Question

Ann wants a mortgage to buy a house. Ann gives the following information to the bank: Income: $240k/year or 20k/month Average monthly debt: $2k Estimated monthly Taxes + Insurance: $700 Down-payment: $50k saved -Ann’s down-payment will be $50k, she will take out a mortgage for the remainder Ann qualifies for a 30 year FA-CPM-FRM (monthly payments & monthly compounding) with: Annual interest rate: 4% Income test: (28%/36%) Collateral test: Closing costs + buy-down points: $5,000 + 1.75% of the balance at origination. -Example: if Ann gets a $100k mortgage, she will pay $5k + $1.75k=$6.75k at origination. 1 Underwriting 1.1: Fill in the spreadsheet (sheet “Underwriting”) for Ann. 1.2: based on the FE DTI what is the biggest payment Ann can make? 1.3: based on the BE DTI what is the biggest payment Ann can make? 1.4: based on both the FE & BE DTI what is the biggest payment Ann can make? 1.5: based on both the FE & BE DTI what is the biggest loan Ann can get? 1.6: based the LTV test and Ann’s $50k down-payment, what is the biggest loan Ann can get? 1.7: based on the income & collateral tests, what is the biggest loan Ann can get? 1.8: based on the income & collateral tests, what is the biggest payment Ann can make? 1.9: if Ann makes a 50k down-payment, how much house can Ann afford? 1.10: how much are Ann’s total mortgage closing costs?

Answer 1

2)FE-DTI

It is the ratio of housing expenses divided by gross income

so 6750 plus477.4 =6272.6 are mortgage payment

gross income=240000-(24000+8400+50000)

=157600

=6272.6/157600=3.98%

so this payment can be made by Ann

3)while in the back end the gross income is divided by other debt

157600/24000=6.56%

4)max 6.56+3.98=10.54

5)loan amount 100000

down payment 50000

6)LTV ratio=50%

so mac 150000 loans she can get

7)28% of income is the amount for which loan can be taken

8)240000*28%=172800

9)172800-50000=122800

10)closing cost should be 2%to 5% of the loan

1)loan

so 2456 to 6140