What Are The Basics Of Calculating Income, LTV, & DTI

Calculating income, Loan-to-Value (LTV), and Debt-to-Income (DTI) are fundamental aspects of financial analysis, especially in the context of loans, mortgages, and other forms of borrowing. Here's a brief overview of each:

• Calculating Income:
  Income calculation involves determining the total amount of money an individual or household earns over a specified period. This can include various sources such as wages/salary, rental income, dividends, interest, and any other forms of earnings.
• Loan-to-Value (LTV):
  LTV ratio is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased. For example, in the context of a mortgage, it represents the ratio of the loan amount to the appraised value of the property.
• Debt-to-Income (DTI) Ratio:
  DTI ratio is a measure that compares an individual's monthly debt payments to their gross monthly income. It's used by lenders to assess a borrower's ability to manage monthly payments and repay debts.

These calculations are fundamental in assessing financial health and eligibility for loans, particularly in mortgage lending where they play a significant role in determining loan approval and terms.

What Are The Common Errors In Calculating Income, LTV, & DTI?

Calculating income, Loan-to-Value (LTV), and Debt-to-Income (DTI) ratios are essential steps in financial assessments, particularly in the lending industry. Here are some common errors associated with these calculations:

>>> Re Income Calculation Errors:

• Incomplete Documentation:
  Failure to provide all sources of income or omitting certain forms of income, such as bonuses, overtime, or rental income, can lead to an inaccurate assessment of total income.
• Inconsistencies:
  Discrepancies between stated income and actual income, such as overestimation or underestimation, can skew calculations.
• Unverifiable Income:
  Including income that cannot be verified through proper documentation or evidence can result in inflated income figures.
• Non-Recurring Income:
  Incorrectly including one-time or irregular income streams without adjusting for their temporary nature can distort the borrower's actual financial situation.

>>> Re Loan-to-Value (LTV) Calculation Errors:

• Incorrect Property Valuation:
  Using an inaccurate property valuation can lead to an incorrect LTV calculation. This might happen due to outdated appraisal information or overlooking factors that affect the property's value.
• Mistaken Equity Calculation:
  Errors in calculating the equity in a property, either overestimating or underestimating it, can directly affect the LTV ratio.
• Overlooking Additional Costs:
  Failing to include additional costs like closing fees, insurance, or taxes in the calculation can result in an inflated LTV ratio.

>>> Re Debt-to-Income (DTI) Calculation Errors:

• Omitting Debts:
  Neglecting to include all existing debts, such as credit card payments, student loans, or car loans, can underestimate the borrower's actual debt load.
• Incorrect Income Calculation:
  Using the wrong income figure or failing to include all sources of income can lead to an inaccurate DTI ratio.
• Excluding Non-Debt Expenses:
  Overlooking essential non-debt expenses like utilities, insurance premiums, or childcare costs can skew the DTI ratio, providing an incomplete picture of the borrower's financial obligations.
• Using Gross Income Instead of Net Income:
  DTI should be calculated using net income (after taxes and deductions) rather than gross income. Using gross income can result in a higher DTI ratio and may misrepresent the borrower's ability to meet debt obligations.

Bottom line, simple mistakes such as typos or miscalculations can also lead to errors in income, LTV, and DTI calculations. To minimize these errors, make sure you are trained to know all applicable income sources, debts, loan terms, and calculations.

What You'll Learn From This Course

Our "Calculating Income, LTV, & DTI Workshop" is an in-depth, instructor-led online program on how to apply the correct calculations to various loan scenarios.

It is designed to teach the fundamentals of loan calculation to new and seasoned mortgage processors alike.

Course Outline

In this course you'll learn about salaried wage calculations, hourly wage calculations, and more, including:

• Overtime, bonus, commission, and un-reimbursed expense calculations
• Social security and pension calculations
• A brief introduction to self-employment income and tax returns
• Schedule C income calculations
• Rental income calculations
• LTV, CLTV, and HCLTV definitions and calculations
• PITI, PITIA, Housing Ratio, and Total Ratio definitions and calculations

Upon finishing the course you will receive a Certificate of Completion and the skills required to be a successful mortgage processor.

Anticipated Time To Complete

This online course will take approximately three hours to complete. You do not have to complete the course in one sitting - there are bookmarks in this course that allow you to stop and restart as needed.

Access Information

Upon enrollment, you'll receive an email from the course provider (CampusMortgage®) with links and passwords to access the course. You will have full access to the course for one full year.