FINANCE & TITLE: CHEAT SHEET

MORTGAGE TYPES & KEY DEFINITIONS

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MORTGAGE PRODUCTS AT A GLANCE

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ARM Cap Structure

• Periodic Cap: Max rate change per adjustment period (e.g., 2% in year 6)

• Lifetime Cap: Max rate over entire loan life (e.g., 6% above initial rate)

• Formula: New rate = Index + Margin, capped at periodic/lifetime limits

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LOAN-TO-VALUE (LTV) & PMI TRIGGER

LTV = Loan Amount ÷ Appraised Value |----------|--------------| Example: $400K loan ÷ $500K home = 80% LTV → No PMI ---

DEBT-TO-INCOME (DTI) RATIOS

|-------|---------|--------------|-----|-----| PITI Components: Principal + Interest + Taxes + Insurance Recurring Debt: Car loans, student loans, credit card minimums (if on credit report), installment debt NOT Included: Utilities, phone, groceries, credit card balances without minimum payment Automated Underwriting Exception: Up to 45–50% DTI for strong credit + compensating factors ---

CREDIT SCORES (FICO)

|-----------|---------------| *Lenders may set overlays; borrower must verify with specific lender. ---

THE THREE Cs OF UNDERWRITING

Credit → FICO score & credit history

Capacity → Income stability & DTI ratios

Collateral → Property appraisal & LTV ratio

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INCOME VERIFICATION

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APPRAISAL ESSENTIALS

• Ordered by: Lender (independently; buyer/agent cannot select appraiser)

• Appraiser: State-certified or state-licensed (MA requirement)

• Purpose: Confirm property ≥ purchase/refi amount; assess LTV

• Low Appraisal Options: Renegotiate price, increase down payment, second opinion appraisal

• FHA/VA Special: Appraisal includes property condition inspection; health/safety issues must be corrected before approval

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MASSACHUSETTS PREDATORY LENDING (Chapter 183C)

Prohibited Practices:

• Loan Flipping: Frequent refinancing generating fees without borrower benefit

• Excessive Fees: Unreasonable origination, underwriting, or closing fees

• Abusive Prepayment Penalties: Lock borrowers into loans

• Financed Single-Premium Credit Insurance: Rolled into principal without clear disclosure

Scope: "Home loans" on borrower's principal dwelling ≤ conforming loan limits Remedies: Rescission, damages, attorney fees Enforcement: MA Division of Banks + CFPB ---

QUICK DECISION RULES

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Term	Definition
Mortgagor	Borrower (pledges property, signs note & deed)
Mortgagee	Lender (holds security interest)
Title Theory State	MA: Technical title passes to lender; borrower retains possession & practical ownership
Non-Judicial Foreclosure	MA lender can foreclose via statutory power of sale (no court required)
Product	Fixed Period	Rate Adjustment	Down Payment	Insurance
FRM	Entire loan	Never	Varies	PMI if LTV >80%
ARM	5/1, 7/1, etc.	SOFR + margin; periodic & lifetime caps	Varies	PMI if LTV >80%
FHA	Varies	Varies	3.5% (score ≥580) or 10% (500–579)	MIP (upfront + annual)
VA	Varies	Varies	0%	None (VA guarantee)
USDA	Varies	Varies	0%	Funding fee
Conventional	Varies	Varies	20% (no PMI); <20% requires PMI	PMI if LTV >80%
Scenario	PMI Required?
LTV ≤ 80%	NO
LTV > 80% (conventional)	YES
FHA/VA/USDA	No traditional PMI (government insurance/guarantee)
Ratio	Formula	Conventional	FHA	VA
Front-End	PITI ÷ Gross Monthly Income	28%	31%	N/A
Back-End	(PITI + All Recurring Debt) ÷ Gross Monthly Income	36%	43%	41%
Loan Type	Minimum Score
Conventional	620
FHA (3.5% down)	580
FHA (10% down)	500–579
VA	No program minimum*
USDA	No program minimum*
Borrower Type	Required Documentation
W-2 Employee	Pay stubs (last 30 days) + W-2s (2 years)
Self-Employed	Federal tax returns (2 years) + YTD P&L statement
Retiree	Retirement account statements & benefit letters
Question	Rule
Does 5/1 ARM at 6% with 2/6 caps hit 9% in year 6 if index +3%?	NO → Periodic cap = 2%; rate = 8%
Does $100K down on $500K home require PMI?	NO → 80% LTV = threshold, not above
Can lender require MIP on VA loan?	NO → VA guarantee replaces insurance
Which law prohibits loan flipping in MA?	Chapter 183C (pred