Copyright © 2018 Champions School of Real Estate®266Chapter 9LenderLoan ProcessesLOAN QUALIFICATION CASE STUDYJoe and Thelma Morlock are purchasing their first home. Being new to the home buying process,they are unaware of all of the hurdles they face in getting qualified for a loan. Fortunately for them,they have good jobs, good credit and a stable employment record. Joe’s gross annual income is$43,000. Thelma’s annual income is $44,500. Homes in the neighborhood that they are interestedin sell for about $215,000. They think that they can handle a house payment, but are a bit short onthe downpayment. Thelma’s parents have offered to help with the downpayment. They do have carpayments totaling $825 per month, student loan payments totaling $275 per month and some fur-niture financed with a payment of $125 per month.A.The home that they are interested in buying is listed at$218,000. They are hoping that they can purchase theproperty for $210,000, and get a 95% conventional loanfor 30 years at 5%. Taxes are estimated to be $6,300 peryear, and insurance is $1,800 per year.1.Based upon this scenario, will the borrower qualify forthe loan? Calculate both the front ratio and the backratio.If Joe and Thelma qualify for the loan, skip toquestion #3. Otherwise, continue to question #2.2.If they do not qualify for the loan, what is the issue?Back Ratio or Front ratio?3.If they have a “ratio problem,” what are some of thepossible solutions that can help them qualify?B.While shopping, Joe and Thelma found a home in anotherneighborhood that they like, and feel that is more in theirprice range. The house is for sale at $150,000. Annualtaxes are estimated to be $4,500, and insurance is $1,200.1.What will the total PITI be for this home?2.With a 95% conventional loan for 30 years at 5%, will they qualify on the front ratio? Backratio?3.Joe and Thelma will be getting assistance for the down payment from her parents. Assum-ing that they purchase a home with assistance from Thelma’s parents, what will the lenderrequire as documentation for the down payment assistance?4.Assuming that income is acceptable, what additional steps must be taken to qualify theborrower?5.Assuming that the borrower is qualified for the loan, list some of the additional steps thatmust be taken to underwrite the loan.FACTOR PAYMENTS CHART/FACTOR PER THOUSANDRATE15 YEAR30 YEAR2.0%6.443.702.5%6.673.953.0%6.914.003.5%7.154.494.0%7.404.774.5%7.655.075.0%7.915.375.5%8.175.686.0%8.446.00
