Question

question 3
which of the following describes the formula for the capitalization rate?
actual gross rental income divided by listed price
estimated gross rental income divided by assessed value
net income divided by listed selling price
net income divided by appraised value

question 4
if the total debt ratio is 36%, and the allowable mortgage debt ratio is 28%, which of the following debt ratios would a loan applicant qualify for if:
the loan applicants gross monthly income is $2,500,
with a mortgage payment of $600,
a car payment of $250,
and minimum monthly credit card payment of $75?
the mortgage debt ratio only.
both the mortgage debt and total debt ratios.
the total debt ratio only.
neither ratio.

Explanation:

Define capitalization rate formula

The capitalization rate (cap rate) is a fundamental real estate valuation metric. It measures the ratio between the property's net operating income (NOI) and its current market value or purchase price.

$$ \text{Capitalization Rate} = \frac{\text{Net Operating Income}}{\text{Current Market Value / Selling Price}} $$

Thus, for Question 3, the correct option is "Net income divided by listed selling price".

Calculate applicant's mortgage debt ratio

For Question 4, we first calculate the applicant's mortgage debt ratio (front-end ratio). This ratio compares the monthly mortgage payment to the gross monthly income.

$$ \text{Mortgage Debt Ratio} = \frac{\text{Mortgage Payment}}{\text{Gross Monthly Income}} = \frac{\$600}{\$2,500} = 0.24 = 24\% $$

Since the calculated ratio of \(24\%\) is less than or equal to the allowable limit of \(28\%\), the applicant qualifies under this ratio.

Calculate applicant's total debt ratio

Next, we calculate the applicant's total debt ratio (back-end ratio). This ratio compares all recurring monthly debt payments (mortgage, car payment, and credit card minimums) to the gross monthly income.

$$ \text{Total Monthly Debt} = \$600 + \$250 + \$75 = \$925 $$

$$ \text{Total Debt Ratio} = \frac{\text{Total Monthly Debt}}{\text{Gross Monthly Income}} = \frac{\$925}{\$2,500} = 0.37 = 37\% $$

Since the calculated ratio of \(37\%\) exceeds the allowable limit of \(36\%\), the applicant does not qualify under this ratio.

Determine qualification status

Comparing the calculated ratios to the allowable limits:

• Mortgage debt ratio: \(24\% \le 28\%\) (Qualifies)
• Total debt ratio: \(37\% > 36\%\) (Does not qualify)

Therefore, the applicant qualifies for the mortgage debt ratio only.

Answer:

Question 3

• Actual Gross Rental income divided by listed price
• Estimated Gross rental income divided by assessed value
• Net income divided by listed selling price (Correct answer)
• Net income divided by appraised value

Question 4

• the mortgage debt ratio only. (Correct answer)
• both the mortgage debt and total debt ratios.
• the total debt ratio only.
• neither ratio.