Underwriting and Financial Calculations Flashcards

A borrower earns $6,500/month gross income and has a proposed PITI of $1,750 plus monthly debts of $400. What is their back-end DTI ratio?

Answer: 32.3%

Back-end DTI = (PITI + monthly debts) / gross income = ($1,750 + $400) / $6,500 = 33.1%.

Which factor does NOT directly affect a borrower's Loan-to-Value (LTV) ratio?

Answer: Borrower's credit score

LTV is calculated as loan amount divided by property value; credit score does not enter that formula.

What does a Combined Loan-to-Value (CLTV) ratio measure?

Answer: The ratio of all liens on a property to its appraised value

CLTV combines all mortgage liens (first, second, HELOCs) and divides them by the appraised value.

A property appraises for $320,000 and the borrower puts 10% down. What is the LTV?

Answer: 90%

Down payment = $32,000; loan = $288,000; LTV = $288,000 / $320,000 = 90%.

What is the maximum allowable DTI for a Qualified Mortgage (QM) under the general definition?

Answer: 43%

The general QM definition caps the debt-to-income ratio at 43% to ensure the borrower's ability to repay.

When calculating qualifying income for a self-employed borrower, underwriters typically average how many years of tax returns?

Answer: Two years

Agency guidelines generally require a two-year average of self-employment income using Schedule C or business returns.

A loan with a 75% LTV on a conventional purchase would most likely:

Answer: Not require PMI

PMI is not required when LTV is 80% or below on conventional loans, so 75% LTV avoids PMI.

Which type of income is typically NOT usable for qualifying purposes without a two-year history?

Answer: Overtime income received for less than 12 months

Overtime income generally requires a 12–24 month history to be considered stable and predictable for qualifying.

What is the purpose of the residual income analysis in VA loan underwriting?

Answer: To ensure the borrower has sufficient income after major expenses to meet living costs

VA residual income analysis measures net income remaining after housing and major expenses to ensure the veteran can maintain daily living.

A lender is using the FICO score for mortgage underwriting. Which bureau score is typically used when three bureaus are pulled?

Answer: The middle of the three scores

Agency guidelines require use of the middle score when all three bureau scores are available.

Which asset type is considered a 'liquid asset' acceptable for reserves and closing costs?

Answer: Checking and savings account balances

Checking and savings accounts are immediately accessible and qualify as liquid assets without restriction.

An interest-only loan allows the borrower to pay only interest for a set period. How does this affect underwriting qualification?

Answer: The borrower qualifies based on the fully amortized principal and interest payment

Fannie Mae and Freddie Mac require qualification based on the fully amortized P&I payment, not the lower IO payment.

What is 'cash-out refinance' and how does it affect LTV?

Answer: Refinancing for more than the current balance to receive funds, which increases LTV

A cash-out refinance increases the loan balance above the payoff amount, raising the LTV ratio.

A borrower's gross monthly income is $8,000. The maximum PITI using a 28% front-end ratio would be:

Answer: $2,240

$8,000 × 28% = $2,240 maximum allowable housing payment.

What does it mean when a loan is 'underwater' or has 'negative equity'?

Answer: The outstanding loan balance exceeds the property's current market value

Negative equity (being underwater) means the loan balance is higher than what the property is currently worth.

When calculating the monthly payment on a $250,000 loan at 6% for 30 years, which component is NOT included in PITI?

Answer: Utility bills

PITI stands for Principal, Interest, Taxes, and Insurance — utility bills are not included.

A borrower has $50,000 in student loans on income-driven repayment (IDR) showing a $0 monthly payment. Under Fannie Mae guidelines, how is this treated for DTI?

Answer: 1% of the balance ($500) is used

Fannie Mae requires 1% of the outstanding student loan balance when the payment is $0 or deferred.

What is an 'automated underwriting system' (AUS) finding of 'Approve/Eligible' vs. 'Refer'?

Answer: Approve/Eligible means the loan meets guidelines; Refer means a human underwriter must review it

Approve/Eligible indicates the AUS finds the loan compliant; Refer sends the file to a human underwriter for manual assessment.

Which calculation correctly determines the amount of mortgage insurance premium (MIP) on an FHA loan?

Answer: Base loan amount × annual MIP rate / 12 months

FHA annual MIP is calculated as the base loan amount times the applicable annual MIP rate, then divided by 12 for the monthly premium.

A property's NOI (Net Operating Income) is $36,000 per year and the annual debt service is $30,000. What is the Debt Service Coverage Ratio (DSCR)?

Answer: 1.20

DSCR = NOI / Annual Debt Service = $36,000 / $30,000 = 1.20.