
Since hank has a monthly income of $3,200 per month, we don’t
need to make any additional calculations and will use this income
as his gross monthly income.
By adding all of their gross monthly income together, we will
obtain their total qualifying income to use to calculate the DTI and
see if they qualify for the home loan.
$3,813.33 + $4,983.33 + $3,200 = $11,996.66
CALCULATING THE
LOAN-TO-VALUE
Question #1
SOLUTION:
CALCULATING THE MATH
BEHIND PRE-QUALIFICATIONS
$240,000 / $300,000 = 0.80 which is also 80%
THE MATH BEHIND
PRE-QUALIFYING BORROWERS
Question #101
Carina has a bi-weekly salary of $4,800 and is looking to get
pre-qualified for a home worth $522,000. Based on the following
criteria, will she qualify for a home loan with a 643 middle credit
score?
Down payment required: 5%
Total savings: $34,000
Cash to close: $33,500
Maximum DTI: 45%
SOLUTION:
To begin, we need to calculate Carine’s gross monthly income:
Gross monthly income = $4,800 x 26 / 12 = $10,400
THE MATH BEHIND
Question #101
SOLUTION:
To begin, we need to calculate Carine’s gross monthly income:
Next, we need to calculate the debt-to-income ratio by dividing
her monthly income by her total monthly expenses.
DTI = Monthly debt payments (in this case it would be the PITI
payment) / Gross monthly income
DTI = $2,120 / $10,400
DTI = 20.38% which is less than 45% so the DTI will be fine.
Her required down payment is 5% which would be $26,100 since
$522,000 x 5% = $26,100
This also means that her LTV is 95% and her loan amount is
$495,900.
THE MATH BEHIND
Question #101
SOLUTION:
If her cash to close is $33,500 including all closing costs and
reserves, and if she has $34,000 in savings, she will definitely have
enough funds to qualify for the mortgage as long as she’s not
asked for additional funds to cover any reserve requirements.
In summary, Carina has a low enough DTI to qualify and her
savings are sufficient to cover the down payment and closing
costs. Her credit score is above 620 (remember, she has a 643 mid
score) so her credit score will allow her to qualify as well.
Even though there are other things to take into account, her DTI,
cash to close, and middle credit score are good enough to be
prequalified for the purchase price of $522,000 with a 95% LTV.
THE MATH BEHIND
Question #102
Terry has a bi-monthly salary of $2,900 and is looking to get
pre-qualified for a condo worth $120,000. Based on the following
criteria, will he qualify for a home loan?
Middle credit score: 790
SOLUTION:
We are trying to make sure Terry is pre-qualified based on the
most important factors which are the DTI, sufficient cash to close,
and a good enough middle credit score. There are always more
things to take into account but if these three things don’t allow
the borrower to qualify, they will not be approved for the loan.
THE MATH BEHIND
Question #102
SOLUTION:
Terry’s middle credit score is above 620, his credit score is
sufficient and since it’s above 700, he will probably have a decent
interest rate. Let’s get started calculating his DTI but to do this we
need to make sure his income is represented on a gross monthly
income basis.
He’s paid on a bi-monthly basis which means he’s paid twice per
month so we just need to multiply his bi-monthly income by 2 to
get his gross monthly income.
$2,900 x 2 = $5,800
Now, let’s use the following equation to calculate the DTI:
DTI = monthly debt payments / gross monthly income
DTI = $1,240 / $5,800
DTI = 21.38%
This is below 45% so the DTI is good enough to move forward.
THE MATH BEHIND
Question #102
SOLUTION:
Even though we can calculate the LTV and the down payment
required, we aren’t asked to in this question and we don’t need to
do this calculation to determine any other factors in this problem.
Now, let’s calculate the cash to close. The borrower has $12,000
but needs to have $12,500, Terry is short on cash to close and
would not get prequalified for this loan unless he has another
liquid account showing at least $500 more. He can also obtain a
gift of funds from a relative or family member to be able to
qualify.
