Math Formulas + Notes

Question 1

Housing Ratio

Answer 1

HR=Total Mortgage (Expenses)Payment
______________________
Gross Monthly Income

*How to find Monthly Income:
# paid by the hr • hrs worked • 52 weeks / 12 Months

*Anything 28% or lower is good, highest is 36%

EX. If the borrowers monthly gross income was $6,000 and the monthly housing expenses were:
First mortgage payment is $900, monthly property tax is $110, monthly hazard insurance is $28 and monthly mortgage insurance is $60.
What is the housing ratio or front end ratio?

Question 2

Loan To Value Ratio

Answer 2

LTVR=Amount of Mortgage(Loan Amount)
____________________________________
Appraised Value of Property

*Anything less than 80% is good, if higher, it’s a high LTV

Question 3

Loan to Value

Answer 3

LTV=Amount of Mortgage(Loan Amount)
__________________________________
Purchase Price or Appraised Value
(Whichever is lower)

EX: A borrower is purchasing a condo for $100,000, the appraised value is $125,000. The loan amount is $90,000, which means they put a $10,000 down payment. What is the LTV?

=$90,000
____________ =90% High LTV
$100,000

Question 4

Debt to Income (Two ways)

Answer 4

Front End DTI=
Total housing expenses(PITI)
__________________________________
Gross monthly Income

P.I.T.I (Principal, Interest, Taxes, Insurance) (It is the Total Housing Expense)

EX. A borrowers qualifying income is $3,000, while their P.I.T.I is $900. What is their Front End DTI?

=$900
________=0.30 (times 100) =30%
$3,000

Question 5

Debt To Income (2nd way)

Answer 5

Back End DTI=
Total Debt+P.I.T.I
______________
Gross monthly Income

*Alimony, Child Support, things shown on credit report are included as Debt. Not utilities, cell phone payments, or other living expenses.

EX. A borrower has a car payment of $300, a credit card payment of $45, and a cell phone payment of $100. While their qualifying income is $3,000 with a P.I.T.I of $900.
What is the Back End DTI?

• Add the car payment, credit card payment, and P.I.T.I

$300+$45+$900= $1,245

Back End DTI=
$1,245
________= .42 (times 100) 42%
$3,000

Question 6

Debt To Income Ratio

Answer 6

DTIR=Total Fixed Monthly Expenses
______________________________________
Gross Monthly Income

*Anything less than 43% is good, 36% is preffered (28%-36%)

EX.
John’s monthly bills and income are as follows:

mortgage: $1,000
car loan: $500
credit cards: $500
gross income: $6,000

Total monthly debt = $2,000

$2,000 / $6,000 = 0.33 %

Question 7

Combined Loan To Value or Total Loan To Value

Answer 7

CLTV=1st lien(Current balance) (Primary loan) + 2nd lien (Equity Line of Credit) (Secondary loan,
_____________________________________
Current Appraised Value of Property

EX. A borrower is purchasing a home for $200,000. To secure the property, they provided a down payment of $50,000 and received 2 mortgages. One for $100,000 (Primary) and one for $50,000 (Secondary). What is their CLTV?

• $100,000+$50,000= $150,000$150,000
  =___________= 75%
  $200,000

Question 8

High Total Loan to Value

Answer 8

HTLTV: Credit Value
_____________
Home Value

Question 9

High Credit Loan to Value

Answer 9

same as CLTV.

HCLTV=1st lien(Current balance) (Primary loan) + 2nd lien (Equity Line of Credit) (Secondary loan,
_____________________________________
Current Appraised Value of Property

Question 10

Equity

Answer 10

Equity=Home Value - Principal Owed = Home Equity

Question 11

Interest in a HELOC

Answer 11

P • R • T = Interest

(Principal, Rate, Time Period)

Question 12

Daily Periodic Rate

Answer 12

DPR = APR
______________________=DPR
# of days in the year

Question 13

Discount Points

Answer 13

1 point = 1% of the loan value

EX 1.
You have a $100,000 loan and you pay, 1 discount point to the loan value.
How much would you pay up front?

= 1 / 100 = 0.01
= $100,000 • 0.01 = $1,000 up front

EX2.
30 year mortgage for $160,000 loan at 7% interest, the lender offers to reduce the rate by 0.25% per discount point. You offer 2 discount points.

2 / 100= 0.02

0.02 • $160,000 = $3,200
(Each point was $1,600)

= 7% - 0.50% = 6.50%

Question 14

Another way in solving for Discount Points

Answer 14

EX3.

The interest rate on a borrowers loan was 7%. The buyer also paid 2 points. What was the lenders effective yield?

*It’s asking what’s the lenders effective yield, so remember that each point increases the lenders yield by 1/8th of a percent.

-So 2 points = 2/8ths

-2/8 = 0.25

=0.25 + 7% = 7.25% Effective Yield

Question 15

Another way in solving for discount points

Answer 15

EX4.

A borrower qualifies for a loan at 6.5%. The prevailing rate is 7%. How many points will be paid to “buy down” the interest rate on behalf of the buyer?

-Prevailing rate = 7%
-Buyer qualifies for 6.5%

= 7 - 6.5 = 0.5
Buydown = 0.5% also known as 4/8ths

=4 points

Question 16

Another way in solving for discount points + Origination fee

Answer 16

EX5.

The borrower is putting 10% down on a $180,000 sales price. She is paying 2.5 discount points and 1% origination fee. What is the total of the origination fee in discount points she is paying ?

