Deck 14: Mortgages

Question 1

You are one of the branch managers of the Insignia Bank. Today two loan applications were submitted to your office. Calculate the requested information for each loan.

Answer 1

Step 1. First find the number of
financed
Step 2. Using table locate the table factor, monthly payment per
financed.
The entry in the above table at
for 20-years is
.
Step 3. Now, calculate the monthly payment
Step 4. Next, find the total interest of the loan
[Since the number of payment in
20-years is
]
Therefore,

Question 2

For the following mortgage applications, calculate the housing expense ratio and the total expense ratio.

Answer 2

Consider Hauser's monthly gross income is
, monthly PITI expense is
and other monthly financial obligations is
.
Step 1. First find the housing expense ratio
Step 2. Next, find the total obligations ratio
Therefore,

Question 3

Phil Armstrong earns a gross income of $5,355 per month. He has submitted an application for a fixed-rate mortgage with a monthly PITI of $1,492. Phil has other financial obligations totalling $625 per month.
a. What is his housing expense ratio?
b. What is his total obligations ratio?
c. According to the Lending Ratio Guidelines on page 468, for what type of mortgage would Phil qualify, if any?

Answer 3

Consider Phil Armstrong's monthly gross income is
, monthly financial obligation is
and monthly PITI expense is
.
(a)
First find the housing expense ratio
Therefore, Phil Armstrong's combined housing expense ratio is
.
(b)
Next, find the total obligations ratio
Therefore, Phil Armstrong's combined total obligations ratio is
.
(c)
Lending ratio guidelines is mentioned below
Since Phil Armstrong's obligations ratio
exceeds the total obligations ratio guidelines for conventional mortgage which is
but less than the total obligation ratio of FHA, Phil Armstrong will qualify for FHA mortgage only.

Question 4

As one of the loan officers for Grove Gate Bank, calculate the monthly principal and interest, PI, using Table 14-1 and the monthly PITI for the following mortgages.

Question 5

For the following second mortgage applications, calculate the percentage of appraised value and the potential credit.

Question 6

A(n) __________ is a loan in which real property is used as security for a debt.

Question 7

A mortgage in which the interest rate changes periodically, usually in relation to a predetermined economic index, is known as a(n) __________ rate mortgage.

Question 8

Magda Leon is applying for a home mortgage with a monthly PITI of $724. She currently has a gross income of $2,856 and other monthly expenses of $411.
a. What is Magda's housing expense ratio?
b. What is her total obligations ratio?
c. According to the lending ratio guidelines, for what type of mortgage would Magda qualify, if any?

Question 9

As one of the loan officers for Grove Gate Bank, calculate the monthly principal and interest, PI, using Table 14-1 and the monthly PITI for the following mortgages.
Ben and Mal Scott plan to buy a home for $272,900. They will make a 10% down payment and qualify for a 25-year, 7% mortgage loan.
a. What is the amount of their monthly payment?
b. How much interest will they pay over the life of the loan?

Question 10

Calculate the housing expense ratio and the total obligations ratio for the following mortgage applications.

Question 11

Suzanne Arthurs purchased a home with a $146,100 mortgage at 6.5% for 30 years. Calculate the monthly payment and prepare an amortization schedule for the first three months of Suzanne's loan.

Question 12

As a loan officer using the Lending Ratio Guidelines on page 468, what type of mortgage can you offer Morton and Hauser from Exercises 9 and 10?

Question 13

You are applying for a conventional mortgage from the Americana Bank. Your monthly gross income is $3,500, and the bank uses the 28% housing expense ratio guideline.
a. What is the highest PITI for which you can qualify? Hint: Solve the housing expense ratio formula for PITI. Remember, this is an application of the percentage formula, Portion = Rate × Base, where PITI is the portion, the expense ratio is the rate, and your monthly gross income is the base.
b. Based on your answer from part a, if you are applying for a 30-year, 9% mortgage and the taxes and insurance portion of PITI is $175 per month, use Table 14-1 to calculate the size of the mortgage for which you qualify. Hint: Subtract TI from PITI. Divide the PI by the appropriate table factor to determine the number of $1,000s for which you qualify.
c. Based on your answer from part b, if you are planning on a 20% down payment, what is the most expensive house you can afford? Hint: Use the percentage formula again. The purchase price of the house is the base, the amount financed is the portion, and the percent financed is the rate.