In summary, Terry’s DTI and middle credit score are sufficient to
qualify for this loan amount, his cash to close is insufficient but
only by a very small amount. If he can provide sufficient proof of
an additional $500 to be able to comply with the $12,500 in cash
to close, he will qualify and you will be able to provide him with a
pre-qualification letter.
THE MATH BEHIND
Question #103
Janice makes $55 per hour and works 40 hours per week and is
looking to get pre-qualified for a home worth $310,000. Based on
the following criteria, will she qualify for a mortgage?
Down payment required: 3.5%
Middle credit score: 698
SOLUTION:
First, we need to confirm what the borrowers gross monthly
income is:
Gross monthly income = $55 x 40 x 52 / 12 = $9,533.33
THE MATH BEHIND
Question #103
SOLUTION:
Second, we need to calculate the DTI.
Debt-to-income = $2,130 / $9,533.33
Debt-to-income = 22.34%
Her DTI is under 45% which is what the maximum required is in
this problem so her DTI will be sufficient.
Also, Janice has a 698 middle credit score, which is above 620, so
her credit score is sufficient to qualify.
Third, her required cash to close is $13,547 and she has $45,300
in total savings so she has sufficient cash to close for this
purchase.
Based on these factors, Janice will be pre-qualified for a mortgage
for the amount she has requested.
THE MATH BEHIND
Question #104
Jennie has a 622 mid credit score. If she has a weekly salary of
$1,000 and needs to get pre-qualified for a home that’s selling for
$235,000 but is only worth $200,000. Based on the following
criteria, would she qualify for a mortgage if she is able to get the
sellers to bring the price down to the appraised value?
PITIA payment: $1,745
Maximum DTI: 50%
SOLUTION:
Before we start calculating the borrowers income and DTI, let’s
confirm if she has enough funds to close. The required cash to
close is $15,225 and she has $21,540. She has enough money to
cover the down payment and the closing costs.
THE MATH BEHIND
Question #104
SOLUTION:
Jennie is paid on a weekly basis so we will need to use the
following equation to figure out her gross monthly income:
Gross monthly income = Weekly income x 52 / 12
Using this solution, determine the DTI by doing the following
calculation:
DTI = $1,745 / $4,333.33
DTI = 40.27%
Her DTI is under 50% so this component of the pre-qualification is
sufficient.
Her middle credit score is 622 which is above 620 so her mid
credit score is sufficient and so are the DTI and cash to close.
THE MATH BEHIND
Question #105
Joaquin has a middle credit score of 804. If he is paid a bi-weekly
salary of $7,300 and needs to get pre-qualified for a home that’s
selling for $315,000 but is only worth $320,000. Would he qualify
for a mortgage if we take into account the following information?
PITIA payment: $1,587
Maximum DTI: 40%
SOLUTION:
Again, let’s start by confirming if the borrower has enough funds
to cover the cash to close which is $73,445. Since she has
$115,000 in her savings account she does have enough money to
cover all the closing costs and the minimum down payment
required.
THE MATH BEHIND
Question #105
SOLUTION:
Since Joaquin receives a bi-weekly salary, we need to convert this
to a gross monthly income basis.
We will not use this gross monthly income to find the DTI.
DTI = $1,587 / $15,816.66
DTI = 10.03%
Since his DTI is under 40%, which is the maximum allowed in this
transaction, and knowing he has an 804 mid credit score, he will
qualify for the mortgage and you will need to provide him with a
pre-qualification letter to provide when he makes an offer on a
home.
CALCULATING THE
LOAN-TO-VALUE
Question #1
SOLUTION:
BEHIND PURCHASES
$240,000 / $300,000 = 0.80 which is also 80%
THE MATH BEHIND
PURCHASE TRANSACTIONS
Question #106
Sandy is purchasing a home and makes $27 per hour and works 40
hours per week. If she has $34,000 in a checking account and has a
708 middle credit score, will she get approved for a home loan
based on the information provided?
Purchase price: $244,000
Appraised value: $250,000
Deposit on contract: $5,000
PITI: $1,720
Credit card payments: $100 per month
Closing costs: $9,255
Reserves required: $8,000
The contract states that she is applying for: a conventional loan.
*The maximum DTI allowed will be 45% and the minimum middle
credit score is 620.
