MLO Math Questions

What is the total monthly payment, including escrows, on a 30-year interest only loan of $205,000, taxes of $1,800 per half year, hazard insurance of $420 annually, $65 monthly mortgage insurance, and an interest rate of 6%.

$1,425 - The interest-only payment is calculated by multiplying the loan amount of $205,000 by the annual interest rate of 6% and dividing by the 12 monthly payments ($1,025 per month). Next, the taxes are quoted by the half-year so this amount is divided by 6 and not 12 ($300 per month). The hazard insurance is quoted annually so it must be divided by 12 ($35 per month). The mortgage insurance is quoted monthly ($65 per month). By adding these monthly amounts together, the total monthly payment is derived: $1,025 + $300 + $35 + $65 = $1,425 total monthly payment.

Bob wishes to refinance his mortgage and pay off his credit cards without using any personal funds. He owes $75,000 on his first mortgage, $10,000 on his second mortgage, and $3,000 in credit card debt. What would his appraisal value need to be if his closing costs are $4,000 and he qualifies for an 80% LTV?

$115,000 - Math: Adding up everything Bob wishes to refinance equals $92,000. The $92,000 divided by the loan-to-value of 80% is $115,000. To check your math, $115,000 x 80% = $92,000.

The acquisition cost of a property is $220,000 (sale price is $215,000 and the closing costs are $5,000) and the loan amount is $200,000. The seller is paying $2,000 of the closing costs. What is the total amount the borrower will need to bring to closing if the earnest money is $1,000 and is being credited on the Closing Disclosure at closing?

$17,000 Math: $220,000 - $200,000 - $2,000 - $1,000 = $17,000.

Your borrower qualifies for a 95% LTV and has a payoff of $70,000. How much cash is available if the appraisal is $95,000 and the closing costs are $3,000?

$17,250 Math: $95,000 X 95% = $90,250 - $70,000 - $3,000 = $17,250

Thomas is applying to refinance his mortgage. His first mortgage is $25,000 at a 9% rate. He plans to get cash out, up to $40,000. He qualifies for an 80% LTV and his house appraises for $100,000. Shortly before closing, the title exam shows $23,000 in mechanics liens. Closing costs total $6,000. How much cash will he receive at closing?

$26,000 Math: $100,000 X 80% = $80,000 - $25,000 - $23,000 - $6,000 = $26,000

If a buyer buys a $100,000 home and gets an $80,000 mortgage loan at an interest rate of 8%, how much is 4 points?

$3,200 - A point is 1% of the loan amount, so $80,000 x .01 = $800 per point. Four points is $3,200 (800 x 4).

A buyer of a house with a sales price of $150,000 is paying a $30,000 down payment and three discount points on the $120,000 loan. What is the total cost of the discount points?

$3,600 - The discount points are figured as 1% of the total loan amount ($120,000) not the sales price. Each discount point costs the borrower $1,200. Three discounts points costs the borrower $1,200 x 3 equals for a total of $3,600.

A buyer of a house with a sales price of $100,000 is paying a $10,000 down payment as well as 2 discount points and 2 points for loan origination fees. What is the total cost of the points?

$3,600 - The points are figured as 1% of the total loan amount ($90,000), not the sales price. Each point costs the borrower $900. Four points cost the borrower $900 x 4 for a total of $3,600.

Susie has been on her job for five years. She typically works 45 hours a week for $19 an hour. She is paid time and a half for all overtime. What is the gross monthly income used to qualify Susie?

$3,910.83 Math: Susie has been on her job long enough to allow the use of overtime in her qualifying income as long as the overtime is consistent. First, calculate monthly regular hourly pay: $19 an hour x 40 hours per week x 52 weeks a year / 12 months = $3,293.33 a month. Next, calculate overtime: $19 an hour / 2 = $9.50 + $19 = $28.50 an hour for time and a half; Now, figure monthly overtime: $28.50 overtime pay x 5 hours a week x 52 weeks a year / 12 months = $617.50 overtime pay per month. Finally, add both monthly totals together: $3,293.33 + $617.50 = $3,910.83 total monthly income.

A loan with a 2/1 buydown requires 2.625 points to pay for the discount. A loan amount of $157,000 would require how much cash for the buydown?

$4,121 - Simply multiply the loan amount by 2.625% to get the total cash required for the buydown ($157,000 x 0.02625 = $4,121).

