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SAFE MLO test · Calculations · Episode 6

Six Calculations, One Loan File

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Chapters

  1. 0:00The file
  2. 0:33LTV
  3. 0:58CLTV
  4. 1:16DTI
  5. 1:41Points
  6. 1:59Per diem
  7. 2:27ARM rate
  8. 2:46Recap

In short

On one loan file, a $312,000 loan on a home bought for $400,000 and appraised at $390,000: LTV divides the loan by the lower of price and appraisal, 80%. A $39,000 second loan makes the CLTV 90%. With $9,000 gross monthly income, a $2,250 housing payment is a 25% front-end ratio and $900 of other debts makes 35% back-end. 1.5 points cost $4,680. Prepaid interest at 6.5% is $55.56 a day, $611.16 for 11 days from a June 20 closing. An ARM resets at index plus margin: 4.25 + 2.75 = 7%.

  • Value means the lower of the purchase price and the appraised value.
  • A point is 1% of the loan amount, not the price.
  • Debt-to-income uses gross income, before tax.
  • Per diem: yearly interest ÷ 365 × days, counting the closing day.

Transcript

0:00The file

Six calculations show up on the SAFE exam, and each one is simple once you know what goes where. Here is one loan file. We will run all six on it. A home sells for $400,000 and appraises at $390,000. The first mortgage is $312,000. The borrower earns $9,000 a month before tax, and the rate is 6.5 percent.

0:33LTV

One: loan-to-value. The loan, divided by the value. The value is the lower of the price and the appraisal: $390,000. 312,000 divided by 390,000 is 80 percent. Divide by the price instead and you get 78. That is the trap answer.

0:58CLTV

Two: combined loan-to-value. Add every loan on the home. A second loan of $39,000 brings the total to $351,000. Divided by the same $390,000, that is 90 percent.

1:16DTI

Three: debt-to-income, and it comes in two parts. The housing payment is $2,250. Divided by $9,000, the front-end ratio is 25 percent. Add the other monthly debts, $900, and the back-end ratio is 35 percent. Always use gross income, before tax.

1:41Points

Four: discount points. Pause. One and a half points on this loan. How much? $4,680. A point is one percent of the loan amount, not the price.

1:59Per diem

Five: prepaid interest, for the days from closing to the end of the month. A year of interest is $20,280. Divided by 365 days, that is $55.56 a day. Closing on June 20th leaves 11 days, counting the closing day. Eleven times $55.56 is $611.16.

2:27ARM rate

Six: the rate on an adjustable loan when it resets. Add the index and the margin. 4.25 plus 2.75 is 7 percent. The margin never changes. The index moves, and caps limit how far the rate can jump.

2:46Recap

The lower value, points on the loan, gross income, and the closing day counts. Next: the questions people miss most. Subscribe so you catch it.

Sources

  • Worked example on an invented loan file
  • 12 CFR 1026.18 and 1026.20 (adjustable-rate disclosures)

Independent study material. EstatePass is not affiliated with NMLS or CSBS, and nothing here is legal advice. Any lenders and borrowers in our episodes are fictional.