Build one case sheet per borrower, compute LTV and CLTV with labeled denominators, keep front-end and back-end DTI on a consistent gross-income basis, price one alternative structure per case, and attach a resolving condition for every assumed fact.
From Borrower Documents to Assessment-Ready Inputs
Assessment inputs are monthly figures you can trace to a stated fact: verified income on a consistent basis, each disclosed debt with its monthly obligation, and the property value your program recognizes. Everything downstream inherits these choices.
Start every case by building an input ledger before any ratio is computed. List gross monthly income and state the basis you used; list each debt with its payment and remaining term; record property value and identify whether it is an appraisal, a purchase price, or a tax assessment. A ledger forces you to see which figures are verified and which are stated by the borrower, and it gives you a single place to update when a fact changes mid-case.
Two slips happen at this stage. First, mixing income bases: one figure gross, another net, producing ratios that cannot be compared across cases. Second, treating an unused credit line's full limit as if it were drawn debt, or ignoring it entirely, when the treatment your program specifies may differ. In your ledger, mark each credit line as drawn or available and note the rule you applied. When you review a finished case, re-derive three numbers from the ledger to confirm they trace back.
- Scope note: no exact official reference was established for this catalog label, so this guide teaches the named subject through labeled paper exercises; confirm credential status and administrative details with the issuing body.
LTV, CLTV, and the Denominator That Changes Mid-Case
Loan-to-value measures one loan against property value; combined loan-to-value measures all liens together. Because every new lien or paydown changes the combined figure, recompute it after each structural change rather than once at the start.
Worked scenario (labeled practice figures): a property appraises at $300,000 with a $210,000 first mortgage; the borrower requests a $30,000 home equity line. The quick read is LTV of 70 percent, so the request looks comfortably safe. The slip is stopping there: the combined figure after the new line is $240,000 divided by $300,000, or 80 percent. If this exercise's assumed program limit is 80 percent combined, the request exactly reaches it and leaves no structural headroom.
The better decision adds the borrower's second goal: folding a $15,000 card balance into the same line. Combined debt becomes $255,000, an 85 percent combined ratio against the assumed limit, so the case as requested fails and the advice must change. Sensible paper advice: size the line so the first mortgage stays separate, or require the card to be paid outside closing and recompute. Why it matters: which value your program recognizes (appraised value versus purchase price) can also move the denominator, so label it.
Front-End, Back-End, and Residual Income Answer Different Questions
The front-end ratio tests the proposed housing payment alone against income; the back-end adds every recurring obligation; residual income asks what cash remains for living costs. A case can pass one test and strain another.
Worked scenario (labeled practice figures): gross monthly income is $6,500; the proposed payment including taxes and insurance is $1,850; other obligations are a $420 car payment, a $260 student loan, and a $150 minimum on a newly opened furniture account. A rushed back-end calculation that drops the furniture line gives about 38.9 percent and reads as comfortable. Including it gives $2,680 divided by $6,500, about 41.2 percent, and the margin against any limit your materials specify narrows sharply.
The better decision fixes two things: use gross income consistently, and treat newly opened accounts as live obligations until your program's rules say otherwise. The recommendation then becomes conditional rather than flat: pay off or document the furniture account, recompute to about 38.9 percent, and state the sensitivity — one new $200 obligation pushes the ratio back up. Why it matters: affordability advice in AMC-style cases is not a single number; it is a payment stack plus a statement of what would change the answer.
Fixed, Adjustable, and Points: Pricing the Trade-off Explicitly
Each structure shifts risk: fixed rates stabilize payments; adjustable rates start lower but can rise at adjustment points; points exchange upfront cash for a lower rate. Compare them on the same horizon and the same loan amount.
In paper cases, avoid declaring one structure best in the abstract. Build the comparison on the borrower's stated horizon: someone expecting to sell or refinance within a few years weighs an adjustable or lower-point option differently from someone planning to stay long term. Compute the monthly difference between structures, then the breakeven point where upfront cost equals accumulated savings — for example, $3,000 in points saving $60 per month breaks even at 50 months, before considering what that cash would otherwise do.
