Practical Application. Pre-qualified - Buyer supplied information to the lender which is not verified and results in a rough estimate of price range.

Transcription

1 Finance 1

2 Practical Application Pre-qualified - Buyer supplied information to the lender which is not verified and results in a rough estimate of price range. 2

3 Pre-approval - Includes an application and credit report and results in a specific loan amount for a specific buyer. Practical Application 3

4 Lender s Criteria for making a loan 1. Value of property as determined by a professional appraisal. 2. Buyer s cash reserves for down payment, closing costs, and at least first few months of payments. 4

5 Lender s Criteria for making a loan 3. Assurance that monthly payments may be met: Employment verifications or tax returns Credit report 5

6 Front end ratio - compares monthly income to the monthly house payment. Qualifying Ratios Back end ratio - compares monthly income to the monthly house payment plus all other debt. 6

7 Qualifying Ratios Manually Underwritten Conventional loans: LTV exceeds 90%: 33% / 38% LTV less than 90%: 31% / 43% 7

8 Manually Underwritten Qualifying Ratios FHA 31% / 43% VA loan 41% back end only 8

9 Qualifying Ratios Automated Underwriting Results in a higher debt to income ratio: Conventional loans 45% 50% FHA loans 50% - 55% 9

10 Automated Underwriting Determines the maximum LTV ratios based on the merits of each individual borrower. Qualifying Ratios 10

11 Qualifying Ratios Front End Ratio Faye and Roger Roberts are applying for an FHA loan and want to borrow $145,000. Roger makes $52,000 per year and Fay works part-time earning $20,000 per year. 11

12 Qualifying Ratios Front End Ratio Their monthly payment will be $1,260 including principal and interest, taxes and insurance. The loan will be manually underwritten and the front end ratio should not exceed 31%. 12

13 Qualifying Ratios Front End Ratio Divide the monthly payment including principal interest, taxes and insurance by gross monthly income. 13

14 Qualifying Ratios Front End Ratio Gross income: $52,000 + $20,000 = $72,000 $72, = $6,000 $6,000 monthly income Monthly payment: $1,260 $6,000 =.21 or 21% 14

15 Qualifying Ratios Back End Ratio Faye and Roger have a car payment of $368 per month and Roger pays $800 per month in child support. The back end ratio should not exceed 41%. 15

16 Qualifying Ratios Back End Ratio Divide the monthly payment including principal, interest, taxes and insurance plus any other monthly charges by gross monthly income. 16

17 Qualifying Ratios Back End Ratio Mortgage $1,260 Car payment $368 Child support $800 Total $2,428 17

18 Qualifying Ratios Back End Ratio Total debt: $2,428 $6,000 =.4047 or 40.47% 18

19 Student Narrative QUALIFYING PROBLEM Click to Open and Complete the Interactive PDF 19

20 Qualifying Worksheet 1. Family Income (Gross Monthly) 2. Family Installment Debts Installment Debts SUBTOTAL: 3. Family Housing Expense Monthly P & I: Taxes: Insurance: PMI: 20

21 Qualifying Worksheet 1. Family Income (Gross Monthly) 56, ,000 = 96, = 8, Family Installment Debts Installment Debts SUBTOTAL: 3. Family Housing Expense Monthly P & I: Taxes: Insurance: PMI: 21

22 Qualifying Worksheet 1. Family Income (Gross Monthly) 56, ,000 = 96, = 8, Family Installment Debts Car Payment 366 Credit Cards 621 Installment Debts SUBTOTAL: = Family Housing Expense Monthly P & I: Taxes: Insurance: PMI: 22

23 Qualifying Worksheet 1. Family Income (Gross Monthly) 56, ,000 = 96, = 8, Family Installment Debts Car Payment 366 Credit Cards 621 Installment Debts SUBTOTAL: = Family Housing Expense Monthly P & I: 275,000 x.965 = 265,375 /.000 x 9.15 = 1, Taxes: Insurance: PMI or MIP: Homeowners Assoc. Dues: 23

24 Qualifying Worksheet 1. Family Income (Gross Monthly) 56, ,000 = 96, = 8, Family Installment Debts Car Payment 366 Credit Cards 621 Installment Debts SUBTOTAL: = Family Housing Expense Monthly P & I: 275,000 x.965 = 265,375 /.000 x 9.15 = 1, Taxes: 3, = Insurance: PMI or MIP: Homeowners Assoc. Dues: 24

25 Qualifying Worksheet 1. Family Income (Gross Monthly) 56, ,000 = 96, = 8, Family Installment Debts Car Payment 366 Credit Cards 621 Installment Debts SUBTOTAL: = Family Housing Expense Monthly P & I: 275,000 x.965 = 265,375 /.000 x 9.15 = 1, Taxes: 3, = Insurance: 2, = PMI or MIP: Homeowners Assoc. Dues: 25

26 Qualifying Worksheet 1. Family Income (Gross Monthly) 56, ,000 = 96, = 8, Family Installment Debts Car Payment 366 Credit Cards 621 Installment Debts SUBTOTAL: = Family Housing Expense Monthly P & I: 275,000 x.965 = 265,375 /.000 x 9.15 = 1, Taxes: 3, = Insurance: 2, = PMI or MIP: 265,000 x.0175 = 4, ,375 = 270, x.0135 = 3, = Homeowners Assoc. Dues: 26

27 Qualifying Worksheet 1. Family Income (Gross Monthly) 56, ,000 = 96, = 8, Family Installment Debts Car Payment 366 Credit Cards 621 Installment Debts SUBTOTAL: = Family Housing Expense Monthly P & I: 275,000 x.965 = 265,375 /.000 x 9.15 = 1, Taxes: 3, = Insurance: 2, = PMI or MIP: 265,000 x.0175 = 4, ,375 = 270, x.0135 = 3, = Homeowners Assoc. Dues: 0 27

28 4. Analysis: Family Housing Expense Qualifying Worksheet ,000 = or >29% Total Housing Expense #3 Total Monthly Income #1 5. Analysis: Total Living Expense = Total Housing Expense Total Monthly Income #1 Total Monthy Debt (#3 #2) 28

29 Qualifying Worksheet 4. Analysis: Family Housing Expense ,000 = or >29% Total Housing Expense #3 Total Monthly Income #1 5. Analysis: Total Living Expense 3, ,000 = or >41% Total Housing Expense Total Monthly Income #1 Total Monthy Debt (#3 #2) They Do Not Qualify on the Front End or the Back End 29