FINANCE, SETTLEMENT & MATH — CHEAT SHEET

Financing Basics

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Loan Types & Features

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Settlement & Compliance

RESPA (Real Estate Settlement Procedures Act)

• Applies to federally-related loans (mortgages, FHA, VA, USDA)

• Affiliated Business Disclosure: required when referring to affiliate; cannot require use

• Settlement statement: good-faith estimate within 3 business days of application; closing disclosure 3 business days before closing

• Prohibits kickbacks; title insurance & appraisal shopping common violations

TILA (Truth in Lending Act)

• Annual Percentage Rate (APR): must include all costs (interest + fees)

• 3-day right of rescission for non-purchase transactions

• Disclosure: Truth in Lending statement before consummation

Lead-Based Paint (Pre-1978 Residential)

• Seller: provide disclosure + EPA pamphlet

• Buyer: 10-day inspection window (waivable)

• Disclosure form: NOT waivable

• Agent record retention: 3 years

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KEY FORMULAS

Commission Calculation

`` Commission = Sale Price × Commission Rate ` Example: $300,000 sale × 6% rate = $18,000 (split between listing & selling brokers)

Loan-to-Value (LTV)

` LTV (%) = (Loan Amount ÷ Property Value) × 100 ` Decision rule: LTV > 80% → PMI required

Cap Rate (Income Property)

` Cap Rate (%) = (NOI ÷ Property Value) × 100 ` Inverse: Value = NOI ÷ Cap Rate

Gross Rent Multiplier (GRM)

` GRM = Property Value ÷ Annual Gross Rental Income ` Use: Quick estimate for rental properties

Proration (Taxes, Insurance, HOA)

` Prorated Amount = (Annual Amount ÷ Days in Period) × Number of Days Owed ` Example: Seller owes taxes Jan 1–Apr 15 on $2,400/year bill:

• Daily rate = $2,400 ÷ 365 = $6.58/day

• Seller pays = $6.58 × 105 days = $690.90

Depreciation (Straight-Line)

` Depreciation = (Cost − Salvage Value) ÷ Useful Life `` Note: Land never depreciates; only improvements

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High-Yield Decision Rules

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Easily Confused Pairs

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Term	Definition	Key Points
Mortgage	2-party (mortgagor + mortgagee)	Judicial foreclosure; NE states
Deed of Trust	3-party (trustor + trustee + beneficiary)	Non-judicial foreclosure; W/S states
LTV	Loan-to-Value ratio	LTV = Loan ÷ Property Value; >80% = PMI required
Loan Type	Down Payment	Insurance/Fee	Who?
Conventional	Typically 20%+	PMI if LTV >80%	Conventional lenders
FHA	3.5% min (580+ credit)	MIP (upfront + annual)	Gov't-insured
VA	0%	VA funding fee; no PMI	Eligible veterans
USDA	0%	Guarantee fee	Rural; income limits
ARM	Varies	Caps (periodic + lifetime)	Adjustable after fixed period
Scenario	Rule
LTV > 80%	PMI required (conventional)
Pre-1978 home sale	Lead disclosure + 10-day inspection window (both required)
Federally-related loan	RESPA/TILA apply; 3-day rescission right
Affiliate referral	Disclosure required; cannot mandate use
Commission negotiation	Always negotiable; NEVER discuss with competitors (antitrust)
Concept A	Concept B
Mortgage (judicial)	Deed of Trust (non-judicial)
MIP (FHA insurance)	PMI (conventional insurance, >80% LTV)
Upfront cost (financing)	Ongoing cost (annual MIP/PMI)
APR (all-in rate)	Interest rate (base rate only)
Proration (split at closing)	Commission (paid from proceeds)
RESPA (settlement/loan)	TILA (disclosure/APR)

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NAR Settlement Update (Aug 17, 2024)

• MLS buyer-agent compensation PROHIBITED

• Buyer-broker agreement required BEFORE property tour:

- Specific $ amount compensation - Buyer responsible for agreed amount (not seller's offer) - No MLS publication of compensation

• Sellers may still offer buyer-agent compensation off-MLS, negotiated separately