Calculating LTV (Loan To Value)
Loan amount divided by the Appraised Value or Purchase Price whichever one is less = LTV
Example – What is the loan-to-value ratio if the Loan Amount is $100,000
Appraised Value is $125,000
Sales Price is $127,000
$100,000 divided by $125,000 = 80% LTV
Calculating Interest Only payment
Interest only payments are calculated by multiplying the Loan Amount by the Interest Rate and divide by 12.
Example – What is the total monthly payment, including escrows, on a 30-year interest only loan of $205,000, taxes of $1,800 per half, hazard insurance of $420 annually, $65 monthly mortgage insurance, and an interest rate of 6%.
$205,000 x 6% =$12,300 divide 12 = $1,025
$1,800 per half so take $1,800 and divide by 6 because half means half a year = $300 per month
$420 divided by 12 because insurance is paid annually = $35 per month
$65 for Mortgage Insurance
Add all the monthly payments together to equal the total monthly payment.
$1,025 + $300 + $35 + $65= $1,425
REfinance cash out calculation
First multiply the value by the LTV then subtract the payoff of the existing 1st then subtract the closing costs. The amount remaining is the what’s left for cash to the borrower.
Example – Your refinancing and qualify for 95% LTV and have a payoff of $70,000. How much cash is available if the appraisal is $95,000 and the closing costs are $3,000
$95,000 x 95% = $90,250
Subtract $70,000 and $3,000 = $17,250
Interest Only and balloon payments
The balloon payment on an interest only loan is the original principal amount that was borrowed. For Interest Only payment multiply the loan amount by the interest rate and divide by 12.
Example – A seller takes back a $150,000 mortgage at 6% interest. Payments are interest only for 10 years. What balloon payment amount will be due?
$150,000 x 6% = $9,000 / 12 = $750 monthly payment
Balloon due is $150,000 because there is no principal reduction on an interest only loan.
Calculating discount points
Multiply the loan amount by the number of points the borrower is paying. If the borrower is paying 3 points to get the loan then you multiply the loan amount by 3% and that will equal the dollar amount the borrower will pay.
Example – A borrower is buying a house for $100,000. He provides a down payment of $5,000. If he pays two discount points, what is the total cost of the points?
$100,000 – $5,000 = $95,000 x 2% = $,1900
Caps on ARM’s
With an ARM you have to pay attention to the caps. If you have a 3 part cap like 2/3/5 the first number says that the first time the loan adjusts it will not adjust to more than 2% over what the rate started at. This number only applies the first time the loan adjusts.
Every time the loan adjusts after the first time you look at the second number and the rate cannot adjust to more than 3% over what is was the last time. The last cap says that a rate will never ever adjust to more than 5% plus the start rate.
If you have a 2 part cap like 3/5 The first number says the rate will not adjust more than 3% over what is was every time it adjusts and the last number says the loan will never ever adjust to more than 5% over what it started at.
Example – A borrower has an ARM with an initial rate of 6% and a rate cap 2/6. What’s the highest his interest rate could be over the life of the loan?
In this example the loan starts out with a rate of 6%.
The first cap of 2 says that the rate will not adjust more then 2% over what it just was.
The 6 says that the rate will never ever adjust to more than 6% over what the loan started at.
Therefore in this example the rate for the life of the loan will never be more than 12%.
Calculating qualifying monthly payment (Owner Occupied)
Income x housing expense ratio = x Income x total debt to income ratio – consumer debt = y
Answer is whichever one is less Example – A borrower’s stable monthly income is $6,800. Every month he pays: $485 car payment, $200 revolving credit payment, and $1,500 alimony.
What is the maximum monthly mortgage payment for which he would qualify on an FHA mortgage loan?
$6,800 x 31% = $2,108
$6,800 x 43% – $485, 200, and $1,500 = $739
Answer is whichever is less therefore the correct answer is $739