Question

a couple is applying for a conventional loan with a 95% ltv to purchase a home. the lender has confirmed that the borrower's stable monthly income is $7,200, with revolving debt obligations of $1,000 a month. lender guidelines for the borrower's front-end ratio may be as high as 35%, while the back-end ratio may not exceed 43%. what adjustments in income or debt would be necessary for the couple to qualify for a $350,000 home? use the following for calculations: property tax, $4,200 annually; hazard insurance annual policy, $900; pmi annual cost, 0.0040 of loan amount; loan factor is $4.99 per $1,000.

Answer 1

To qualify for a $350,000 home with a 95% LTV conventional loan, the couple needs to meet the lender's front-end and back-end ratio guidelines. Adjustments in income or debt obligations would be necessary. The maximum loan amount they can afford is $138,605.

To qualify for a $350,000 home with a conventional loan and a 95% loan-to-value (LTV) ratio, the couple needs to meet the lender's front-end and back-end ratio guidelines. The front-end ratio, which considers the mortgage payment and other housing expenses, should not exceed 35% of the borrower's stable monthly income. The back-end ratio, which includes all monthly debt obligations, should not exceed 43% of the borrower's stable monthly income.

First, let's calculate the couple's maximum allowable monthly housing expenses based on the front-end ratio:

1. Monthly income: $7,200
2. Maximum front-end ratio: 35%
3. Maximum allowable monthly housing expenses: $7,200 x 0.35 = $2,520

We need to consider the housing expenses, which include the mortgage payment, property tax, hazard insurance, and private mortgage insurance (PMI). Let's calculate these expenses:

1. Property tax: $4,200 annually = $4,200 / 12 = $350 monthly
2. Hazard insurance: $900 annually = $900 / 12 = $75 monthly
3. PMI annual cost: 0.0040 x loan amount = 0.0040 x $350,000 = $1,400 annually = $1,400 / 12 = $116.67 monthly
4. Total monthly housing expenses without the mortgage payment: $350 + $75 + $116.67 = $541.67
5. Maximum allowable mortgage payment: $2,520 - $541.67 = $1,978.33
6. Loan factor: $4.99 per $1,000
7. Maximum loan amount: $1,978.33 / $4.99 = $396.59 per $1,000
8. Maximum loan amount for a $350,000 home: $396.59 x 350 = $138,605

Therefore, the couple would need to make adjustments such as reducing their monthly debt obligations or increasing their income in order to qualify for a $350,000 home, as the maximum loan amount they can afford is $138,605.

Complete Question

A couple is applying for a conventional loan with a 95% LTV to purchase a home. The lender has confirmed that the borrower's stable monthly income is $7,200, with revolving debt obligations of $1,000 a month. Lender guidelines for the borrower's front-end ratio may be as high as 35%, while the back-end ratio may not exceed 43%. What adjustments in income or debt would be necessary for the couple to qualify for a $350,000 home?

Use the following for calculations: property tax, $4,200 annually; hazard insurance annual policy, $900; PMI annual cost, 0.0040 of loan amount; loan factor is $4.99 per $1,000.