Real Estate Finance - Unit 7 - test
According to the example, Bob's residual income must be __________ or more to qualify for a VA loan.
$1,003 Hint: According to the example, Bob's residual income must be $1,003 or more to qualify for a VA loan.
Private lenders such as finance companies make VA-guaranteed manufactured home loans. The DVA will guarantee 40% of the loan amount or the veteran's available entitlement, up to a maximum amount of:
$20,000. Hint: Private lenders such as finance companies make VA-guaranteed manufactured home loans. The DVA will guarantee 40% of the loan amount or the veteran's available entitlement, up to a maximum amount of $20,000.
The Department of Veterans Affairs administers programs of veterans' benefits for veterans, their families, and survivors. The benefits include:
**a. All of the choices apply b. home loan programs. c. medical benefits. d. education benefits.
Workshop - VA Sam Wilson wants to purchase a home located in San Antonio, Texas. Currently, Sam is serving in the military and earns monthly gross income of $3,200. The monthly deduction for Social Security and income taxes is $800, so his net income is $2,400. Currently, he pays $125 per month on his credit cards and has a monthly car lease payment of $175. He estimates that the utilities will be about $200 per month and the future monthly PITI for the new home will be $1,390. He is single, has $35,000 in savings, and 690 credit score based on a tri-merged report from all the major credit bureaus. Sam applied for a VA-guaranteed loan. A VA lender calculates residual income and uses VA Residual Income Charts to determine if a borrower has sufficient residual income to qualify for a loan. The first step is to calculate the residual income to determine, or at least estimate, all the borrower's real-life expenses each month. The expenses include withholding for federal and state income taxes and Social Security, credit card and car loan payments, estimated monthly utilities, and future mortgage PITA and HOA (if applicable). The residual income is calculated by subtracting all these expenses from the gross monthly income. Once the residual income is calculated, the next step is to check the VA Residual Income Chart for Loan Amounts above $8,000 to determine if Sam will have enough income to handle his house payment and other living expenses.
1 What is Sam's net income $2,400 Hint: $3,200 (gross income) less $800 (withholding for taxes and SS) equals $2,400 (net income). 2 What is the total of Sam's living expenses and future mortgage expense? $1,890 Hint: $1,890. $300 (credit card and car payments), $200 (estimated utilities), and $1,390 (future PITI). 3 What is Sam's residual income? $510 Hint: $3,200 (gross income) less ($800 (withholding for taxes and SS) equals $2,400 (net income). Subtract $300 (credit card and car payments), $200 (estimated utilities), and $1,390 (future PITI). The residual income is $510.00. 4 According to the VA Residual Income Chart, what is the minimum residual income that Sam must have to qualify for a VA loan? $441 Hint: Sam lives in the South. Based on the VA chart provided, Sam's residual income must be $441 or more to qualify for the VA loan 5 According to the VA Residual Income Chart, does Sam qualify for a VA loan? Yes Hint: Sam's residual income is $510, which is $69.00 more than the required amount of at least $441 (based on the chart).
Workshop - FHA Bill and Mary Nelson want to purchase a house located at 25 River Road that is listed for $205,000. Bill and Mary put an offer to purchase the property for $200,000 with a 1% deposit, which the seller quickly accepts. Bill and Mary have a net combined income of $4,500 per month. Both have good credit scores. Fred's current credit score is 740 and Jan's is 780 based on a tri-merged report from all the major credit bureaus. Currently, their total credit card expenses equal $300 per month. Bill and Mary both commute to work using their own separate vehicles, both of which still have monthly payments. The combined monthly payment for both vehicles is $600. Although Bill and Mary have $20,000 in savings, they do not want to down more than 5% so that they have extra cash on hand as reserve funds. The Nelsons want to get an FHA First-Time Homebuyer loan because they only need to make a 3.5% downpayment. Calculate the Monthly Loan Payment A lender offers the Nelsons an FHA loan that requires a 96.5% LTV at 4.5% interest rate for 30 years. The annual property taxes are $1,800 and the annual insurance premium is $240.00. FHA has a monthly $125.00 MMI payment. Calculate Front and Back Ratios FHA lenders require prospective borrowers to meet debt-to-income ratios to qualify for a loan—front-end ratio and back-end ratio. The front-end ratio (housing ratio) shows what percentage of income can be used to pay the housing expense (PITI, MMI, and HOA dues). The back-end ratio shows what portion of income is needed to cover all of your monthly debt obligations. This includes credit card bills, car loans, child support, student loans and any other debt that shows on your credit report that requires monthly payments, plus the housing expense. The FHA usually uses a 31% front ratio and a 43% back ratio or a 31/43 ratio. Note: In order to answer the following questions, you must calculate the principal and interest of the loan. You may use a financial calculator or an online mortgage calculator, such as the one at Bankrate.com.
