Question 1

What are qualifying ratios and how are they calculated?

Accepted Answer

Qualifying ratios determine a borrower's ability to repay a loan. The front-end ratio (housing ratio) is monthly housing costs divided by gross monthly income, typically max 28% for conventional loans. The back-end ratio (debt-to-income) is total monthly debts divided by gross income, typically max 36% for conventional loans.

Question 2

What is the difference between FHA and conventional loans?

Accepted Answer

FHA loans are government-insured with lower down payments (3.5%) and more flexible credit requirements, but require mortgage insurance for the loan's life. Conventional loans have stricter requirements but PMI can be removed at 80% LTV. FHA has loan limits while conventional conforming limits are generally higher.

Question 3

What is RESPA and what does it require?

Accepted Answer

RESPA (Real Estate Settlement Procedures Act) protects consumers in the mortgage process. It requires lenders to provide a Loan Estimate within 3 days, prohibits kickbacks and referral fees, limits escrow deposits, and requires a Closing Disclosure 3 days before closing.

Question 4

What is Loan-to-Value (LTV) ratio and why is it important?

Accepted Answer

LTV ratio is the loan amount divided by the property's appraised value or purchase price (whichever is lower). Higher LTV means higher risk to lenders. LTV above 80% typically requires Private Mortgage Insurance (PMI) for conventional loans. A $200,000 loan on a $250,000 property = 80% LTV.

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