A recurring slip is comparing payments without aligning the comparison: an adjustable quote priced on a different loan amount, or a fixed quote excluding escrowed taxes and insurance that the other quote included. Normalize first — same amount, same cost basis, same horizon — then present the range of outcomes for the adjustable case at its adjustment points, labeled as illustrative. Your written advice should name the assumption that drives the choice, usually the borrower's holding period, and flag it as an assumption.
| Metric | Question it answers | Common input slip | Recompute when... |
|---|---|---|---|
| LTV | How much of the property's value does one loan consume? | Using purchase price when value differs, or vice versa | Any balance paydown, new appraisal, or price change |
| CLTV | What share of value do all liens together consume? | Counting an unused credit line's full limit as drawn debt | Any lien opened, closed, or its limit changed |
| Front-end DTI | Does the proposed housing payment fit the income? | Mixing net and gross income figures | Income or the housing payment changes |
| Back-end DTI | Do all monthly obligations fit together? | Dropping new or deferred debt minimums | Any debt is opened, closed, or paid down |
| Residual income | What cash remains for living costs after obligations? | Skipping it when ratios look acceptable | Household size or cost assumptions change |
| Payment shock | How much higher is the new payment than current housing cost? | Comparing to rent that excluded taxes and insurance | First-time buyers or rent-to-own transitions |
Suitability Rationale: Eligibility Is Not the Same as Advice
A case can clear every ratio and still be unsuitable if the structure conflicts with the borrower's stated goals, horizon, or tolerance for payment change. Your written rationale should connect the recommendation to those goals and name its assumptions.
Practice writing a three-part rationale: the borrower's goal in their terms, the metric that drove the decision, and one condition or sensitivity. Example: the goal is the lowest stable payment before retirement in eight years; the driver is that an adjustable structure risks rising payments inside that horizon, so fixed is recommended; the condition is a documented plan for the $15,000 consolidation. This format keeps professional standards concrete: suitability, no steering toward whichever structure pays you more, and no fabricated documentation.
Documentation is the companion skill. For anything assumed — an income figure not yet verified, a debt assumed to be paid, a value taken from an older appraisal — write the condition that would resolve it. In case analysis questions, the defensible answer names its evidence: this ratio rests on gross income supported by the stated documents, this lien appears in the ledger, this limit is an assumed practice figure. Vague advice that recites a conclusion without its inputs is the weak pattern to train out of your writing.
Paper Case Exercise with a Self-Check Rubric
Build a one-page case sheet for the combined scenario above, then score it against six rubric items worth two points each. A milestone target of ten or more suggests your layered calculations are holding together.
Combine the two scenarios: the $300,000 property, the $210,000 first mortgage, the requested line, the card consolidation, the full debt stack, and both goals — renovation cash and consolidation. Your sheet should show the ledger, LTV and combined figures with labeled denominators, front-end and back-end on gross income, one alternative structure priced with its breakeven, and a three-part rationale with conditions. Work it twice: once as requested, once after paying the card outside closing, and record how every metric moved.
- Inputs (0-2): every figure traces to a stated fact; no invented numbers.
- Layering (0-2): LTV and combined figures both computed with labeled denominators.
- Debt stack (0-2): all disclosed obligations included; one income basis throughout.
- Trade-off (0-2): one alternative priced with its breakeven or payment difference.
- Rationale (0-2): recommendation tied to the borrower's stated goal and horizon.
- Conditions (0-2): every assumption carries a resolving condition.
A Four-Block Preparation Sequence and Readiness Checks
Sequence your study in four blocks: definitions in pairs, recomputation drills, full paper cases with written rationales, then mixed review with an error log. Move to the next block only when the current one's check passes.
Block one pairs definitions that are easy to blur: loan-to-value with combined, front-end with back-end, drawn with available credit, estimate-style figures with document-verified figures — each rewritten in your own words. Block two is drills where one fact changes and you rebuild every ratio: a paydown, a new lien, a revised value. Block three is full cases with a written rationale scored against the rubric. Block four mixes old and new cases and feeds every slip into an error log organized by concept.
Readiness checks before you consider the subject reviewed: recompute a combined figure across three liens in one pass without notes; explain in two sentences why a comfortable back-end figure does not by itself settle affordability; write a three-part rationale in under five minutes for an unfamiliar case; and show an error log whose last two cases contain no repeated slip. If any check fails, return to the matching block rather than adding new material. For administrative details, consult the issuing body directly.