☑️ Chapter 14: Financials and Calculations Review Flashcards
Financials:
Periodic Interest:
When performing proration calculations, expenses may be prorated using:
• A ______-day year, ____ months of ____ days each.
• A _____-day year, COUNTING the EXACT number of days in EACH month (taking LEAP years into account).
NOTE: It is best to consult with the LENDER to determine whether to use a 360- or a 365-day calendar.
> To calculate periodic or per diem (pre-paid) interest, you must determine the amount of daily interest. This is done by MULTIPLYING the loan ____ by the _____ rate.
The result will be the ANNUAL _______ charge.
A. 360 Day
B. 12 Months
C. 30 Days
D. 365
E. Amount
F. Note
G. Interest
Financials:
Periodic Interest:
To calculate the daily interest, divide this product by either 360 or 365.
For Example:
Assume a loan amount of $235,000 with a note rate of 6.25%:
Calculate:
$ 235,000 Loan amount
x .0625 Interest rate
= $14,687.50 Annual interest
$14,687.50 Annual interest
÷ 365 Days per year
= $_________ Per diem interest charge 💸
$ 235,000 x .0625 = $14,687.50 ÷ 365 =
Then Calculate:
If a borrower’s loan FUNDS on September 13 and September has 30 days in the MONTH, there would be 18 days FROM the DAY of FUNDING to October 1.
The prepaid interest charge, which is charged to the
borrower, would be:
$40.2397 x 18 days = $________
Answer: $___ Of Prepaid Interest
• $ 235,000 x .0625 = $14,687.50 ÷ 365 = ______ x 18 Days = ______
A. $40.2397
B. $724.32
Financials:
Prepaid Expenses:
Prepaid expenses are the items on a Closing Disclosure the seller has already ______; for example, condominium association fees or property tax in counties where it is paid in advance. In some cases, prepaid expenses are paid by the borrower (e.g., in a REFINANCE, the borrower may have to pay property taxes in ADVANCE at the close of _____). Usually, prepaid expenses are prorated on the Closing Disclosure as a ______ to the _______ and a ______ to the _______. Whichever party is RESPONSIBLE for making the payment receives the _____; the other party receives the _____.
Often, local custom dictates which factor is used. Either way, the steps to CALCULATE the ADJUSTMENT are similar:
1. Determine if the expense is _______ or prepaid.
2. ______ the expense by the appropriate period to find a monthly (daily) rate.
3. Determine how many _____ are affected by the expense.
4. _______ the monthly (daily) rate by the number of affected months (days).
5. Determine which party is credited and which is debited.
Credit for items, such as taxes, HOA fees, etc., that have been prepaid by the seller are calculated from the date of settlement to the date the items are paid through.
These items will show on the Closing Disclosure as a credit to the sellers.
Items not paid by the seller, but due to be paid, are shown as a credit to the borrower/buyer and a debit to the seller, therefore reducing their cash proceeds.
Examples of these items could include unpaid property taxes, unpaid property assessments, etc. These items will show on the closing disclosure.
The method of calculating PRORATED items for a credit to the borrower or seller uses the same method of PRORATION as shown ABOVE for calculating prepaid interest.
A. Paid
B. Escrow
C. Credit
D. Debit
E. Credit
F. Debit
G. Accrued
H. Prepaid
I. Divide
J. Months / Days
K. Multiply
Financials:
Payments:
Interest Only Payment:
To calculate an interest-only payment, the loan ______ is multiplied by the contract or _______ and divide it by ____.
For Example:
Assume a loan amount of $235,000 has a note rate of 6.25%:
Calculate:
$ 235,000 Loan amount
X .0625 Interest rate
= $14,687.50 Annual interest charge
• $ 235,000 x .0625 = $______
Then Calculate:
$__________
Divided By 12 Number of months in a year
= $ _______Interest only payment per month
• $14,687.50 ÷ 12 = $______
A. Amount
B. Note Rate
C. 12
D. $14,687.50
E. $1,223.96
Financials:
Payments:
Monthly Property Tax:
To calculate monthly property taxes (or improvement district assessments), assume that property taxes are reported as $1,500 per half year.
Taxes per month would be calculated as:
$1,500 Property taxes per half year then Divide By 6 which is the Number of months in one-half year = $______ Per month property tax payment
• $1500 ÷ 6 = $________
A. $250
Financials:
Payments:
Monthly Insurance:
To calculate monthly insurance (hazard, condominium or flood), assume that the homeowner’s insurance is reported to cost $636 per year.
Monthly cost for the HOI is calculated as follows:
$636 Annual homeowner’s insurance premium Divided By
12 Number of months in one year = $______ Per month homeowner’s (e.g., hazard) insurance payment
• $636 ÷ 12 = $______
A. $53
Financials:
Payments:
Monthly Private Mortgage Insurance (PMI):
To calculate monthly private mortgage insurance (PMI) assume that DU underwriting requires the loan amount to carry 25% Coverage with a PMI Factor of .52%.