THE MATH BEHIND
Question #106
SOLUTION:
Let’s start by calculating the DTI or debt-to-income ratio. To do this
we need to figure out what her gross monthly income is.
Now, we need to add all her monthly debt obligations which will
be:
PITI + credit card payments = Total monthly debt obligations
$1,720 + $100 = Total monthly debt obligations
$1,820 = Total monthly debt obligations
She has a total of $1,820 in monthly debt payments or obligations.
THE MATH BEHIND
Question #106
The DTI will be:
DTI = $1,820 / $4,680
DTI = 38%
Now let’s calculate the LTV or loan-to-value. We will need to take
the lower of the purchase price and the appraised value and then
multiply that by 95% since the borrower is giving the minimum
down payment required.
$244,000 x .95 = $231,800
Now, we know that her loan amount is $231,800.
We were already given the PITI payment so we don’t need to
calculate this but now we need to confirm if she has sufficient cash
to close.
THE MATH BEHIND
Question #106
To calculate the cash to close, we need to add the down payment
amount plus the closing costs and subtract that by any deposits
she has already given in the form of a deposit on the contract.
Even though she is required to have $8,000 in reserves, we are
being asked to provide the cash to close and not her required
amount to be approved so we won’t use this information for
calculation purposes. When we are asked for the total funds to be
verified, we will then add the reserves.
Down payment + closing costs - deposit
$12,200 + $9,255 - $5,000 = $16,455 is her cash to close.
Now that we have calculated the most important criteria for a loan
approval, let’s see if they are sufficient:
The cash to close is $16,455 and Sandy has $34,000 in cash so she
has enough funds to close.
The maximum DTI is 45% and Sandy’s DTI is 38% so her ratios will
be fine as well.
THE MATH BEHIND
Question #106
Based on this information, Sandy will be approved for a loan and
should be able to close on this home as long as DU or LP approves
her loan when it is run through either one of these automated
underwriting systems. Also, since she has a 708 mid credit score,
she should get a decent interest rate.
Even though there are more things you will need to take into
account, this is a good start.
APPROVED
THE MATH BEHIND
Question #107
Carlos is purchasing a home and has a bi-weekly salary of $3,375.
If he has $18,000 in savings and has a 644 middle credit score, will
he get approved for a home loan based on the information
provided?
Purchase price: $185,000
Deposit on contract: $3,000
PITI: $1,248
HOA payment (quarterly): $300
Sellers contribution: 6%
THE MATH BEHIND
Question #107
SOLUTION:
As soon as we know the borrower’s middle credit score, we know
if they need to work on their credit to bring it up high enough to
qualify for the loan or if they qualify already. In this case, Carlos
has a 644 mid credit score and qualifies based on this middle
credit score. Let’s get started working on the other factors that
need to be verified.
First, we need to determine the DTI or debt-to-income ratio. To do
this we need to figure out what his gross monthly income is.
Carlos is paid on a bi-weekly basis so we will use this equation to
calculate his gross monthly income:
We still need to find out what his total monthly debt obligations
are by adding the PITI with the monthly HOA payment:
PITI + monthly HOA payment = $1,248 + $300/3 = $1,348
THE MATH BEHIND
Question #107
The DTI will be:
DTI = $1,348 / $7,312.50 = 38%
DTI = 18.43%
The next step to see if Carlos will get approved is to calculate the
loan amount. To do this, we need to multiply the purchase price by
the LTV. Since we know he is giving a 3.5% down payment, we
know he is financing 96.5%. 100% - 3.5% = 96.5%
$185,000 x .965 = $178,525
His total loan amount is $178,525.
$185,000 - $178,525 = $6,475 is his down payment or
$185,000 x 0.035 = $6,475 we get the same result
To find his cash to close, we need to add the down payment to his
closing costs minus his deposit on the contract.
THE MATH BEHIND
Question #107
$6,475 + $12,477 - $3,000 = $15,952 should be his cash to close
but he’s receiving 6% in sellers contribution to help cover his
closings. Let’s figure out how much is 6% of the purchase price to
determine how much Carlos will need to pay in closing costs, if
any.
