Written Assignment #2 – Analyzing Borrower Prequalification Guidelines
This Assignment will give you the opportunity to review Borrower information to determine if they meet the general requirements of Prequalification for a Single-Family Residential Home Loan Purchase. The goal of this exercise is to get you familiar with the general process of analyzing data and prequalifying Borrowers. For this Assignment, we are only focusing on Borrower FICO and Housing/Debt ratios. Assume all other prequalification criteria is acceptable for each Borrower. Keep in mind that these guidelines are only for example purposes as real guidelines change from time to time based on prevailing Market conditions.
Instructions:
Prior to starting this Assignment, you may wish to review Unit 5 regarding the Conventional and FHA loan programs as well as Unit 10 under Qualifying the Borrower. To begin this Assignment, read the Loan Prequalification Scenario below thoroughly. Then review each Borrower Scenario and answer all the following 3 scenario’s questions. Please provide answers that include further support of your initial answer in your own words based on your understanding of the concept being asked. As this is a Written Assignment meant for you to express your understanding of these concepts, please go beyond just a simple copy and paste of the course materials in your answers to get full credit for your submission (see Rubric for grading criteria). Make sure you clearly indicate within your answer which question or part(s) of question you are answering.
Make sure to save your work when completed. Upload your work into the Work Assignment Page on Canvas prior to the due date posted in Canvas. Submitting your work submission as a Text only, picture file, IOS Pages, or a PDF document is also acceptable.
MS Word version of this Assignment **ATTACHED BELOW****
Purchase Mortgage Loan Prequalification Scenario:
Mortgage Broker is reviewing three Borrower/Buyer leads who wish to obtain Mortgage Loan Prequalification as they plan to identify and purchase residential housing in Riverside County California.
You have been asked as Assistant to the Loan Officer to review the initial borrower information files created for each prospective Borrower (A, B, & C). With the information provided from each Borrower scenario, calculate the information asked for and make the determination if the Borrower meets the basic prequalification guidelines to get approved for receiving a Prequalification letter.
Use the following table of Guideline information to assist you with the analysis of each Scenario:
Conventional Standard Fannie Mae Financing:
30 year- Fixed Interest currently offered at 4% Interest rate.
Minimum Fico score required: 680.
Minimum downpayment 10% or greater
Mortgage Insurance for LTV> 80%
Maximum Housing Ratio = 33% Maximum Debt Ratio = 42%
Riverside County Conforming loan limit for 1 Unit = $548,250
Conventional Plus
30 year- Fixed Interest currently offered at 3.75% Interest rate.
Minimum Fico score required: 740.
Minimum downpayment 5% or greater
Mortgage Insurance for LTV> 80%
Maximum Housing Ratio = 38% Maximum Debt Ratio = 46%
Riverside County Conforming loan limit for 1 Unit = $548,250
Jumbo Financing currently available at a 4.25% Interest rate.
FHA Financing:
30 year- Fixed Interest currently offered at 3.5% Interest rate.
Minimum Fico score required: 640.
Minimum downpayment 3.5%, can also be 5% or greater.
Maximum Housing Ratio = 31% Maximum Debt Ratio = 43%
Riverside County FHA loan limit for 1 Unit = $477,250
Upfront MIP 1.75% loan amount, Monthly MIP= 0.5% or 0.55% for >95% LTV
Scenario 1 Borrower A:
Borrower A provided the following information:
Desired Purchase Price $500,000
Gross monthly Income = $7,500
Revolving monthly Debt (Car payment and Credit cards) = $550
Downpayment funds available = $100,000
FICO score = 700
Preferred loan product = Conventional Standard
Borrower A Questions:
Which of the three loan products available would this Buyer qualify for based solely on FICO score?
Based on Borrower A’s loan preference, what is the stated Interest rate currently offered?
With the Borrower’s indicated downpayment funds available, what would be their LTV percentage?
Would there be Mortgage Insurance applied to this loan? If so, then why?
