Chapter 9: Financials and Calculations Review

Assume a loan amount of $235,000 with a note rate of 6.25%: What is the interest only payment per month?

$ 235,000 Loan amount x .0625 Interest rate $14,687.50 Annual interest charge $14,687.50 Annual interest charge ÷12 Number of months in a year $1,223.96 Interest only payment per month

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 6 Number of months in one-half year $250 Per month for property tax payment

A borrower, who is paid $14.50 per hour and works 30 hours per week, receives monthly pay of

$1,885 per month. $14.50 x 30 x 52 = $22,620 ÷12 = $1,885 income per month

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:

$142,100 (loan amount) x .02 (discount points) = $2,842 (buydown cost)

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:

$142,100 Proposed loan amount ÷ $187,000 Lesser of sale price or appraised value = 75.99% Loan-to-value

In the previous scenario, there was a first lien of $142,100 and value of $187,000. If the borrower obtained secondary financing for $15,000, the combined loan-to-value would be calculated as follows:

$157,100 Total of all liens ($142,100 (first lien) + $15,000 (subordinate lien) ÷ $187,000 (Lesser of sale price or appraised value) = 84.01% Combined loan-to-value ***If a borrower has an existing loan balance of $142,100 and desires a HELOC or second equity loan of $15,000, with a current property appraisal of $187,000, his combined loan-to-value would be 84.01%.

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 $___

$187,000 (Lesser of sale price or appraised value) x .035 (Down payment required expressed as a decimal*) $ 6,545 *Note: Cash down payment required

Assume that the sale price is $187,000, the loan amount is $142,100, and the closing costs are $5,500, including two discount points to buy the interest rate down to a permanent rate of 6.25%. The acquisition cost is calculated as follows:

$187,000 Purchase price + $5,500 Borrower paid closing costs $192,500 Total acquisition cost ****In this problem, the loan amount and the interest rate are not pertinent to the calculation of the acquisition cost.

A borrower who is paid $1,000 semi-monthly (twice per month) receives a monthly pay of

$2,000 per month. $1000 x 2 (Paydays per Month) = $24,000 ÷ 12 = $2,000 income per month

A borrower who is paid $1,000 bi-weekly (every other week) receives a monthly pay of

$2,166.67 per month. $1,000 x 26 = $26,000 ÷ 12 = $2,166.67 income per month

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 x .0052 $ 1,222 $1,222 12 $101.83 Loan amount PMI factor expressed as a decimal Annual PMI payment Annual PMI payment Number of months in a year Per month PMI charge

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 ÷12 Number of months in one year $53 Per month for homeowner's (e.g. hazard) insurance payment

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 5.00% will require a cash down payment of

$9,350. $187,000 Lesser of sale price or appraised value x .05 Down payment requirement expressed as a decimal $ 9,350 ***Cash down payment requirement

For a borrower who receives a bi-weekly fixed salary:

Bi-weekly Pay x 26 (# of Paydays per Year) ÷ 12 (Number of Months in a Year)

Acquisition Cost

The total amount needed to purchase property, including the down payment, loan amount, and any allowable buyer paid closing costs.

True or False: You must always base the loan amount and/or the down payment amount on the lesser of the sale price or the appraised value.

True

True or False: When calculating a borrower's income, always use the gross monthly income before any deductions are made to the borrower's pay.

True: 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.

Usually, prepaid expenses are prorated on the Closing Disclosure as a credit to the seller and a debit to the buyer. Whichever party is responsible for making the payment receives the credit; the other party receives the debit. - the steps to calculate the adjustment are:

1. Determine if the expense is accrued or prepaid. 2. Divide the expense by the appropriate period to find a monthly (daily) rate. 3. Determine how many months (days) are affected by the expense. 4. Multiply the monthly (daily) rate by the number of affected months (days). 5. Determine which party is credited and which is debited.

A borrower has a one-year adjustable rate mortgage. The start rate is 3.5% and the margin is 2.5%. The index is the One Year Treasury Constant Maturity (TCM), whose index was 1.5% when the loan was closed. At the time of the first rate adjustment, the index is 2.25%. To calculate the fully indexed rate at the time of the first adjustment, perform the following computation:

2.25% Index value + 2.5% Margin 4.75% Fully indexed rate

When the initial loan amount is multiplied by the note rate, the result is known as the A. annual interest charge. B. monthly interest only payment. C. monthly PMI payment. D. total housing expense.

A. annual interest charge.

fully indexed rate

the sum of the current numerical value of the index value used and the margin, as defined in the note.

Hazard Insurance

Coverage that compensates for physical damage to a property from fire, wind, vandalism, or other hazards.