$185,000 x 0.06 = $11,100 is his sellers contribution
We need to subtract the total closing costs from the seller's
contribution to see how much he will have to pay.
$12,477 - $11,100 = $1,377 is what he has to pay in closing costs
since the sellers are paying the remainder of the closing costs.
Let’s recalculate the cash to close using the amount Carlos has to
pay in closing costs after receiving the seller's contribution.
$6,475 + $1,377 - $3,000 = $4,852 is his actual cash to close
Now, we need to see if he has enough in liquid assets to cover this
amount at closing.
THE MATH BEHIND
Question #107
He has $18,000 in savings and he has to bring $4,852 at closing so
we can figure out the difference by doing the following math:
$18,000 - $4,852 = $13,148 is the amount he has in excess of what
is needed so he definitely has enough money to close on this loan.
In summary, Carlos has a good enough middle credit score, he
has a low enough DTI, which is 18.43%, and he has enough cash
to close on this loan so he will be approved for this loan
considering only these factors to make this decision.
Remember, his maximum DTI is 50% and he is below that. Also,
the lowest middle credit score allowed is 620 and he has a 644
mid score.
It's important to mention that even though he is required to bring
$4,852 at closing, he made a deposit on the contract for $3,000 so
his true cost to own this home is $4,852 + $3,000 = $7,852.
APPROVED
THE MATH BEHIND
Question #108
Patricia is purchasing a duplex for $377,000 as an investment
property and is putting a 20% down payment. If she has a 750 mid
credit score and is receiving an income from the 2nd unit in the
duplex of $1,200, will she get approved for a mortgage based on
the information below?
Hourly salary: $40 (based on a 40 hour work week)
Savings: $175,000
Principal and interest payment: $1,354 (with a 3.5% interest rate)
Property taxes (annual): $3,470
Total funds to be verified: $101,256
Reserves to be verified: $10,000
THE MATH BEHIND
Question #108
SOLUTION:
To begin, we need to calculate the debt-to-income ratio. To do
this, we need to know the gross monthly income. We know
Patricia is paid $40 so we can calculate the following:
We need to add this to the rental income she will be receiving.
Total monthly income = $6,933.33 + $1,200 = $8,133.33
Since Patricia’s monthly debt payments include annual taxes of
$3,470 and annual insurance payments of $1,500, they must be
converted to a monthly basis.
Taxes = $3,470 / 12 = $289.16
Insurance = $1,500 / 12 = $125
THE MATH BEHIND
Question #108
Now, we can use this to find the DTI:
DTI = ($1,354 + $289.16 + $125) / $8,133.33
DTI = 21.74%
To calculate the loan amount, we need to take the purchase price
and multiply that by 80% since the borrower is giving a 20% down
payment required.
$377,000 x 0.80 = $301,600 is Patricia’s loan amount
If we subtract the purchase price from the loan amount, we get
the down payment Patricia will be giving.
$377,000 - $301,600 = $75,400 is the down payment amount
To double check the math, we can also do the following:
$377,000 x 0.20 = $75,400
THE MATH BEHIND
Question #108
Right now, we know the borrower has a good enough mid credit
score to qualify for the loan which is 750 and that her DTI is under
45% since it’s 21.74%. Remember that, the maximum allowed DTI
is 45% based on the criteria provided in this example. All that’s left
to figure out, is the borrowers cash to close.
To calculate the cash to close, we add the down payment plus the
closing costs and subtract that by any deposits that are held in
escrow based on what shows on the purchase contract.
Down payment + closing costs - deposit = cash to close
$75,400 + $15,856 = $91,256 is her cash to close.
Since the automated underwriting system is requiring $10,000 in
reserves, we need to add this amount to the cash to close to find
the total needed to close. Never forget that reserves are only
funds that need to show in the borrower’s bank account but
won’t be paid at closing.
APPROVED
THE MATH BEHIND
Question #109
Henry is purchasing a single family residence for $250,000 and is
willing to give a 10% down payment. If he has a 660 mid credit
score, will he get approved for a mortgage based on the criteria
provided on this loan scenario?