Question 14

As one of the loan officers for Grove Gate Bank, calculate the monthly principal and interest, PI, using Table 14-1 and the monthly PITI for the following mortgages.
Michael Sanchez purchased a condominium for $88,000. He made a 20% down payment and financed the balance with a 30-year, 9% fixed-rate mortgage.
a. What is the amount of the monthly principal and interest portion, PI, of Michael's loan?
b. Construct an amortization schedule for the first four months of Michael's mortgage.

c. If the annual property taxes are $1,650 and the hazard insurance premium is $780 per year, what is the total monthly PITI of Michael's loan?

Question 15

Calculate the housing expense ratio and the total obligations ratio for the following mortgage applications.

Question 16

Mortgage __________ points are an extra charge frequently added to the cost of a mortgage.

Question 17

A home equity __________ is a lump-sum second mortgage based on the available equity in a home.

Question 18

Using Table 14-1 as needed, calculate the required information for the following mortgages.

Question 19

As one of the loan officers for Grove Gate Bank, calculate the monthly principal and interest, PI, using Table 14-1 and the monthly PITI for the following mortgages.
Luis Schambach is shopping for a 15-year mortgage for $150,000. Currently, the Fortune Bank is offering an 8.5% mortgage with 4 discount points and the Northern Trust Bank is offering an 8.75% mortgage with no points. Luis is unsure which mortgage is a better deal and has asked you to help him decide. (Remember, each discount point is equal to 1% of the amount financed.)
a. What is the total interest paid on each loan?
b. Taking into account the closing points, which bank is offering a better deal and by how much?

Question 20

Calculate the housing expense ratio and the total obligations ratio for the following mortgage applications.

Question 21

Use Table 14-1 to calculate the monthly principal and interest and calculate the monthly PITI for the following mortgages.

Question 22

Dale Evans bought the Lazy D Ranch with an adjustable-rate mortgage. The lender's margin on the loan is 3.9%, and the overall rate cap is 6% over the life of the loan.
a. If the current index rate is 4.45%, what is the calculated interest rate of the ARM?
b. What is the maximum overall rate of Dale's loan?

Question 23

Using Table 14-1 as needed, calculate the required information for the following mortgages.

Question 24

As one of the loan officers for Grove Gate Bank, calculate the monthly principal and interest, PI, using Table 14-1 and the monthly PITI for the following mortgages.
Phil Pittman is interested in a fixed-rate mortgage for $100,000. He is undecided whether to choose a 15- or 30-year mortgage. The current mortgage rate is 5.5% for the 15-year mortgage and 6.5% for the 30-year mortgage.
a. What are the monthly principal and interest payments for each loan?
b. What is the total amount of interest paid on each loan?
c. Overall, how much more interest is paid by choosing the 30-year mortgage?

Question 25

Calculate the housing expense ratio and the total obligations ratio for the following mortgage applications.

Question 26

A chart that shows the month-by-month breakdown of each mortgage payment into interest and principal is known as a(n) __________ schedule.

Question 27

A home equity __________ of credit is a revolving credit second mortgage loan on the equity in a home.

Question 28

Using Table 14-1 as needed, calculate the required information for the following mortgages.

Question 29

As one of the loan officers for Grove Gate Bank, calculate the monthly principal and interest, PI, using Table 14-1 and the monthly PITI for the following mortgages.
Larry and Cindy Lynden purchased a townhome in Alison Estates with an adjustable-rate mortgage. The lender's margin on the loan is 4.1%, and the overall rate cap is 5% over the life of the loan. The current index rate is the prime rate, 3.25%.
a. What is the calculated interest rate of the ARM?
Calculated ARM interest rate = Index rate + Lender's margin
Calculated ARM interest rate = 3.25 + 4.1 =

b. What is the maximum overall rate of the loan?
Maximum overall ARM rate = Initial rate + Overall rate cap
Maximum overall ARM rate = 7.35 + 5.0 =

Question 30

Calculate the housing expense ratio and the total obligations ratio for the following mortgage applications.

Question 31

Use Table 14-1 to calculate the monthly principal and interest and calculate the monthly PITI for the following mortgages.