Assuming the borrower has a FICO score of 580 or above, the minimum down payment contribution needed for a home with an FHA-appraised value of $132,000 is

$4,620 Math: The minimum down payment on an FHA loan is 3.5% for a borrower with a FICO score of at least 580. ($132,000 X 3.5% = $4,620)

You are refinancing a $200,000 mortgage with a prepayment penalty of six months of interest at 6.5%. How much is the prepayment penalty?

$6,500 - Simply multiply the original loan amount by the interest rate for the annual interest, then divide by 2 to get six months' interest. In this case, $200,000 x 6.5% (0.065) = $13,000; $13,000 / 2 = $6,500.

Lester's stable monthly income is $6,800. Every month he pays: $485 car payment, $200 revolving credit payment, and $1,500 alimony. What is the maximum monthly mortgage payment he would qualify for on an FHA mortgage loan?

$739 Math: Using the payment-to-income ratio (or housing ratio) of 31% for an FHA loan, we get $2,108. But using the total debt to income ratio of 43% for this loan, we find: $6,800 (income) multiplied by 0.43, which equals $2,924. From that, you subtract monthly debts (485 + 200 + 1,500) which total $2,185, leaving $739.

Joe has a property that appraises for $189,000. His first mortgage rate is 4.75% and his second mortgage rate is 15%. He has decided that he wants to leave his $53,000 first mortgage alone and only refinance the second. He qualifies for an 85% CLTV. His second mortgage is for $25,000 but he wants cash to finish his basement. How much cash is available if his closing costs are $1,500?

$81,150 Math: $189,000 x 85% = $160,650 - $53,000 - $1,500 - $25,000 = $81,150. Even though Joe wants to leave his first mortgage alone, it must be subtracted. If it isn't, you are giving the customer too much cash: $134,150 added to the first mortgage leaves an LTV of 99%; the maximum is 85%.

A borrower buys a house for $125,000 by getting a loan for $100,000. When the loan had a balance of $60,000, he decided to refinance to lower the interest rate by 2%. To do this, he has to pay a prepayment penalty of 1.5% on the remaining principle balance. How much will that prepayment penalty cost him?

$900 Math: The PPP is applied to the remaining principal balance of $60,000, which when multiplied by 1.5% equals $900

You are pre-qualifying Sue for a purchase loan. She has debt equaling $950 each month and gross monthly income totaling $5,200 each month. The lender you will place the loan with allows debt ratios of 28% for housing ratio and 36% total debt to income. What is the maximum house payment, including principal, interest, taxes and insurance Sue qualifies for?

$922 Math: Two calculations need to be done: $5,200 x 28% = $1,456, then $5,200.00 x 36% = $1,872 - $950 = $922. Take the lower of the two. If you did not complete both calculations, you might have allowed Sue to have a payment of $1,456; by the time you added the debt and divided by the $5,200, your back ratio would be too high ($5,200 x 28% = $1,456 + $950 = $2,406 / $5,200 = 46%).

Homeowner Steve can drop his monthly mortgage payment from $1,580 to $1,352 if he refinances to a lower interest rate. How many months would it take him to recover the $2,710 closing costs?

12 - The refi would save Steve $228 a month. It would take 12 months for him to recover the costs ($2,710 / $228 = 11.89 months).

A borrower is buying a house with a sales price of $200,000 and an LTV of 75%. If he paid $3,000 in points, how many points does that represent?

2 points - With an LTV of 75%, the loan for this purchase is $150,000. On a $150,000 loan, a point costs $1,500 (150,000 x .01), so the borrower paid for two points ($3,000).

Steven would like to refinance his second mortgage and obtain an additional $5,000 to replace his roof. His house appraises for $90,000. His first mortgage is $37,000 and his second is currently $7,200. What CLTV would Steven need in order to reach his goals if the closing costs are $2,200?

57% - Math: First, calculate the total of the new second mortgage: $7,200 + $2,200 + $5,000 = $14,400. Add this new loan amount to his current first mortgage: $14,400 + $37,000 = $51,400. To calculate the CLTV, divide the total loan amounts by the appraised value: $51,400 / $90,000 = 57% CLTV.

A husband has credit scores of 771, 699 and 713. His wife has scores of 812 and 695. What is the representative score a lender will use to qualify the borrowers?

695 - A lender will use the middle of three or the lower of two scores as the representative score. When there is more than one borrower, the representative score from the lowest scoring borrower will be used.

What is the loan-to-value ratio if the loan amount is $100,000, the appraised value is $125,000 and the sales price is $127,000?

80% Math: $100,000 divided by $125,000 (the lowest of the sales price or appraised value) equals 80%.