CMPS Debt and Cash Flow Management 2 — Questions and Answers
Question 1: A borrower has a gross monthly income of $8,000 and total monthly debt obligations of $3,200. What is their debt-to-income (DTI) ratio?
- 35%
- 40% (Correct answer)
- 45%
- 50%
Correct answer: 40%
$3,200 / $8,000 = 0.40, or 40% DTI.
Question 2: Which cash flow analysis technique compares a borrower's monthly income against all recurring obligations to determine mortgage affordability?
- Net worth analysis
- Debt service coverage ratio
- Residual income analysis (Correct answer)
- Liquidity ratio
Correct answer: Residual income analysis
Residual income analysis measures income remaining after all monthly obligations, a key VA loan underwriting tool.
Question 3: A client wants to pay off a $20,000 auto loan with 48 months remaining before applying for a mortgage. The monthly payment is $450. How would eliminating this debt affect their qualifying income requirement?
- It reduces the required income by $450/month
- It increases the required gross income by $450/month
- It has no effect on qualifying income
- It reduces gross income needed to qualify by approximately $1,500/month (Correct answer)
Correct answer: It reduces gross income needed to qualify by approximately $1,500/month
Removing a $450/month debt obligation reduces the gross income needed to support it by roughly $1,500/month at a 30% back-end DTI ratio.
Question 4: Under conventional lending guidelines, what is the maximum allowable back-end DTI ratio for standard loan approval?
- 36%
- 41%
- 43%
- 50% (Correct answer)
Correct answer: 50%
Fannie Mae allows up to 50% DTI with compensating factors for conventional loans.
Question 5: Which of the following items is included in the back-end DTI ratio calculation but NOT the front-end DTI ratio?
- Principal and interest
- Property taxes
- Homeowner's insurance
- Monthly car payment (Correct answer)
Correct answer: Monthly car payment
Back-end DTI includes all monthly debt obligations; front-end DTI includes only housing-related expenses.
Question 6: A mortgage planning specialist recommends a debt consolidation refinance to a client. Which primary risk must be disclosed?
- Credit score will permanently decline
- Unsecured debt becomes secured by the home (Correct answer)
- The new rate will always be higher
- Monthly payments will increase in all scenarios
Correct answer: Unsecured debt becomes secured by the home
Consolidating unsecured debt into a mortgage converts it to secured debt, putting the home at risk if the borrower defaults.
Question 7: A borrower's net monthly income is $6,000 after taxes. Their total monthly expenses including the proposed mortgage are $4,200. What is their monthly cash surplus?
- $1,200
- $1,800 (Correct answer)
- $2,400
- $900
Correct answer: $1,800
$6,000 - $4,200 = $1,800 monthly cash surplus.
CMPS Debt and Cash Flow Management 2
A borrower has a gross monthly income of $8,000 and total monthly debt obligations of $3,200.
What is their debt-to-income (DTI) ratio?