Underwriting and Financial Calculations Flashcards

Which type of income is typically NOT usable for qualifying purposes without a two-year history?

Answer: Overtime income received for less than 12 months

Overtime income generally requires a 12–24 month history to be considered stable and predictable for qualifying.

What is the purpose of the residual income analysis in VA loan underwriting?

Answer: To ensure the borrower has sufficient income after major expenses to meet living costs

VA residual income analysis measures net income remaining after housing and major expenses to ensure the veteran can maintain daily living.

A lender is using the FICO score for mortgage underwriting. Which bureau score is typically used when three bureaus are pulled?

Answer: The middle of the three scores

Agency guidelines require use of the middle score when all three bureau scores are available.

Which asset type is considered a 'liquid asset' acceptable for reserves and closing costs?

Answer: Checking and savings account balances

Checking and savings accounts are immediately accessible and qualify as liquid assets without restriction.

An interest-only loan allows the borrower to pay only interest for a set period. How does this affect underwriting qualification?

Answer: The borrower qualifies based on the fully amortized principal and interest payment

Fannie Mae and Freddie Mac require qualification based on the fully amortized P&I payment, not the lower IO payment.

What is 'cash-out refinance' and how does it affect LTV?

Answer: Refinancing for more than the current balance to receive funds, which increases LTV

A cash-out refinance increases the loan balance above the payoff amount, raising the LTV ratio.

A borrower's gross monthly income is $8,000. The maximum PITI using a 28% front-end ratio would be:

Answer: $2,240

$8,000 × 28% = $2,240 maximum allowable housing payment.