Question 32

Diversified Investments purchased a 24-unit apartment building for $650,000. After a 20% down payment, the balance was financed with a 20-year, 7.75% fixed-rate mortgage.
a. What is the amount of the monthly principal and interest portion of the loan?
b. As Diversified's loan officer, construct an amortization schedule for the first two months of the mortgage.

c. If the annual property taxes are $9,177 and the hazard insurance premium is $2,253 per year, what is the total monthly PITI of the loan?
d. If each apartment rents for $825 per month, how much income will Diversified make per month after the PITI is paid on the building?

Question 33

Using Table 14-1 as needed, calculate the required information for the following mortgages.

Question 34

As one of the loan officers for Grove Gate Bank, calculate the monthly principal and interest, PI, using Table 14-1 and the monthly PITI for the following mortgages.
Heather Gott bought a home with an adjustable-rate mortgage. The lender's margin on the loan is 3.5%, and the overall rate cap is 8% over the life of the loan.
a. If the current index rate is 3.75%, what is the calculated interest rate of the ARM?
b. What is the maximum overall ARM rate of Heather's loan?

Question 35

Calculate the housing expense ratio and the total obligations ratio for the following mortgage applications.

Question 36

A(n) __________ account is a bank account used by mortgage lenders to accumulate next year's property taxes and hazard insurance.

Question 37

Write the formula for the housing expense ratio.

Question 38

Using Table 14-1 as needed, calculate the required information for the following mortgages.

Question 39

As one of the loan officers for Grove Gate Bank, calculate the monthly principal and interest, PI, using Table 14-1 and the monthly PITI for the following mortgages.
Joe and Gloria Moutran are purchasing a house in Winter Springs financed with an adjustablerate mortgage. The lender's margin on the loan is 2.75%, and the overall rate cap is 6.2% over the life of the loan. The current index rate is 5.8%.
a. What is the calculated interest rate of the ARM?
b. What is the maximum overall ARM rate of the loan?

Question 40

Calculate the housing expense ratio and the total obligations ratio for the following mortgage applications.

Question 41

For the following second mortgage applications, calculate the percentage of appraised value and the potential credit.

Question 42

Larry Mager purchased a ski lodge in Telluride for $850,000. His bank is willing to finance 70% of the purchase price. As part of the mortgage closing costs, Larry had to pay 4
discount points. How much did this amount to?

Question 43

Using Table 14-1 as needed, calculate the required information for the following mortgages.

Question 44

As one of the loan officers for Grove Gate Bank, calculate the monthly principal and interest, PI, using Table 14-1 and the monthly PITI for the following mortgages.
You are a real estate broker for Aurora Realty. One of your clients, Erica Heston, has agreed to purchase one of the homes your office has listed for sale for a negotiated price of $235,000. The down payment is 20%, and the balance will be financed with a 15-year fixed-rate mortgage at 8.75% and 31 2 discount points. The annual property tax is $5,475, and the hazard insurance premium is $2,110. When Erica signed the original contract, she put down a deposit of $5,000, which will be credited to her down payment. In addition, at the time of closing, Dawn must pay the following expenses:

As Erica's real estate broker, she has asked you the following questions:
a. What is the total monthly PITI of the mortgage loan?
b. What is the total amount of interest that will be paid on the loan?
c. How much is due from Erica at the time of the closing?
d. If your real estate office is entitled to a commission from the seller of 6 1 2 % of the price of the home, how much commission is made on the sale?

Question 45

Calculate the housing expense ratio and the total obligations ratio for the following mortgage applications.
Use Exhibit 14-4, Lending Ratio Guidelines, on page 468 to answer the following questions:
a. Which of the applicants in Exercises 8-14 would not qualify for a conventional mortgage?
b. Which of the applicants in Exercises 8-14 would not qualify for any mortgage?

Question 46

Today most mortgage payments include four parts, abbreviated PITI. Name these parts.

Question 47

Write the formula for the total obligations ratio.

Question 48

Using Table 14-1 as needed, calculate the required information for the following mortgages.