To calculate the monthly charge for private mortgage insurance, use the following calculations:
$235,000 Loan amount
x .0052 PMI factor expressed as a decimal
= $______ Annual PMI payment
÷ 12 Number of months in a year
= $______ Per month PMI charge
• $235,000 x .0052 =$_ ÷ 12 = $__
A. $1,222
B. $101.83
Financials:
Payments:
Total Monthly Housing Expense:
The total monthly payment would be:
$1223.96 Housing expense
$250.00 Monthly property tax
$53.00 Monthly hazard ins.
+ $101.83 Monthly PMI charge
= ___________ Total Monthly Housing Expense
• $1223.96 + $250.00 + $53.00 + $101.83 = $_______
A. $1628.79
Financials:
PITI Payments:
Remember, a monthly _______ payment is commonly referred to as PITI (principal, interest, taxes, and insurance). This payment represents the combination of the four basic elements of a typical monthly mortgage payment. Principal and interest payments go toward ______ the mortgage loan. Amounts covering property taxes, homeowner’s insurance, and mortgage insurance (if applicable) may go into an ______ account (if required or chosen) to be paid as they come due.
Whether paid into an escrow account or directly by the consumer, taxes and insurance MUST be part of ANY housing expense calculation.
PITI is generally used in conjunction with gross income to determine whether maximum debt ratios allowed by loan programs have been exceeded.
A. mortgage
B. repaying
C. escrow
Financials:
Down Payment:
To calculate the down payment needed for a home purchase, an MLO first must know the MINIMUM requirements for down payments of EACH individual loan type.
For example: a conventional conforming loan requires a minimum of _____% down payment, an FHA-insured loan requires a minimum of ____% down payment (can be a gift), and _____ and _____ loans do NOT require a DOWN payment.
For Example:
If a property has a sale price of $187,000 and appraised value of $190,000, a conventional conforming loan with a down payment of 3.00% will require a cash down payment of $_______.
$187,000 Lesser of sale price or appraised value x .03 Down payment requirement expressed as a decimal = $_____ Cash down payment requirement
If a property has a sale price of $190,000 and an appraised value of $187,000, an FHA-insured loan requires 3.5% down payment and a cash down payment of $_______.
Calculate:
$187,000 Lesser of sale price or appraised value × .035 Down payment required expressed as a decimal.
• $187,000 x .035 = $_______
Remember to ALWAYS base the loan amount and/or
• the down payment amount on the LESSER of the sale price or the appraised value.
A. 3% Down Payment
B. 3.5% Down Payment
C. VA and USDA guaranteed
D. $5,610
E. $6,545
Financials:
Loan-to-Value:
The loan-to-value is expressed as the proposed or UNPAID loan balance, which is in a _____ lien position, divided by the lesser of the sale price or appraised value.
For Example:
If a property has a sale price of $187,000 and appraised value of $190,000 with a loan amount of $142,100, calculate the loan-to-value as follows:
Calculate:
$142,100 Proposed loan amount
Divided By $187,000 which is the Lesser of sale price or appraised value
= _______ Loan-to-value
• $142,100 ÷ $187,000 = _______%
A. First
B. 75.99%
Financials:
Loan-to-Value:
Combined Loan-to-Value:
The combined loan-to-value (CLTV) is expressed as the combined total of ALL LIEN balances of a property, divided by the lesser of the sale price or appraised value.
For Example:
In the other scenario, there was a first lien of $142,100 and an appraised value of $187,000. If the borrower obtained SECONDARY financing (or applied for a HELOC or second Equity loan) for $15,000, the combined loan-to-value would be calculated as follows:
($142,100 (first lien)
+ $15,000 (subordinate lien))
= $157,100 Total of all liens
Divided By $187,000 Lesser of sale price or appraised value
= _____% Combined loan-to-value
• $142,100 + $15,000 = $157,100 ÷ $187,000 = ______%
A. 84.01%
Financials:
Income Calculations:
Monthly Income:
The income a borrower can use for loan qualification MUST be stable and consistent and may be required to be received for a certain time period.
When calculating a borrower’s income, always use the _____ monthly income before any deductions are made to the borrower’s pay.
To calculate monthly income for a borrower, using one of three methods:
Hourly Wage:
For a borrower who receives an hourly wage:
Hourly Wage x # Hours Worked per Week × 52 (Weeks per Year) ÷ 12 (Number of Months in a Year)
Calculate:
A borrower, who is paid $14.50 per hour and works 30 hours per week, receives monthly pay of $_____ per month.
• $14.50 x 30 × 52 = $22,620 ÷ 12 = $______ income per month
A. Gross
B. $1,885
Financials:
Income Calculations:
Bi-Weekly Salary:
The income a borrower can use for loan qualification must be stable and consistent and may be required to be received for a certain time period
When calculating a borrower’s income, always use the gross monthly income before any deductions are made to the borrower’s pay.
To calculate monthly income for a borrower, using one of three methods:
Bi-Weekly Salary:
For a borrower who receives a bi-weekly fixed salary:
Bi-Weekly Pay × 26 (# of Paydays per Year) ÷ 12
(Number of Months in a Year)
For Example
A borrower who is paid $1,000 bi-weekly receives a monthly pay of ______ per month.