1 What is the loan amount? $193,000 Hint: $200,000 - $7,000 (3.5% down payment) = $193,000. 2 How much will Bill and Mary pay each month for the principal and interest? $977.90 Hint: The monthly principal and interest payment is $977.90. 3 What is the PITI? $1,147.90 Hint: Monthly principal and interest payment is $977.90. Annual property tax $1,800 or $150 per month. 4 What is the total monthly housing expense including MMI? $1,272.90 Hint: $1,147.90 (PITI) and $125.00 (MMI) = $1,272.90 (monthly housing expense). 5 Based on the front ratio, what is the maximum monthly housing payment that the Nelsons can have in order to qualify for the FHA loan? $1,395 Hint: DTI Ratio Calculations: Front Ratio: $4,500 x .31 = $1,395 6 Based on the front ratio, do the Nelsons qualify for the FHA loan? Yes Hint: The Nelsons meet the front-end ratio since the $1,272.90 monthly housing expense is below the front ratio of $1,395. 7 Based on the back ratio, what is the maximum monthly total debt obligation that the Nelsons can have in order to qualify for the FHA loan? $1,935 Hint: DTI Ratio Calculations: Back Ratio: $4,500 x .43 = $1,935 8 Based on the back ratio, do the Nelsons qualify for the FHA loan? No Hint: The Nelsons do NOT meet the back-end ratio because their total monthly debt of $2,172,90 exceeds the $1,935 back-end ratio by nearly $240. The Nelsons total monthly debt is $2,172,90. [$300 (credit cards), $600 (car loans), and $1,272.90 (monthly housing expense)]. -The Nelsons might be able to pay off the credit cards. If so, they would qualify for the loan.
A veteran applying for VA financing can expect to obtain a maximum guaranty of __________ of the single-family conforming loan amount.
25% Hint: For loans in excess of $144,000 to purchase or construct a home the entitlement increases up to an amount equal to 25% of the Freddie Mac conforming loan limit for a single-family home.
The down payment (minimum required investment) on FHA loans varies with the amount of the loan. Typically, it is __________ of the appraised value of the property or of the sales price, whichever is less.
3.5% Hint: The down payment (minimum required investment) on FHA loans varies with the amount of the loan. Typically, it is 3.5% of the appraised value of the property or of the sales price, whichever is less.
In regard to debt-to-income (DTI) ratios, the FHA currently uses a __________ front ratio and a __________ back ratio.
31% / 43% Hint: FHA lenders look at the borrower's debt-to-income (DTI) ratios to determine the maximum loan amount. Currently, the FHA uses a 31% front ratio and a 43% back ratio, written 31/43. A more conservative back ratio is 41%, but FHA home loan guidelines allow up to 43%.
In the debt-to-income ratio example, in order to qualify for an FHA loan, which of the following is true?
Bob has a back ratio of 40%, which meet the back ratio. Hint: Bob has a back ratio of 40%, which meet the back ratio. Bob has a front ratio of 32.5%, which exceeds the front ratio.
Under FHA underwriting guidelines, what does a lender focus on when examining a borrower's ability to repay the loan?
Both stability of income and ability to make timely payments
Under the __________ program, lenders may underwrite and close home loans without prior FHA review or approval. This includes all aspects of the loan application, the property analysis, and the borrower underwriting process.
Direct Endorsement (DE)
Only an approved FHA lender can originate an FHA loan. Lenders who have met FHA standards are called:
Direct Endorsement (DE) lenders.
The basic FHA loan program is the __________ that offers financing on the purchase or construction of owner-occupied residences of one-to-four units.
FHA 203(b) Loan
A veteran with an existing VA loan may use a(n) __________, which may also be referred to as a streamlined loan, to lower his or her interest rate.
Interest Rate Reduction Refinancing Loan
Which of the following is an FHA guideline?
May use a non-traditional credit history
What advantage does a lender have by being Direct Endorsement (DE) approved?
Originate home loans without FHA review or approval
Edward wants an FHA loan for a property he wants to improve immediately upon purchase. What type of FHA loan program should he consider?
Rehabilitation loan
__________ is the amount of net income remaining after deducting debts, obligations, and monthly shelter expenses that is used to cover family living expenses, such as food, health care, clothing, and gasoline.
Residual income
Which of the following is an FHA loan program?
Section 203(b) loan
__________ is the gross income less federal and state income taxes and any Social Security or retirement contributions.
Take-home pay
What is the primary difference between an FHA loan and a VA loan?
Up to certain loan amount, no down payment is necessary for a VA loan.
Which statement is incorrect regarding the Federal Housing Administration?
a. Savings banks can have loans insured by the FHA. **b. The FHA makes government-insured loans. c. The FHA insures loans made by authorized lending institutions. d. The FHA insures loans made by independent mortgage companies.
The minimum property standards (MPS) assured that the housing used as collateral for FHA-insured mortgages met minimum requirements for:
a. quality. **b. All of the choices apply c. durability. d. safety
In regard to the debt-to-income ratio, the __________ ratio is the percentage of income needed to pay for all recurring debt.
back
Benefits of FHA-insured loans include all of the following, except:
complicated qualifying. Hint: FHA-insured loans allow low to moderate-income people to buy a home with lower initial costs. FHA-insured loans feature low down payments, competitive interest rates, easy qualifying, and low closing costs. In addition, FHA loans are assumable and have no prepayment penalties.
The DVA will guaranty a __________ loan, which is a loan to finance the construction and/or purchase of a residence.
construction/permanent home
If the appraised value of a home for which a veteran has submitted an application for a fixed-rate VA loan is less than the maximum loan guaranty, the veteran:
does not have to put a down payment on the purchase.
The Federal Housing Administration:
insures private home loans.
A(n) __________ (also called points or discount points) is a one-time charge imposed by the lender to lower the rate at which the lender would otherwise offer the loan. This fee varies from lender to lender.
loan discount
A prospective borrower who wants to finance a one-unit property with an FHA loan should:
make application through an approved lender.
The FHA finances its program by issuing:
mortgage insurance policies.
The FHA does not make loans. It insures loans to protect the lenders who make the loans. On loans with less than a 20% down payment, the lender is protected in case of foreclosure by:
mutual mortgage insurance.