Chapter 13: Application Ratios

July 17, 2023

1. A house has been appraised at a value of $550,000. The owner requires a 1st mortgage in the amount of $255,000 and a 2nd mortgage in the amount of $70,000.

a) What is the LTV of the 1st mortgage?
LTV = (255,000 / 550,000) x 100
LTV = 4.63636364E-1x 100
LTV = 46.36%
b) What is the LTV of the combined 1st and 2nd mortgages?
LTV = ((255,000 + $70,000) / $550,000) x 100
LTV = ($325,000 / $550,000) x 100
LTV = 0.590909090909 x 100
LTV = 59.09%

2. Tedros has been approved for a mortgage in the amount of $262,500 on a 1st mortgage. The property he is buying is worth $350,000. What is the LTV of this mortgage?

LTV = (262,500 / 350,000) x 100

LTV = 0.75 x 100

LTV = 75%

3. Adela and Carlos are applying for a mortgage through you, their local Mortgage Agent. They have requested a mortgage in the amount of $455,000 with weekly payments for a 3 year term at 5.95% compounded semi-annually with a 25 year amortization. They have told you that they also have a car payment of $385 per month, annual car insurance of $2,712, a weekly loan payment of $45 and total monthly credit card payments of $510. Their property taxes are $2,100 per year. Their combined income is $126,966 per year and heat on this house is $100 per month. The proposed mortgage payment is $667.43.

a) What is their GDS?

GDS = (PITH / INCOME) x 100

GDS = ([($667.43 x 52) + $2,100 + ($100 x 12)] / $126,966) x 100

GDS = [($34,706.36 + $2,100 + $1,200) / $126,966] x 100

GDS = ($38,006.36 / $126,966) x 100

GDS = 2.99342816E-1 x 100

GDS = 29.93%

b) What is their TDS?

TDS = [(PITH + Other Debts) / INCOME] x 100

TDS = ([$38,006.36 + ($385 x 12) + ($45 x 52) + ($510 x 12)] / $126,966) x 100

TDS = [($38,006.36 + $4,620 + $2,340 + $6,120) / $126,966] x 100

TDS = ($51,086.36 / $126,966) x 100

TDS = .40236252225

TDS = 40.24%

4. Hisa and Botan are applying for a mortgage through you, their local Mortgage Agent. They have requested a mortgage in the amount of $300,000 with monthly payments for a 5 year term at 4.95% compounded semi-annually with a 25 year amortization. They have told you that they also have a car payment of $275 per month, annual car insurance of $2,000, a weekly loan payment of $95 and total monthly credit card payments of $300. Their property taxes are $2,100 per year. Their combined income is $95,000 per year and heat on this house is $100 per month. The proposed mortgage payment is $1,736.29.

a) What is their GDS

GDS = (PITH / INCOME) x 100

GDS = ([($1,736.29 x 12) + $2,100 + ($100 x 12)] / $95,000) x 100

GDS = [($20,835.48 + $2,100 + $1,200) / $95,000] x 100

GDS = ($24,135.48 / $95,000) x 100

GDS = 2.54057684E-1 x 100

GDS = 25.41%

b) What is their TDS?

TDS = [(PITH + Other Debts) / INCOME] x 100

TDS = ([($24,135.48) + ($275 x 12) + ($95 x 52) + ($300 x 12)] / $95,000) x 100

TDS = [($24,135.48 + $3,300 + $4,940 + $3,600) / $95,000] x 100

TDS = ($35,975.48 / $95,000) x 100

TDS = 3.78689263E-1 x 100

TDS = 37.87%

5. Joe and Mary are applying for a mortgage through you, their local mortgage agent. They have requested a mortgage in the amount of $640,000 with bi-weekly payments for a 5 year term at 3.75% compounded semi-annually with a 25 year amortization. They have told you that they also have a car payment of $405 per month, annual car insurance of $3,000, a weekly loan payment of $55 and total monthly credit card payments of $400. Their property taxes are $2,100 per year. Their combined income is $145,000 per year and heat on this house is $100 per month. The proposed mortgage payment is $1,512.75.

a) What is their GDS?

GDS = (PITH / INCOME) x 100

GDS = ([($1,512.75 x 26) + $2,100 + ($100 x 12) / $145,000) x 100

GDS = [($39,331.50 + $2,100 + $1,200) / $145,000] x 100

GDS = ($42,631.50 / $145,000) x 100

GDS = 2.94010345E-1 x 100

GDS = 29.40%

b) What is their TDS?

TDS = [(PITH + Other Debts) / INCOME] x 100

TDS = ([$42,631.50 + ($405 x 12) + ($55 x 52) + ($400 x12)] / $145,000) x 100

TDS = [($42,631.50 + $4,860 + $2,860 + $4,800) / $145,000] x 100

TDS = ($55,151.50 / $145,000) x 100

TDS = 3.80355172E-1 x 100

TDS = 38.04%

6. Lin and Shen have been approved for a mortgage through you, their local Mortgage Broker in the amount of $200,000 with monthly payments for a 1 year term at 8.25% compounded semi-annually with a 25 year amortization. They have told you that they also have a car payment of $405 per month, a Line of Credit payment of $180 per month and total monthly credit card payments of $400. Their property taxes are $2,100 per year. Their combined income is $75,000 per year and heat on this house is $100 per month. The proposed mortgage payment is $1,558.46.

a) What is their GDS?

