Mortgage Underwriting and Financial Calculations 2 — Questions and Answers
Question 1: A borrower earns $6,500/month gross income and has a proposed PITI of $1,750 plus monthly debts of $400. What is their back-end DTI ratio?
- 26.9%
- 32.3% (Correct answer)
- 33.1%
- 33.8%
Correct answer: 32.3%
Back-end DTI = (PITI + monthly debts) / gross income = ($1,750 + $400) / $6,500 = 33.1%.
Question 2: Which factor does NOT directly affect a borrower's Loan-to-Value (LTV) ratio?
- Purchase price of the property
- Down payment amount
- Borrower's credit score (Correct answer)
- Appraised value of the property
Correct answer: Borrower's credit score
LTV is calculated as loan amount divided by property value; credit score does not enter that formula.
Question 3: What does a Combined Loan-to-Value (CLTV) ratio measure?
- The ratio of only the first mortgage to the appraised value
- The ratio of all liens on a property to its appraised value (Correct answer)
- The ratio of the down payment to the purchase price
- The ratio of monthly debt payments to gross income
Correct answer: The ratio of all liens on a property to its appraised value
CLTV combines all mortgage liens (first, second, HELOCs) and divides them by the appraised value.
Question 4: A property appraises for $320,000 and the borrower puts 10% down. What is the LTV?
- 80%
- 85%
- 90% (Correct answer)
- 95%
Correct answer: 90%
Down payment = $32,000; loan = $288,000; LTV = $288,000 / $320,000 = 90%.
Question 5: What is the maximum allowable DTI for a Qualified Mortgage (QM) under the general definition?
- 36%
- 41%
- 43% (Correct answer)
- 50%
Correct answer: 43%
The general QM definition caps the debt-to-income ratio at 43% to ensure the borrower's ability to repay.
Question 6: When calculating qualifying income for a self-employed borrower, underwriters typically average how many years of tax returns?
- One year
- Two years (Correct answer)
- Three years
- Five years
Correct answer: Two years
Agency guidelines generally require a two-year average of self-employment income using Schedule C or business returns.
Question 7: A loan with a 75% LTV on a conventional purchase would most likely:
- Require FHA mortgage insurance
- Require private mortgage insurance (PMI)
- Not require PMI (Correct answer)
- Require a VA funding fee
Correct answer: Not require PMI
PMI is not required when LTV is 80% or below on conventional loans, so 75% LTV avoids PMI.
Mortgage Underwriting and Financial Calculations 2
A borrower earns $6,500/month gross income and has a proposed PITI of $1,750 plus monthly debts of $400.
What is their back-end DTI ratio?