Assume Borrower A Gross monthly income is $7,500, their Monthly revolving Debt equals $ 550, and the calculated monthly PITI for their proposed loan is $2,460:
What is their Housing Ratio? Does their housing ratio fall below the Loan guideline (make sure not to round fractions of the percentages)?
What is their Debt Ratio? Does their debt ratio fall below the Loan guideline?
Based on the above calculations, does Borrower A meet the general prequalification guidelines for the Loan they preferred?
Scenario 2 Borrower B:
Borrower B provided the following information:
Desired Purchase Price $500,000 but would settle on $420,000.
Gross monthly Income = $8,000
Revolving monthly Debt (Car payment and Credit cards) = $1,200
Downpayment funds available = $20,000
FICO score = 660
Borrower B Questions:
Which of the three loan products available would this Buyer qualify for based solely on FICO score?
Based on the Loan program their Fico score will qualify for, what is the stated Interest rate currently offered?
Would this loan have Mortgage Insurance/MIP?
Is there any max loan limit on the Loan Program they would qualify for?
Based on this Loan program and the downpayment they are being placed, the calculated monthly PITI for a $500,000 purchase would be $2,870. The calculated monthly PITI for a $420,000 purchase would be $2,450.
Calculate the Housing Ratio for a $500,000 Purchase, what is the calculated ratio and does the ratio fall within the Loan guideline?
Calculate the Housing Ratio for a $420,000 Purchase, what is the calculated ratio and does the ratio fall within the Loan guideline?
Calculate the Debt Ratio for the $420,000 purchase based on the monthly amount of $3,250. What is the calculated ratio and does the ratio fall within the Loan guideline?
Suppose the Debt Ratio was too high, what could be done to lower the Debt ratio to fall within the loan guideline?
Scenario 3 Borrower C:
Borrower C provided the following information:
Desired Purchase Price $500,000
Gross monthly Income = $9,000
Revolving monthly Debt (only Credit cards) = $300
Downpayment funds available = $50,000
FICO score = 780
Preferred loan product = Conventional Plus
Borrower C Questions:
Which of the three loan products available would this Buyer qualify for based solely on FICO score?
Based on their stated preferred Loan program, what is the stated Interest rate currently offered?
Would this loan have Mortgage Insurance/MIP?
Based on this Loan program and the downpayment they are placing, the calculated monthly PITI for a $500,000 purchase would be $2,730.
What is their Housing Ratio? Does their housing ratio fall below the Loan guideline (make sure not to round fractions of the percentages)?
What is their Debt Ratio? Does their debt ratio fall below the Loan guideline?
Based on the above calculations, does Borrower C meet the general prequalification guidelines for the Loan they preferred?
Would this borrower be able to qualify for a Loan for a higher Purchase Price? Why or why not?
END OF ASSIGNMENT
END OF ASSIGNMENT
Rubric
Written Assignment Rubric 2021
Criteria Ratings Pts
This criterion is linked to a Learning OutcomeAssignment Submission Accuracy
15 pts
Full Points
15 Points awarded – Assignment accurately completed with correct calculations and accurate written answers to all parts of all the questions,
10 pts
Partial points
10 Points awarded – Assignment overall completed with correct calculations and written answers but have 1 or 2 missing or incorrect elements, answers, or calculations not to exceed 50% of assignment content.
0 pts
No Points
Submission answers were significantly deficient OR that exceeds more than 50% of assignment content based on the Assignment requirements.
15 pts
This criterion is linked to a Learning OutcomeAssignment Submission Student answer enhancement
10 pts
Full Points
10 Points awarded – Written answers containing explanations and additional perspective or detail to display understanding of the course material content, beyond providing only the simple answer or just a restatement of the course material.
0 pts
No Points
Assignment answer provided were simple statements or were direct re-statements from the course materials without any further explanation or support of the relevant topics to demonstrate understanding of the course material.
10 pts
This criterion is linked to a Learning OutcomeAssignment Submission meeting deadline
5 pts
Full Points
5 Points awarded – Assignment was turned in by the Due date and time OR allowed past due date with a satisfactory reason provided AND Instructor consent.
0 pts
No Points
Assignment not turned in by the due date and time.
5 pts
Total Points: 30
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