CMP - Certified Mortgage Processor Income, DTI, and LTV Calculations Questions and Answers — Questions and Answers
Question 1: A borrower has a gross monthly income of $7,000. Their proposed monthly housing expense (PITI) is $2,100. They also have a $450 monthly car payment and a $250 monthly student loan payment. What is the borrower's back-end debt-to-income (DTI) ratio?
- 30%
- 38%
- 40%
- 45% (Correct answer)
Correct answer: 45%
To calculate the back-end DTI, add all monthly debt payments (PITI + car payment + student loan) and divide by the gross monthly income. ($2,100 + $450 + $250) = $2,800. Then, $2,800 / $7,000 = 0.40, which is 40%.
Question 2: A property is under contract for $400,000. The borrower is making a down payment of $60,000. The property appraises for $390,000. What is the Loan-to-Value (LTV) ratio?
- 85.0%
- 84.6% (Correct answer)
- 87.2%
- 85.7%
Correct answer: 84.6%
The LTV ratio is calculated by dividing the loan amount by the lesser of the sales price or the appraised value. The loan amount is $400,000 (sales price) - $60,000 (down payment) = $340,000. Since the appraised value ($390,000) is less than the sales price, it is used for the calculation. $340,000 / $390,000 = 0.87179, which rounds to 87.2%.
Question 3: Which of the following is the most accurate definition of the front-end DTI ratio?
- The ratio of the borrower's total monthly debt payments to their gross monthly income.
- The ratio of the borrower's proposed monthly housing expense (PITI) to their net monthly income.
- The ratio of the borrower's proposed monthly housing expense (PITI) to their gross monthly income. (Correct answer)
- The ratio of the borrower's total assets to their total liabilities.
Correct answer: The ratio of the borrower's proposed monthly housing expense (PITI) to their gross monthly income.
The front-end debt-to-income ratio, also known as the housing ratio, specifically compares the total proposed monthly housing payment (Principal, Interest, Taxes, and Insurance) to the borrower's gross (pre-tax) monthly income.
Question 4: A self-employed borrower shows a net profit of $85,000 on their most recent year's tax return and a net profit of $75,000 on the prior year's tax return. To calculate a stable monthly qualifying income, what would a mortgage processor typically use?
- The most recent year's monthly income: $7,083
- The prior year's monthly income: $6,250
- A 24-month average of the two years: $6,667 (Correct answer)
- The lower of the two years' monthly income: $6,250
Correct answer: A 24-month average of the two years: $6,667
For self-employed borrowers with fluctuating income, lenders typically average the net income over the most recent two years to determine a stable, qualifying income, provided the income is stable or increasing. ($85,000 + $75,000) / 24 months = $6,666.67, which rounds to $6,667.
Question 5: A borrower is purchasing a home for $500,000 and has a first mortgage of $400,000. They are also obtaining a second mortgage (piggyback loan) for $50,000 to cover part of their down payment. What is the Combined Loan-to-Value (CLTV) ratio?
- 80%
- 10%
- 90% (Correct answer)
- 100%
Correct answer: 90%
The CLTV is calculated by adding all loan amounts secured by the property and dividing by the property's value. ($400,000 First Mortgage + $50,000 Second Mortgage) / $500,000 Property Value = $450,000 / $500,000 = 0.90, or 90%.
Question 6: When calculating a borrower's total monthly debt for the DTI ratio, which of the following is generally EXCLUDED?
- Monthly car loan payment
- Minimum monthly credit card payment
- Monthly utilities and grocery expenses (Correct answer)
- Monthly student loan payment
Correct answer: Monthly utilities and grocery expenses
DTI calculations include contractual debt obligations like loans and credit card minimum payments. They do not include discretionary living expenses such as utilities, groceries, or entertainment costs.
CMP - Certified Mortgage Processor Income, DTI, and LTV Calculations Questions and Answers
A borrower has a gross monthly income of $7,000.
Their proposed monthly housing expense (PITI) is $2,100.
They also have a $450 monthly car payment and a $250 monthly student loan payment.
What is the borrower's back-end debt-to-income (DTI) ratio?