A self-employed borrower's tax returns show the following: Year 1 net income $45,000, Year 2 net income $38,000. The borrower had $8,000 in depreciation expenses each year. What is the qualifying monthly income?
Correct Answer
C) $4,792
For self-employed borrowers, qualifying income is calculated by averaging the net income plus depreciation over two years: (($45,000 + $8,000) + ($38,000 + $8,000)) ÷ 2 = $57,500 annually, or $4,792 monthly. Depreciation is added back as it's a non-cash expense.
Why This Is the Correct Answer
For self-employed borrowers, qualifying income is calculated by averaging the net income plus depreciation over two years: (($45,000 + $8,000) + ($38,000 + $8,000)) ÷ 2 = $57,500 annually, or $4,792 monthly. Depreciation is added back as it's a non-cash expense.
More Origination Questions
A borrower has a construction-to-permanent loan with a 12-month construction phase. At month 10, construction is only 60% complete due to delays. What is the most likely outcome?
For a construction-to-permanent loan, when must the initial Closing Disclosure be provided for the construction phase?
During a refinance transaction, the appraiser determines that significant unpermitted additions were made to the property. The appraiser wants to discuss this with the MLO before finalizing the report. What should the MLO do?
An appraiser discovers that a property has significant foundation issues that were not disclosed. The appraiser reduces the property value by $25,000 and includes detailed comments about the structural problems. The loan officer is upset because this will kill the deal. Under AIR, the loan officer:
An MLO's compensation structure includes higher payments for certain loan products. When is it acceptable to recommend these higher-compensated products?
People Also Study
Federal Mortgage-Related Laws
23% of exam
General Mortgage Knowledge
23% of exam
Ethics, Fraud & Consumer Protection
17% of exam
Uniform State Test Content
12% of exam
Previous Question
For a qualified mortgage (QM) refinance, the tangible net benefit requirement applies to which type of refinance transactions?
Next Question
An MLO receives a DU finding of 'Refer' with a message indicating 'Multiple Financed Properties.' The borrower owns two rental properties and is purchasing a primary residence. What does this DU message most likely indicate?