When the initial loan amount is divided by the lesser of the sale price or the current appraised value, the result is known as the A. annual interest charge. B. combined loan-to-value. C. housing ratio. D. loan-to-value.

D. loan-to-value.

Closing Costs

Expenses incurred in the transfer of real estate in addition to the purchase price (e.g., the appraisal fee, title insurance premiums, broker's commission, transfer tax).

For a borrower who receives a semi-monthly fixed salary (twice per month):

Gross Pay x 2 (# of Paydays per Month) = Gross Monthly Income

Qualifying Ratios

Guidelines applied by lenders to determine how large a loan to grant a homebuyer.

For a borrower who receives an hourly wage: how do you calculate monthly income?

Hourly Wage x # Hours Worked per Week x 52 (Weeks per Year) ÷ 12 (Number of Months in a Year)

The acquisition cost is defined as

the total amount needed to purchase property, including down payment, loan amount, and any allowable buyer paid closing costs.

Fully Indexed Rate

In an adjustable rate mortgage, the fully indexed rate is the sum of the current numerical value of the index value used and the margin as defined in the note.

Private Mortgage Insurance (PMI)

Insurance offered by private companies to insure a lender against default on a loan by a borrower, when there is a loss of value in the repossessed collateral value.

A buydown may be temporary (for a defined time period during the loan) or permanent (for the life of the entire loan). Either calculation of the cost for the interest rate buydown is always based on the loan amount.

Temporary and Fixed Interest Rate Buydown - Discount Points

Down Payment

The amount a buyer pays to obtain a property in addition to the money that the buyer borrows.

Periodic/Prepaid Interest:

The charge a lender makes for the use of the asset (mortgage loan) from the day of funding to the beginning of the next month. Expressed as a dollar charge per day (per diem).

Prepaid Expenses

The items on a Closing Disclosure the seller has already paid.

Buydown, Permanent

The payment of points by a borrower to a lender to reduce the interest rate and loan payments for the entire life of the loan.

Buydown, Temporary

The payment of points by a borrower to a lender to reduce the interest rate and payments early in a loan, with interest rate and payments rising later. Plans can be level payment, where the interest rate is reduced, but the payment is constant throughout the buydown period, or graduated payment, where payment subsidies in the early years of a loan keep payments low, but payments increase each year until they are sufficient to fully amortize the loan. Payment for the additional points can be made by the borrower or a third party (e.g., seller, builder), subject to the lender's or investor's requirements.

Loan-to-Value (LTV)

The relationship between the unpaid principal amount of the mortgage and the appraised value (or sales price, if it is lower) of the property.

Debt-to-Income Ratio

The relationship of a borrower's total monthly debt obligations, including housing and long-term, debts with 10 or more payments remaining, to income, expressed as a percentage (Total Debt ÷ Income = Ratio %). Also called DTI, Total Debt Service Ratio, or Back-end Ratio.

Housing Expense Ratio

The relationship of a borrower's total monthly housing expense to income, expressed as a percentage (Total Housing Expense ÷ Income = Ratio %). Also called Front- end Ratio.

To calculate periodic or per diem (per paid) interest, you must determine the amount of daily interest. This is done by multiplying the loan amount by the note rate. The result will be the annual interest charge. To calculate the daily interest, divide this product by either 360 or 365.

When performing proration calculations, expenses may be prorated using: • A 360-day year, 12 months of 30 days each. • A 365-day year, counting the exact number of days in each month (taking leap years into account). It is best to consult with the lender to determine whether to use a 360- or a 365-day calendar.

Prepaid expenses

are the items on a Closing Disclosure the seller has already paid; - ex: condo 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 escrow). - Usually, prepaid expenses are prorated on the Closing Disclosure as a credit to the seller and a debit to the buyer. Whichever party is responsible for making the payment receives the credit; the other party receives the debit.

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.

Closing costs

expenses incurred in the transfer of real estate in addition to the purchase price (e.g., appraisal fee, title insurance premiums, broker's commission, transfer tax)

To calculate a down payment for a home purchase, a mortgage loan originator first must know the

minimum requirements for down payment of each individual loan type. For example, a - conventional conforming loan requires a 5% down payment (from the borrower's own funds), - an FHA insured loan requires a 3.5% down payment (can be a gift) - VA and USDA guaranteed loans do NOT require a payment.

To calculate an interest only payment, the loan amount is

multiplied by the contract or note rate and divided by 12.

The loan-to-value is expressed as

the proposed or unpaid loan balance, which is in a first lien position, divided by the lesser of the sale price or appraised value.