Weekly salary: $2,290
Average bonus income for the last 2 years: $8,000
Average overtime income for the last 2 years: $17,400
Checking account: $31,418
Principal and interest payment: $948 (with a 2.999% interest rate)
Property taxes (quarterly): $825
THE MATH BEHIND
Question #109
SOLUTION:
In this example, there are many things we will need to calculate
but first, let’s start by confirming if his mid credit score is sufficient
to qualify for a mortgage. He has a 660 middle credit score so he
will be fine since he’s above 620.
Next, we need to calculate his DTI and to do this need to make
sure the income is expressed on a gross monthly basis and that his
total debt payments are also expressed on a monthly basis.
For his income, let’s use the following equation to go from weekly
to gross monthly income:
Gross monthly income = $2,290 x 52 / 12 = $9,923.33
Since Henry receives bonus and overtime income which are
represented on an annual basis, we will need to convert this to a
monthly basis.
Bonus income = $8,000 / 12 = $666.66
Overtime income = $17,400 / 12 = $1,450
THE MATH BEHIND
Question #109
If we add his salary income plus his bonus and overtime income,
we will have his qualifying income which we will use to determine
the DTI.
$9,923.33 + $666.66 + $1,450 = $12,039.99
His monthly debt payments need to all be expressed on a monthly
basis so we will need to represent the property taxes on a monthly
basis by dividing by 3 to go from quarterly to monthly.
$825 / 3 = $275
Now, we can calculate the DTI.
DTI = ($948 + 275 + $220) / $12,039.99
DTI = $1,443 / $12,039.99
DTI = 11.98% which is below 45% so he will qualify based on his
DTI but we still need to qualify other factors such as his cash to
close.
THE MATH BEHIND
Question #109
His total funds to be verified are $36,477 and include the down
payment plus his closing costs.
Since he only has $31,418 in his checking account, he will be short
by:
$36,477 - $31,418 = $5,059
This means Henry does not have enough cash to close and will not
qualify for this loan unless he can come up with the difference or
find a family member or relative that will give him a gift of funds
to cover this amount.
Even though his DTI and middle credit score are sufficient to
qualify, his cash to close is not enough.
DENIED
THE MATH BEHIND
Question #110
Diana is buying an investment home for $750,000 and is putting a
50% down payment. If the home will be rented for $3,500 every
month, will she get approved for a mortgage based on the criteria
provided on this loan scenario?
Weekly salary: $2,290
Middle credit score 761
Principal and interest payment: $2,013 (with a 5% interest rate)
Property taxes (monthly): $1,000
Homeowners insurance (annually): $2,200
Reserves to be verified: $12,078
THE MATH BEHIND
Question #110
SOLUTION:
Since Diana has a 761 middle credit score, she will qualify based
on the minimum required score of 620 but now we need to
determine if her DTI and cash to close are approved.
To find her DTI, we need to convert her income and debt
payments to a monthly basis.
She receives a weekly salary so we will need to use the following
equation to find her gross monthly income:
Now, her homeowners insurance needs to be converted to a
monthly basis since right now, it’s on an annual basis.
$2,200 / 12 = $183.33
With this, we can calculate the DTI for Diana and see if it is
sufficient.
THE MATH BEHIND
Question #110
DTI = (2,013 + $1,000 + $183.33) / $9,923.33
DTI = $3,196.33 / $9,923.33
DTI = 32.21% which is under 45% so the DTI qualifies.
Let’s move on to the cash to close.
First of all, the total funds to be verified are $405,544 and Diana
has $422,547 in her checking account so she does have enough
funds and her cash to close is sufficient. Even if we were provided
with the funds to be verified, her cash to close is actually only
$393,466 because she had to show reserves in the amount of
$12,078. Let’s do the math to confirm this information.
Funds to be verified:
Down payment + closing costs + reserves = Funds to be verified
$750,000 x 50% + $18,466 + $12,078 = Funds to be verified
$375,000 + $18,466 + $12,078 = $405,544
THE MATH BEHIND
Question #110
If we did the same calculation but didn’t include the reserve
requirements we would get:
$375,000 + $18,466 = $393,466
In this example, Diana has a good enough mid credit score, her DTI
is low enough, and she has enough cash to close so she will be
approved for the loan.