Question 49

As one of the loan officers for Grove Gate Bank, calculate the monthly principal and interest, PI, using Table 14-1 and the monthly PITI for the following mortgages.
The buyer of a piece of real estate is often given the option of buying down the loan. This option gives the buyer a choice of loan terms in which various combinations of interest rates and discount points are offered. The choice of how many points and what rate is optimal is often a matter of how long the buyer intends to keep the property. Darrell Frye is planning to buy an office building at a cost of $988,000. He must pay 10% down and has a choice of financing terms. He can select from a 7% 30-year loan and pay 4 discount points, a 7.25% 30-year loan and pay 3 discount points, or a 7.5% 30-year loan and pay 2 discount points. Darrell expects to hold the building for four years and then sell it. Except for the three rate and discount point combinations, all other costs of purchasing and selling are fixed and identical.
a. What is the amount being financed?
b. If Darrell chooses the 4-point 7% loan, what will be his total outlay in points and payments after 48 months?
c. If Darrell chooses the 3-point 7.25% loan, what will be his total outlay in points and payments after 48 months?
d. If Darrell chooses the 2-point 7.5% loan, what will be his total outlay in points and payments after 48 months?
e. Of the three choices for a loan, which results in the lowest total outlay for Darrell?

Question 50

Calculate the housing expense ratio and the total obligations ratio for the following mortgage applications.
Ronald and Samantha Brady recently had their condominium in Port Isaac appraised for $324,600. The balance on their existing first mortgage is $145,920. If their bank is willing to loan up to 75% of the appraised value, what is the amount of credit available to the Bradys on a home equity line of credit?

Question 51

For the following second mortgage applications, calculate the percentage of appraised value and the potential credit.

Question 52

A Denny's Restaurant franchisee is looking for a 20-year mortgage with 90% financing to build a new location costing $775,000. The Spring Creek Bank is offering an 8% mortgage with 1
discount points; Foremost Savings Loan is offering a 7.5% mortgage with 4 discount points. The franchisee is unsure which mortgage is the better deal and has asked for your help.
a. What is the total interest paid on each loan?
b. Taking into account the discount points, which lender is offering a better deal and by how much?

Question 53

Using Table 14-1 as needed, calculate the required information for the following mortgages.
Marc Bove purchased a home with a $78,500 mortgage at 9% for 15 years. Calculate the monthly payment and prepare an amortization schedule for the first four months of Marc's loan.

Question 54

For the following second mortgage applications, calculate the percentage of appraised value and the potential credit.

Question 55

Calculate the housing expense ratio and the total obligations ratio for the following mortgage applications.
The Barclays own a home that was recently appraised for $219,000. The balance on their existing first mortgage is $143,250. If their bank is willing to loan up to 65% of the appraised value, what is the potential amount of credit available to the Barclays on a home equity loan?

Question 56

The final step in a real estate transaction is a meeting at which time the buyer pays the agreed-upon purchase price and the seller delivers the ownership documents. This meeting is known as the __________.

Question 57

How much more total interest will be paid on a 30-year fixed-rate mortgage for $100,000 at 9.25% compared with a 15-year mortgage at 8.5%?

Question 58

As one of the loan officers for Grove Gate Bank, calculate the monthly principal and interest, PI, using Table 14-1 and the monthly PITI for the following mortgages.

Question 59

For the following second mortgage applications, calculate the percentage of appraised value and the potential credit.

Question 60

Calculate the housing expense ratio and the total obligations ratio for the following mortgage applications.
Ransford and Alda Mariano own a home recently appraised for $418,500. The balance on their existing mortgage is $123,872. If their bank is willing to loan up to 80% of the appraised value, what is the amount of credit available to them?

Question 61

For the following second mortgage applications, calculate the percentage of appraised value and the potential credit.

Question 62

Adam Marsh is purchasing a $134,000 condominium apartment. The down payment is 20%, and the balance will be financed with a 20-year fixed-rate mortgage at 8.75% and 3 discount points. The annual property tax is $1,940, and the hazard insurance premium is $1,460. When Adam signed the original sales contract, he put down a deposit of $10,000, which will be credited to his down payment. In addition, at the time of closing, he must pay the following expenses:

As Adam's real estate agent, he has asked you the following questions:
a. What is the total monthly PITI of the mortgage loan?
b. What is the total amount of interest that Adam will pay on the loan?
c. How much is due at the time of the closing?
d. If the sellers are responsible for the 6% broker's commission, $900 in closing costs, and the existing first mortgage with a balance of $45,000, what proceeds will be received on the sale of the property?

