real estate finance - full book (500 pgs)

The qualifying ratios must also be determined

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Unformatted text preview: , which state that this ratio should not exceed 38%, including PMI. Example: 13-22 Licensing School for Appraisal, CPA, Contractors, Insurance, Real Estate, Notary, Nurse, Food Handlers, Tax and Securities 13: QUALIFYING THE BORROWER Borrower Jeffrey have three loans. He has a car loan of monthly payment of $300 that takes 3 years to pay off, a school loan of monthly payment of $200 that takes 4 years to pay off. Therefore, they are long–term debts. He has a personal loan with a friend with a monthly payment of $50.00 that takes 6 month to pay off. Therefore, Jeffrey’s long–term debts total $500 per month, which, added to the mortgage payment of $1,500, gives us a total monthly expense of $2000. Total monthly expense / Gross income = $2000 / $6500= 30.77% On the basis of this back–end ratio, Jeffrey also qualify, since his total monthly expenses is less than 38 percent. Borrowers must qualify on both tests. Some qualify on the first test but not on the second test because they have excessive debts. The second ratio is almost always the more important of the two. EASY QUALIFYING – LIMITED DOCUMENTS With 25% or larger down payments many lenders offer “limited document” or “easy qualifying” loans, requiring no income or deposit verifications, no IRS W–2s, and no employment verification. QUALIFYING UNDER CONVENTIONAL GUIDELINES Many conventional lenders have adopted the income–to–payment and long–term–debt– to–income ratios of Fannie Mae/Freddie Mac for the underwriting of their loans. These guidelines are as follows: The mortgage loan broker should assume that most lenders will use FNMA or FHLMC guidelines as the industry standard unless given different information when asking about the original setup arrangement. Pre-qualification of the borrower must include not only the principal and interest, but also the taxes and insurance, even though the borrower may choose to make his or her own payments for these items rather than have the lender i...
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