APPROVED
CALCULATING THE
LOAN-TO-VALUE
Question #1
SOLUTION:
BEHIND REFINANCE TRANSACTIONS
$240,000 / $300,000 = 0.80 which is also 80%
THE MATH BEHIND
REFINANCE TRANSACTIONS
Question #111
A borrower is refinancing their mortgage for $430,000 and has a
loan-to-value of 80% after all closing costs are included into the
loan. They will be using part of the funds to pay off their car loan.
If their mid credit score is 656, will they get approved for a loan
based on the number below:
Bi-weekly salary: $3,500
Mortgage term: 15 years
Principal and interest payment: $2,767 (with a 1.999% interest
rate)
Student loan payments (monthly): $330
Car loan payment (monthly): $420
THE MATH BEHIND
Question #111
When you’re refinancing a mortgage, you have the advantage that
debts can be paid off which brings down the DTI and allows the
borrower to qualify for the loan. In this example, a car loan is
being paid off so we won’t be using the car payment when
calculating the DTI.
This borrowers middle credit score is 656 which is above 620 so
their mid credit score will qualify for the loan but we still need to
confirm if the DTI and cash to close are sufficient based on the
requirements provided in the loan criteria.
We need to convert this borrowers bi-weekly salary to gross
monthly salary to be able to calculate the DTI.
THE MATH BEHIND
Question #111
Let’s add up all the debt payments to be able to include this total
into the DTI calculation.
Principal and interest payment + taxes + insurance + student loan
payment = total monthly debt payments
$2,767 + $380 + $144 + $330 = total monthly debt payments
$3,621 = total monthly debt payments
Now we can calculate the DTI:
DTI = $3,621 / $7,583.33
DTI = 47.75%
Since the maximum DTI is 45% and we are at 47.75%, this
borrower doesn’t qualify for the mortgage. We don’t need to
calculate the cash to close if we know the DTI is too high. Unless
we find a solution this borrower will be denied the loan.
DENIED
THE MATH BEHIND
Question #112
Tom and Nancy are refinancing their mortgage for $280,000 and
will have an LTV of 70% when they include all closing costs into the
loan. If they are taking cash out to pay off all their credit cards, will
they still qualify for a mortgage if Tom has a 580 middle credit
score and Nancy has a 680 middle credit score?
Total Monthly salary (Tom and Nancy): $8,800
Principal and interest payment: $1,310 (with a 2.875% interest
rate)
Property taxes (yearly): $2,500
Homeowners insurance (yearly): $1,440
Credit card 1: $120
Credit card 2: $330
Credit card 3: $270
THE MATH BEHIND
Question #112
Always remember that you will need to use the lower of the two
middle credit scores to determine the qualifying middle credit
score for the loan which in this case is 580.
Since the lowest middle credit score allowed to qualify for this
mortgage is 640, they will not qualify for the loan until Tom
increases his middle credit score above 640.
We don’t need to calculate any of the other qualifying factors
since the credit scores don’t qualify. This loan will be denied.
Loans that are initially denied, can usually be approved once some
changes are made and solutions are found which is your job as the
loan originator or loan processor on the loan.
DENIED
THE MATH BEHIND
Question #113
Virginia and Chris are refinancing their mortgage for $215,000 (all
closing costs are included in this amount) and will have an LTV of
90%. If they’re not taking any cash out, will they qualify for a home
loan?
Middle credit scores: Virginia 695 and Chris 689
Virginia’s income: $33 per hour (assuming a 40 hour work week)
Chris’s income: $42 per hour (assuming a 40 hour work week)
Principal and interest payment: $1,219 (with a 3.25% interest rate)
Property taxes (quarterly): $400
Personal loan payment: $130
THE MATH BEHIND
Question #113
SOLUTION:
The lowest middle credit score between Chris and Virginia is 689
so their mid credit score will be sufficient to qualify for the
mortgage. Now, we will move on to calculating each of their gross
monthly incomes.
