Underwriting and Financial Calculations Flashcards

What does it mean when a loan is 'underwater' or has 'negative equity'?

Answer: The outstanding loan balance exceeds the property's current market value

Negative equity (being underwater) means the loan balance is higher than what the property is currently worth.

When calculating the monthly payment on a $250,000 loan at 6% for 30 years, which component is NOT included in PITI?

Answer: Utility bills

PITI stands for Principal, Interest, Taxes, and Insurance — utility bills are not included.

A borrower has $50,000 in student loans on income-driven repayment (IDR) showing a $0 monthly payment. Under Fannie Mae guidelines, how is this treated for DTI?

Answer: 1% of the balance ($500) is used

Fannie Mae requires 1% of the outstanding student loan balance when the payment is $0 or deferred.

What is an 'automated underwriting system' (AUS) finding of 'Approve/Eligible' vs. 'Refer'?

Answer: Approve/Eligible means the loan meets guidelines; Refer means a human underwriter must review it

Approve/Eligible indicates the AUS finds the loan compliant; Refer sends the file to a human underwriter for manual assessment.

Which calculation correctly determines the amount of mortgage insurance premium (MIP) on an FHA loan?

Answer: Base loan amount × annual MIP rate / 12 months

FHA annual MIP is calculated as the base loan amount times the applicable annual MIP rate, then divided by 12 for the monthly premium.

A property's NOI (Net Operating Income) is $36,000 per year and the annual debt service is $30,000. What is the Debt Service Coverage Ratio (DSCR)?

Answer: 1.20

DSCR = NOI / Annual Debt Service = $36,000 / $30,000 = 1.20.

When documenting alimony income for qualifying purposes, lenders typically require evidence that payments will continue for how long?

Answer: 3 years

Agency guidelines require documentation that alimony will continue for at least three years to be counted as qualifying income.