A self-employed borrower's eligible business income, after all required underwriting adjustments, is $72,000 for the first year and $84,000 for the second year. Using a simple 24-month average, what monthly income is used?
Correct Answer
C) $6,500
Why this is correct: For a self-employed borrower using a 24-month average, the monthly income is calculated by summing the eligible income for both years and dividing by 24 months. Year 1: $72,000; Year 2: $84,000. Total = $156,000. $156,000 divided by 24 = $6,500 per month. Why the other choices are wrong: "$3,250" is wrong because it might result from dividing only one year's income by 12 ($72,000/12). "$6,000" is wrong as it could be a simple average of the two annual figures ($72,000 + $84,000 = $156,000 / 2 = $78,000 annual average) but then incorrectly divided by 12.5 or another number, not the required 24. "$7,000" is wrong because it might result from using only the second year's income divided by 12 ($84,000/12). Exam tip: For 24-month average income questions, always sum the two years' figures first, then divide by 24, not by 12 or 2.
Why This Is the Correct Answer
Why this is correct: For a self-employed borrower using a 24-month average, the monthly income is calculated by summing the eligible income for both years and dividing by 24 months. Year 1: $72,000; Year 2: $84,000. Total = $156,000. $156,000 divided by 24 = $6,500 per month. Why the other choices are wrong: "$3,250" is wrong because it might result from dividing only one year's income by 12 ($72,000/12). "$6,000" is wrong as it could be a simple average of the two annual figures ($72,000 + $84,000 = $156,000 / 2 = $78,000 annual average) but then incorrectly divided by 12.5 or another number, not the required 24. "$7,000" is wrong because it might result from using only the second year's income divided by 12 ($84,000/12). Exam tip: For 24-month average income questions, always sum the two years' figures first, then divide by 24, not by 12 or 2.
More Mortgage Knowledge Questions
In a closing-readiness check, a risk reviewer sees facts tied to TILA Truth in Advertising. What should the file reflect?
In a training scenario, a trainee asks which official source controls FHA single-family origination policy. What action best follows the rule?
A compliance analyst compares the file facts with LTV Ratio Calculation during a licensing team review. Which conclusion is accurate?
A branch manager asks about a loan file because a trainee asks which official source controls FHA single-family origination policy. What should happen?
The loan team compares the file facts with ARM Cap Structures during a borrower follow-up call. Which conclusion is accurate?
A borrower has a 30-year fixed-rate mortgage with monthly principal and interest of $1,450. Property taxes increase, and taxes are paid through escrow. What can happen to the total monthly payment?
A loan has an outstanding principal balance of $240,000 and a 6% annual interest rate. Using simple monthly accrual, how much interest accrues for one month?
An annual escrow analysis for a current borrower shows a $780 shortage. One month's escrow payment is $600. The servicer elects to require repayment over the shortest installment period permitted by Regulation X for this shortage. What schedule is permitted?
What does an amortization schedule show for each scheduled payment?
A monthly principal-and-interest payment is $1,800, of which $1,250 is interest. How much principal is paid that month?
People Also Study
Federal Mortgage-Related Laws
24% of exam
Mortgage Loan Origination Activities
27% of exam
Ethics, Fraud & Consumer Protection
18% of exam
Uniform State Test Content
11% of exam