51,000 × 26 = $26,000 ÷ 12
= _______ income per month
A. $2,166.67
Financials:
Income Calculations:
Semi-Monthly Salary:
The income a borrower can use for loan qualification must be stable and consistent and may be required to be received for a certain time period
When calculating a borrower’s income, always use the GROSS monthly income before any deductions are made to the borrower’s pay.
To calculate monthly income for a borrower, using one of three methods:
Semi-Monthly Salary:
For a borrower who receives a semi-monthly fixed salary (twice per month):
Calculate:
Gross Pay x 2 (# of Paydays per Month) = Gross Monthly
Income
For Example:
A borrower who is paid $1,000 semi-monthly (twice per month) receives a monthly pay of $_______ per month.
$1,000 x 2 (Paydays per Month)
= _______ income per month
• $1,000 x 2 = _______
A. $2,000
Financials:
Debt-to-Income Ratios:
The qualifying debt-to-income ratios vary depending upon the loan product the borrower obtains. The MLO should know the debt-to-income ratio guidelines for each loan program and how to correctly calculate the ratios. The housing expense ratio (also called front-end ratio) is the relationship of a borrower’s total monthly housing expense (PITI) to gross monthly income, expressed as a percentage (Housing Expense ÷ Income = Ratio %).
The total debt-to-income rate also called back-end ratio) includes both PITI as well as all other monthly recurring credit debts appearing on the borrower’s credit report. It should be noted that utility bills (electricity, heat, telephone, etc) are NOT considered. CONVENTIONAL/CONFORMING/QUALIFYING guidelines allow a HOUSING EXPENSE RATIO of ______% and a TOTAL DEBT-TO-INCOME RATIO of _____%. REMEMBER, FHA loan guidelines allow a _____% front-end ratio and _____% back-end ratio. REMEMBER VA loans have a ____% front-end ratio and a ____% back-end ratio.
A. 28%
B. 36%
C. 31%
D. 43%
E. NO
F. 41%
Financials:
Debt-to-Income Ratios:
For Example:
In the other example (see Payments, “Calculate monthly private mortgage insurance”), we calculated a monthly housing payment as follows:
$1,223.96 Housing expense
$250.00 Monthly property tax
$53.00 Monthly hazard ins
+ $101.83 Monthly PMI charge
=$_______ Total monthly housing expense
For a borrower who earns an annual salary of $84,000
per year, his GROSS monthly income is calculated per month $84,000 per year ÷ 12 months = $_______.
Calculation of his TOTAL HOUSING EXPENSE is:
$1,628.79 ÷ $7,000 =_____% HOUSING DEBT-TO-INCOME RATIO
Assume the borrower had the following additional monthly debt:
Amount Outstanding Balance
Auto = $200 $3500
CS = $300 15 Years Remaining
Visa = $50 $350
Loan = $120 3 Months Left
Cell = $50 $375
QUESTION? Which are the only debt payments REQUIRED to be USED in the calculation? Why?
Calculation of the total debt-to-income ratio is as follows:
PITI payment + other required debt payments ÷ Gross
monthly income = DTI
• $1,628.79 + $550 = $2,178.79 ÷ $7,000 = _______% total debt-to-income ratio
A. $1,628.79
B. $7,000
C. 23.27%
D. The auto payment, the child support payment, and the VISA card payment, which total $550,
E. Since the furniture and student loan payments have LESS than 10 payments remaining at the time of loan closing, they are NOT counted.
F. 31.13%
Financials:
Temporary and Fixed Interest Rate Buy-down:
- Discount Points: A buydown may be ______ (for a defined TIME PERIOD during the loan) or ______ (for the LIFE of the entire loan). Either calculation of the cost for the interest rate buydown is always based on the loan _______.
If a property has a sale price of $187,000 and appraised value of $190,000, with a loan amount of $142,100 and a cost of two points, the cost of the buydown would be calculated as follows:
Calculate:
$142,100 (loan amount) x .02
(2 discount points) = $______
(total buydown cost)
• $142,100 x .02 = $______
A. Temporary
B. Permanent
C. Amount
D. $2,842
Financials:
Temporary and Fixed Interest Rate Buy-down:
Temporary buydowns can take two forms:
1. _____ payment buydown - A plan with the payment REDUCTION remaining CONSTANT throughout the buydown period.
2. _______ payment buydown - A plan for which payment subsidies in the EARLY years keep payments ____, but payments INCREASE each ____ as indicated in the note.
For example, a 2-1 buydown is a graduated payment buydown with the payments subsidized for ONLY ____ years
For example:
With a 2-1 Buydown the borrower pays ____% below the interest rate in the first year and ____% the second year. By the third year, the borrower is paying the ____-indexed interest rate.
A. Level
B. Graduated or 2-1
C. LOW
D. Year
E. 2.0%
F. 1.0%
G. Fully