GDS = (PITH / INCOME) x 100

GDS = ([($1,558.46 x 12) + $2,100 + ($100 x 12) / $75,000) x 100

GDS = [($18,701.52 + $2,100 + $1,200) / $75,000] x 100

GDS = ($22,001.52 / $75,000) x 100

GDS = 0.2933536 x 100

GDS = 29.34%

b) What is their TDS?

TDS = [(PITH + Other Debts) / INCOME] x 100

TDS = ([$22,001.52 + ($405 x 12) + ($180 x 12) + ($400 x12)] / $75,000) x 100

TDS = [($22,001.52 + $4,860 + $2,160 + $4,800) / $75,000] x 100

TDS = ($33,821.52 / $75,000) x 100

TDS = 0.4509536 x 100

TDS = 45.10%

7. Dalila has been approved for a $30,000 2nd mortgage with monthly payments, a 1 year term, 10 year amortization at 12.5% compounded semi-annually. She has a first mortgage with an outstanding balance of $220,000 (down from $230,000 when she first took out the mortgage) with bi-weekly payments of $700. The second mortgage is going to consolidate her credit cards for which she currently pays $390 per month. She has a car lease of $360 per month, annual car insurance payments of $2,300 and monthly home insurance premiums of $150. Her property taxes are $3,500 per year and it costs $100 per month to heat her home, which has been appraised at $350,000. Dalila earns $78,000 per year as a manager. The proposed mortgage payment for the 2nd mortgage is $433.66.

a) What is the LTV of the 1st mortgage?

LTV = ($220,000 / $350,000) x 100

LTV = 6.28571429E-1 x 100

LTV = 62.86%

b) What is the LTV of only the 2nd mortgage (excluding the 1st mortgage)?

LTV = ($30,000 / $350,000) x 100

LTV = 8.57142857E-2 x 100

LTV = 8.57%

c) What is the total LTV of the 2nd mortgage?

LTV = [($220,000 + $30,000) / $350,000] x 100

LTV = ($250,000 / $350,000) x 100

LTV = 7.14285714E-1 x 100

LTV = 71.43%

d) What is her GDS?

GDS = (PITH / INCOME) x 100

GDS = ([($433.66 x 12) + ($700 x 26) + $3,500 + ($100 x 12) / $78,000) x 100

GDS = [($5,203.92 + $18,200 + $3,500 + $1,200) / $78,000] x 100

GDS = ($28,103.92 / $78,000) x 100

GDS = 3.60306667E-1 x 100

GDS = 36.03

e) What is her TDS?

TDS = [(PITH + Other Debts) / INCOME] x 100

TDS = ([$28,103.92 + ($360 x 12)] / $78,000) x 100

TDS = [($28,103.92 + $4,320) / $78,000] x 100

TDS = ($32,423.92 / $78,000) x 100

TDS = 4.15691282E-1 x 100

TDS = 41.57%

8. Your clients, Aarav and Anika have applied for a mortgage with you. They are buying a high-rise condo and need a mortgage in the amount of $320,000. You’ve suggested that they take a mortgage with monthly payments for a 5 year term at 3.35% compounded semi-annually with a 20 year amortization. They have told you that they also have a car payment of $310 per month, annual car insurance of $2,000, a weekly loan payment of $80 and total monthly credit card payments of $275. The property taxes are $2,100 per year while the condo maintenance fees are $418 per month. Their combined income is $117,000 per year and heat, which is not included in the maintenance fee, is estimated at $100 per month. The proposed mortgage payment is $1,827.53.

a) What is their GDS?

GDS = (PITH / INCOME) x 100

GDS = ([($1,827.53 x 12) + $2,100 + ($100 x 12) + (418 x .50 x 12) / $117,000) x 100

GDS = [($21,930.36 + $2,100 + $1,200 + $2,508.00) / $117,000] x 100

GDS = ($27,738.36 / $117,000) x 100

GDS = 0.237080000 x 100

GDS = 23.71%

b) What is their TDS?

TDS = [(PITH + Other Debts) / INCOME] x 100

TDS = ([$27,738.36 + ($310 x 12) + ($80 x 52) + ($275 x 12)] / $117,000) x 100

TDS = [($27,738.36 + $3,720 + $4,160 + $3,300) / $117,000] x 100

TDS = ($38,918.36 / $117,000) x 100

TDS = 0.332635555556 x 100

TDS = 33.26%

9. Asha would like to apply for a mortgage to purchase a new home valued at $400,000. Asha has stated that the property taxes are $2,900 per year. Her income is $73,000 per year. Further investigation shows that Asha has a car payment of $275 per month, credit card payments of $195 per month and a loan payment of $300 per month.

a) What is the maximum monthly mortgage payment for which Asha qualifies based on a TDS of 42%?

Maximum Mortgage Payment (MMP) = ((Income x Max TDS / 100) – (Property Taxes + 1/2 Condo Maintenance Fee + Heat + Other Debts)) / 12

MMP = (($73,000 x 42% / 100) – (($2,900 + ($100 x 12) + ($275 x 12) + ($195 x 12) + ($300 x 12))) / 12

MMP = (($73,000 x.42) – ($2,900 + $1,200 + $3,300 + $2,340 + $3,600)) / 12

MMP = ($30,660 – $13,340) / 12

MMP = $17,320 / 12

MMP = $1,443.3333333333

MMP = $1,443.33

Therefore, the maximum mortgage payment for which Asha qualifies is $1,443.33. If you then wanted to calculate the maximum mortgage amount you would use this payment, along with a specific interest rate, amortization period and $0 outstanding balance to calculate it.