Question 63

As one of the loan officers for Grove Gate Bank, calculate the monthly principal and interest, PI, using Table 14-1 and the monthly PITI for the following mortgages.

Question 64

For the following second mortgage applications, calculate the percentage of appraised value and the potential credit.

For the following second mortgage applications, calculate the percentage of appraised value and the potential credit.

Question 65

Calculate the housing expense ratio and the total obligations ratio for the following mortgage applications.
Michelle Heaster is thinking about building an addition on her home. The house was recently appraised at $154,000, and the balance on her existing first mortgage is $88,600. If Michelle's bank is willing to loan 70% of the appraised value, does she have enough equity in the house to finance a $25,000 addition?

Question 66

The official document representing the right of ownership of real property is known as the __________ or the __________.

Question 67

Martin Ellingham is negotiating to buy a vacation cottage in Port Wenn. The seller of the cottage is asking $186,000. Martin offered him a cash deal, owner-seller (no broker) only if the seller would reduce the price by 12%. The seller agreed. Martin must pay a 10% down payment upon signing the agreement of sale. At closing, he must pay the balance of the agreed-upon sale price, a $500 attorney's fee, a $68 utility transfer fee, a title search and transfer fee of $35 plus 3 4% of the selling price, and the first six months of the annual insurance of $1,460 per year. How much does Martin owe at closing?

Question 68

As one of the loan officers for Grove Gate Bank, calculate the monthly principal and interest, PI, using Table 14-1 and the monthly PITI for the following mortgages.

Question 69

For the following second mortgage applications, calculate the percentage of appraised value and the potential credit.

Question 70

Calculate the housing expense ratio and the total obligations ratio for the following mortgage applications.
Jamie and Alice Newmark have a combined monthly gross income of $9,702 and monthly expenses totaling $2,811. They plan to buy a home with a mortgage whose monthly PITI will be $2,002.
a. What is Jamie and Alice's combined housing expense ratio?
b. What is their total obligations ratio?
c. For what kind of mortgage can they qualify, if any?
d. (Optional challenge) By how much would they need to reduce their monthly expenses in order to qualify for an FHA mortgage?

Question 71

You are one of the branch managers of the Insignia Bank. Today two loan applications were submitted to your office. Calculate the requested information for each loan.

Question 72

For the following mortgage applications, calculate the housing expense ratio and the total expense ratio.

Question 73

The Randolphs own a home that recently appraised for $161,400. The balance on their existing first mortgage is $115,200. If their bank is willing to loan up to 70% of the appraised value, what is the amount of credit available to the Randolphs on a home equity line of credit?

Question 74

As one of the loan officers for Grove Gate Bank, calculate the monthly principal and interest, PI, using Table 14-1 and the monthly PITI for the following mortgages.

Question 75

For the following second mortgage applications, calculate the percentage of appraised value and the potential credit.

Question 76

Calculate the housing expense ratio and the total obligations ratio for the following mortgage applications.
You are a mortgage broker at Interamerican Bank. One of your clients, Bill Cramer, has submitted an application for a mortgage with a monthly PITI of $1,259. His other financial obligations total $654.50 per month. Bill earns a gross income of $4,890 per month.
a. What is his housing expense ratio?
b. What is his total obligations ratio?
c. According to the Lending Ratio Guidelines on page 468, for what type of mortgage would Bill qualify, if any?
d. If Bill decided to get a part-time job so that he could qualify for a conventional mortgage, how much additional monthly income would he need?

Question 77

Land, including permanent improvements on that land, is known as __________.

Question 78

List four mortgage loan closing costs.

Question 79

Jonathan and Kimberly Schwartz live in a home to which they want to make major improvements. They plan to replace the existing heating and cooling system, remodel the kitchen, and add a room above the garage. To pay for this renovation, they plan to get a home equity line of credit. Their home currently appraises for $298,000. They owe $68,340 on the first mortgage. How much credit will their bank provide if the limit is 75% of their home's value?

Question 80

As one of the loan officers for Grove Gate Bank, calculate the monthly principal and interest, PI, using Table 14-1 and the monthly PITI for the following mortgages.