= 10% of $180,000 = $18,000

$180,000 - $18,000 = $162,000

$162,000 • 0.035 = $5,670 as the answer

(how to get 0.035)
= 2.5 + 1 = 3.5
3.5 / 100 = 0.035

(to get the answer you add the discount points with the origination fee in these types of questions)

Question 17

How to calculate a Down Payment

Answer 17

EX.
A borrower purchases a home for $120,500 and is putting down 10%. If the borrower has already paid $2,500 in EARNEST money, what is the rest of the down payment at closing?

=$120,500 • 0.10 = $12,050
=$12,050 - $2,500 = $9,550 as the rest of the down payment

• Earnest money means money paid to confurm a contract

Question 18

How to find a borrowers interest rate on an FHA Annually Adjusting ARM

Answer 18

On an FHA annually adjusting ARM, assume that the starting rate was 5%, the Margin is 2.5%, the Index in 6 months is 3%, the Index in 12 months is 3.5%, the Index in 18 months is 3.25%. What is the borrowers interest rate in 18 months?

= 2.5% + 3.5% = 6% at 18 months

• Here the loan adjust ANNUALLY.
  So you only need the index at 12 months.
• You add the Margin and Index at 12 months

Question 19

How to find the Note Rate

Answer 19

EX.
What is the note rate for a $150,000 loan with a 2/1 buy down when the borrowers start with a payment rate of 4% for 12 months, then 6% for the rest of the payment term?

=6%

*The note rate is the interest rate after the buy down which in this example is 6%.

*Note Rate is the % you pay for the use of funds often expressed as a yearly %, as mentioned on a promissary note or document.

Question 20

Interest only loan

Answer 20

EX.
For an interest only loan of $180,000 with a 5% interest rate, how much is the dollar amount of interest for 7months?

Interest Only Rate/Loan=
Loan amount • Rate / 12 Months

(First find the interest for the year)
- $180,000 • 0.05% = $9,000

(how to get the monthly interest)
$9,000 / 12 months = $750

$750 • 7 months = $5,250 in interest over 7 months

Question 21

Finding income

Answer 21

EX.
Sherry makes $35,000 a year, plus her second job where she has been doing for 2 years and makes $12 an hour for 15 hours a week. Julio is on Social security and makes a nontaxable $1,500 a month. whats their income together monthly?

*when it’s Nontaxable you mutliply the number by “1.25”

Sherry: $35,000 yearly / 12 months= $2,916.67
$12 • 15 hrs • 52 weeks / 12 months = $780

Julio: $1,500 • 1.25 = $1,875

Together they make $5,571.67

Question 22

Finding Income

Answer 22

EX.

Chris makes $20.50 an hr and works 40 hrs a week. Linda makes $18 an hr and works 40 hrs a week, plus 15 hrs of overtime a week. Whats their monthly income together ?

Chris: $20.50 • 40 hrs • 52 weeks / 12 months = $3,553.33

Linda: $18.00 • 40 hrs • 52 weeks / 12 months = $3,120

Overtime: $18.00 • 1.5 time and a half • 15 hrs • 52 weeks / 12 months = $1,755

Together they make $8,428.33

Question 23

ARMS

Answer 23

EX.
A 5/6 ARM means the rate stays constant for the first 5 years and adjusts every 6 months.

Question 24

Rate Caps on ARMS

Answer 24

2 is the periodic Rate Cap for all the subsequented justments there after.

*Rate Caps are used to protect the borrower from payment shock.

*Rate caps have 3 sections separated by the slashes “/.”

EX.

5/2/6

=The #5 is associated with the very first adjustment of the interest rate, called an Initial Rate Cap.

Question 25

Lifetime Cap

Answer 25

EX.

5/2/6 = Lifetime Cap of 11

-11 can be found by adding the starting interest rate of 5 to the lifetime rate cap of 6 in order to have a maximum interest rate of 11.

Question 26

What is not included in the APR
(TENACTS)

Answer 26

T- Title insurance
E-Escrow
N-Notary fee
A-Appraisal
C-Credit report
T-Termite inspection
S-Seller credit

Question 27

What are 8 parameters for considering ATR (ability to repay)

Answer 27

MICE DOES

M-Monthly payment
I-Income
C-Credit
E-Employment
D-Debt equity ratio
O-Other debts
E-Expenses (Like insurance, PITI,etc)
S-Simultaneous loans

Question 28

ECOA

Answer 28

ECOA is Reg B

Reg B deals with the Borrrower.
Every Borrower must have the equal opportunity to obtain credit.

Question 29

HMDA

Answer 29

HMDA is Reg C

Deals with checks, HMDA checks for discrimination in origin, sex, race, etc.

Question 30

RESPA

Answer 30

RESPA is Reg X

Remember it as REXPA.

Question 31

TILA

Answer 31

TILA is Reg Z

Remember it as ZILA.

Question 32

If a borrower is paid……

Answer 32

Annually = Annual gross income / 12 months

Monthly= no calculations needed

Twice Monthly= Paycheck X 2 pay periods

Bi-weekly= Bi-weekly gross pay X 26 pay periods in a year / 12 months

Weekly= weekly gross pay X 52 weeks / 12 months

Hourly= hourly gross pay X hrs worked per week X 52 weeks / 12 months

Question 33

Whats not considered a liability?

Answer 33

Utilities and cell phone payments