6.3 Mortgage Application Process Bell Ringer2

Front

What is the front-end ratio in mortgage applications?

Back

The front-end ratio is a measure of a borrower's housing costs (including mortgage payment, property taxes, and homeowners insurance) compared to their gross income. It is typically expressed as a percentage.

Front

How do you calculate the front-end ratio?

Back

Front-end ratio = (Total monthly housing costs / Gross monthly income) x 100.

Front

What is the significance of the front-end ratio in mortgage applications?

Back

Lenders use the front-end ratio to assess a borrower's ability to manage monthly housing expenses relative to their income.

Front

What is the formula to calculate total interest paid over the life of a mortgage?

Back

Total Interest = (Monthly Payment x Total Number of Payments) - Loan Amount.

Front

How do you calculate the total of all monthly payments over 30 years for a mortgage?

Back

Total Monthly Payments = Monthly Payment x 360 (for a 30-year mortgage).

Front

What is an APR in the context of mortgages?

Back

APR (Annual Percentage Rate) represents the total yearly cost of borrowing, including interest and fees, expressed as a percentage.

Front

What are escrow payments in a mortgage?

Back

Escrow payments are amounts collected by the lender to cover property taxes and homeowners insurance, included in the monthly mortgage payment.

Front

How do you calculate the monthly payment with escrow?

Back

Monthly Payment with Escrow = Monthly Mortgage Payment + (Semi-Annual Property Tax / 6) + (Annual Homeowners Insurance / 12).

Front

What is the purpose of a down payment in a mortgage?

Back

A down payment reduces the amount borrowed and demonstrates the borrower's commitment to the purchase.

Front

What is the impact of a larger down payment on a mortgage?

Back

A larger down payment can lower monthly payments, reduce the total interest paid, and may eliminate the need for private mortgage insurance (PMI).