For this assignment, please review the provided scenario carefully and answer the accompanying questions. You are expected to present your calculations clearly and provide thorough explanations for each response. In your explanations, define the steps taken during your calculations and discuss why each mortgage qualification question is relevant for assessing the borrower’s situation. Not providing a one-sentence explanation is insufficient, as you must explain it as if you explained it to your borrower. Ensure that your answers reflect a solid understanding of the concepts covered in this module, as well as any additional information you have gathered from the recommended website. An online mortgage calculator is available for your use. While citations are not mandatory, they can be beneficial if included.
In this assignment, students will analyze their financial details to calculate important mortgage metrics such as Loan Value (LTV) ratio, Debt to Income (DTI) ratio, front-end mortgage ratio, and monthly PITI (Principal, Interest, Taxes, and Insurance), taking into account the specifics of their debts, income, and the property they intend to purchase.
When you’re studying or working in fields that involve quantitative analysis, such as finance, economics, or even certain aspects of law, more than merely providing calculated answers is required. The purpose of including an explanation with your calculated answers is to demonstrate your understanding of how you arrived at those figures and to clarify the significance of these numbers in the context of the problem. This approach not only confirms that you have grasped the concept but also allows you to communicate the implications and relevance of your findings effectively.
Purpose of Providing Explanations:
Understanding: Explanations help ensure that you truly understand the process and aren’t just mechanically applying formulas. They require you to think critically about the steps you take and the reasons behind them.
Communication: By explaining your calculations, you make your reasoning clear to anyone who reads your work. This is crucial in professional settings, where decisions are often made based on your analysis and recommendations.
Verification: Detailed explanations allow others (or even you, at a later date) to verify the accuracy of your work. This is particularly important in collaborative and professional environments, where errors can have significant consequences.
Educational Value: When you explain your calculations, you reinforce your learning and can help educate others. This is especially valuable in a learning environment where students or colleagues may benefit from understanding different approaches to solving the same problem.
Scenario
Mark and Deidra are preparing to buy their first home and recognize the need for expert assistance in the real estate and mortgage sectors. They choose to work with Richard, a Realtor with a Mortgage Loan Originator (MLO) endorsement, capable of handling both their real estate purchase and financing needs. To begin the process, Richard helps them with prequalification, asking for their income, assets, credit profiles, a residential loan application, and the necessary supporting documents.
Mark, a Cyber Security Supervisor earning an annual salary of $160,000, and Deidra, a Vice Principal with an annual salary of $102,000, bring together stable and substantial earnings. Their monthly financial obligations include Mark’s $850 Porsche 911 SC loan and Deidra’s $400 BMW loan [installment payment accounts]. Additionally, Mark pays $350 monthly towards his credit cards, Deidra contributes $175 to hers [revolving credit accounts], and together, they pay $1,800 for condo rent. Mark also has a student loan, paying $200 monthly. With a combined down payment of $75,000 saved up, they aim to purchase a home valued at $730,000. Their credit scores are robust: 740 for Mark and 770 for Deidra.
Question Prompts
1 What is the monthly Mortgage Housing Expense [Front End Ratio]
2 Whis the dept to-income ratio [DTI]
3. What is the monthly Principal and Interest amount [P&I]
4 What is the monthly debt service amount [PITI] principle, interest, taxes, and insurance
5 Based on the above scenario, how much can Mark and Deidra afford?
Assumptions: you may select either an FHA or conventional loan program; assume an interest rate at 6.5%, a 30-year fixed rate loan; no HOA fees; student answers may vary
Martinez Business & Real Estate Services (cmartinezrealestateteam.com)
Martinez Business & Real Estate Services (cmartinezrealestateteam.com)
