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Unformatted text preview: be the maximum loan amount as set by FHA, which the lender will use as the basic loan guideline. The borrower(s) should furnish the mortgage loan broker with proof of their total verifiable income from all sources and the total monthly expenses that would continue six months after the loan would close. The broker then includes the new loan debt into the formula to derive the maximum monthly payment which is used to calculate the maximum loan amount at the current prevailing interest rate. The qualifying ratios must also be determined. According to FHA guidelines, the front– end ratio must not exceed a maximum of 29%, unless the borrower has compensating factors. These items might include cash reserves, large equity in other assets, or similar. The total housing payment is divided by the total gross income. The back–end ratio consists of dividing the total housing payment plus any long–term debts and is divided by the total gross income. This cannot exceed 41%. Lenders rarely vary from the FHA ratio guidelines. These items are shown in figure below.
13-26 Licensing School for Appraisal, CPA, Contractors, Insurance, Real Estate, Notary, Nurse, Food Handlers, Tax and Securities 13: QUALIFYING THE BORROWER
Once the maximum loan amount has been derived, the cash down payment is added to calculate the total maximum sales price. The amount of cash down payment is in excess of the cash needed for any closing costs that must be paid prior to the close of escrow. Figure 13-1: FHA Loans: Calculating the maximum loan amount from gross income Example:
3500 x 41% $1435 – 200 $1235 Taxes and insurance/HOA –150 Total principal and interest $1085 Payment factor for 8.0% interest rate Divide by / 7.337646 for 30 years (see figure 13–4) Loan amount $147,867 (round down to $147,850) Gross income Back–end ratio Total available for debt service Monthly installment debts Remember:FHA also has a front–end ratio of 29%. After establishing your estimated loan amount, check your front–end ratio for compliance with FHA guidelines....
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This note was uploaded on 12/30/2010 for the course SOC 101 taught by Professor Zhung during the Spring '10 term at Punjab Engineering College.
- Spring '10