FOR VIRGINIA:
FOR CHRIS:
Gross monthly income = $42 X 40 X 52 / 12
Their combined gross monthly income is $13,000.
THE MATH BEHIND
Question #113
Now, we need to calculate their total monthly debt payments.
Their property taxes are represented on a quarterly basis so we
need to divide this number by 3 to get the monthly payment.
$400 / 3 = $133.33
PI + taxes + insurance + personal loan = monthly debt obligations
$1,219 + $133.33 + $75 + $130 = monthly debt obligations
$1557.33 = monthly debt obligations
Let’s plug this number into the DTI to determine if they qualify or
not.
DTI = $1,557.33 / $13,000
DTI = 11.99% which is under the maximum allowed of 50% so their
DTI will qualify. We now know they will qualify for the mortgage
loan and will probably be approved. We don’t need to calculate
cash to close since this has been included in the loan.
APPROVED
THE MATH BEHIND
Question #114
Mo is refinancing a hard money loan that has an interest rate of
7.2% and wants to take $50,000 in cash out so that the final loan
amount including all closing costs is $450,000. If he secured an
interest rate of 4% on an investment property with an LTV of 65%,
would he qualify for this loan based on the numbers below?
Mo has mid credit score of: 754
Schedule C “net profits” for year 1 are $110,000 and for year 2 are
$92,000
HOA payment (semi-annually): $600
Property tax payment (monthly): $398
Homeowners insurance payment (monthly): $200
THE MATH BEHIND
Question #114
Mo’s middle credit score of 754 will allow him to qualify so we just
need to confirm if his DTI is low enough to be approved.
To do this, we need to find his gross monthly income.
Gross annual income = (Schedule C net profits for year 1 +
Schedule C net profits for year 2) / 2
We need to convert this to a monthly basis by dividing by 12.
To find his monthly debt payments, we need to convert any of the
payments that are not on a monthly basis to a monthly basis.
HOA monthly payment = $600 / 6 = $100
Now, we can calculate the total debt payments.
THE MATH BEHIND
Question #114
PI + taxes + insurance + HOA = monthly debt payments
$2,746 + $398 + $200 + $100 = monthly debt payments
$3,444 = monthly debt payments
To figure out what the DTI is, we will plug in the information we
have come up with so far.
DTI = $3,444 / $8,416.66
DTI = 40.91%
This is just over 40% which is the maximum DTI allowed under this
loan’s guidelines which means the loan will need to be denied
unless the DTI is lowered by finding a solution such as lowering the
insurance payments or the interest rate since the DTI is very close
to being under 40%.
DENIED
THE MATH BEHIND
Question #115
Johana is refinancing her home and wants to pay for the closing
costs outside of the mortgage. If she has an 815 middle credit
score, will she qualify for this loan?
Gross bi-monthly income: $6,200
Loan amount $510,000
PITIA: $3,466
Reserve requirements: $6,932
THE MATH BEHIND
Question #115
Johana has an 815 middle credit score so her mid credit score will
be sufficient to qualify for the mortgage. We still have to confirm if
the DTI and cash to close are sufficient since she wants to pay for
the closing costs out of pocket and not include them into the loan.
Since she’s paid on a gross bi-monthly basis we will simply multiply
her income by 2 to determine her gross monthly income.
Her total debt payments are $3,466 so we have all the necessary
information to calculate her DTI.
DTI = $3,466 / $12,400
DTI = 27.95%
Her DTI is under 50% so her DTI is sufficient to get approved for
the mortgage but we need to make sure she has enough in liquid
assets to pay for the closing costs and for any reserves required.
THE MATH BEHIND
Question #115
Her closing costs and reserve requirements are:
$13,422 + $6,932 = $20,354
Johana has $34,167 in her checking account so she has enough
funds to pay for the closing costs and show enough in reserves to
be approved for this loan.
APPROVED
THE MATH BEHIND
Question #115
Her closing costs and reserve requirements are:
$13,422 + $6,932 = $20,354
Johana has $34,167 in her checking account so she has enough
funds to pay for the closing costs and show enough in reserves to
be approved for this loan.
APPROVED

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