United States
Hong KongThe mortgage calculations you need
Housing ratio, total debt ratio, loan-to-value, combined loan-to-value, discount points and per-diem interest. Six formulas, each of which should take under a minute from a cold start.
Nobody fails this exam because the arithmetic is hard. People fail because six easy calculations took three minutes each. Speed is the skill.
The six
| Calculation | Formula |
|---|---|
| Housing ratio | Proposed housing payment divided by gross monthly income |
| Total debt ratio | All monthly obligations divided by gross monthly income |
| Loan-to-value | Loan amount divided by the lesser of price and appraised value |
| Combined loan-to-value | All liens divided by the lesser of price and appraised value |
| Discount points | One point equals one percent of the loan amount |
| Per-diem interest | Annual interest divided by the day count, times the days |
The lesser of price and value
This trips people constantly. Loan-to-value uses the LOWER of the purchase price and the appraised value, not whichever is more convenient.
A property bought for 300,000 dollars and appraised at 290,000 dollars uses 290,000. A property bought for 300,000 dollars and appraised at 310,000 dollars still uses 300,000.
Questions are written specifically to see whether you reach for the wrong one.
What counts in the ratios
The housing payment is principal, interest, taxes and insurance - PITI - plus any homeowners association dues and mortgage insurance.
The total debt ratio adds every other monthly obligation: car payments, student loans, minimum credit card payments, alimony and child support. Not utilities. Not groceries.
28 percent housing and 36 percent total debt for conventional lending. 31 percent and 43 percent for FHA. Learn both pairs - questions often ask whether a borrower qualifies under one program but not the other.
Gross, not net
Every ratio uses gross monthly income, before tax. A candidate who uses take-home pay will get a plausible wrong answer, which is exactly what the distractors are built from.
How fast is fast enough
Under a minute each, from a cold start, without reading the stem twice. Drill them daily rather than in a block, because they decay faster than anything else on the syllabus.
Common questions
What calculations are on the NMLS exam?
Housing ratio, total debt ratio, loan-to-value, combined loan-to-value, discount points and per-diem interest.
Does loan-to-value use the price or the appraised value?
The lesser of the two.
What are the conventional ratio benchmarks?
28 percent housing and 36 percent total debt. FHA benchmarks are 31 and 43 percent.
Do ratios use gross or net income?
Gross monthly income, before tax.
What is a discount point?
One percent of the loan amount, paid to reduce the interest rate.