Finance & Investment — Quick Reference Cheat Sheet

Qualifying Ratio Formulas

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*FHA: up to ~56.9% with AUS approval + compensating factors. VA: 41% guideline; residual income test is primary qualifier.

PITI = Principal + Interest + Taxes + Insurance (+ HOA dues if applicable)

> Texas note: Property taxes run 2.0%–2.8% of value annually — among the highest in the U.S. This significantly raises PITI and pushes buyers over front-end ratio limits faster than in lower-tax states.

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Loan Types Comparison

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PMI = Private Mortgage Insurance (conventional; cancels at 80% LTV) MIP = Mortgage Insurance Premium (FHA; annual MIP may be permanent on loans with < 10% down after Jun 2013)

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Investment Analysis Formulas

Cap Rate

`` Cap Rate = NOI ÷ Property Value (or Purchase Price) `

• Measures unlevered return (as if paid all cash)

• Higher cap rate = higher return (or higher risk)

• Texas residential income property: typically 5%–7% in major metros

Gross Rent Multiplier (GRM)

` GRM = Purchase Price ÷ Annual Gross Rent `

• Quick screening tool — does not account for expenses

• Lower GRM = potentially better deal

• Rule of thumb: compare within the same market only

Cash-on-Cash Return

` Cash-on-Cash = Annual Pre-Tax Cash Flow ÷ Total Cash Invested `

• Measures levered return on out-of-pocket dollars

• Pre-Tax Cash Flow = NOI − Annual Debt Service (P&I)

• Includes financing; reflects actual investor experience

Break-Even Occupancy

` Break-Even Occupancy = (Operating Expenses + Debt Service) ÷ Gross Potential Rent `

• The occupancy rate at which a property neither profits nor loses money

• If break-even = 75%, you need at least 75% occupancy to cover all costs

Debt Service Coverage Ratio (DSCR)

` DSCR = NOI ÷ Annual Debt Service ``

• Lenders require ≥ 1.20–1.25× for investment property loans

• DSCR < 1.0 means the property doesn't cover its own mortgage

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Quick Formula Example

Property: $400,000 duplex; rents $1,800/unit × 2 = $3,600/mo gross

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• Cap Rate: $21,747 ÷ $400,000 = 5.44%

• GRM: $400,000 ÷ $43,200 = 9.26

• If financed at 20% down ($80,000): P&I on $320,000 @ 7% = $25,548/yr

• Pre-Tax Cash Flow: $21,747 − $25,548 = −$3,801 (negative cash flow)

• Cash-on-Cash: −$3,801 ÷ $85,000 (down + closing) = −4.5%

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Texas Veterans Land Board (VLB) Loans

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Texas Deed of Trust Parties

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Foreclosure in Texas: Non-judicial (trustee's sale). Trustee may sell without court order after proper notice. Texas is a deed of trust state, not a mortgage state.

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Texas Home Equity Loan — 80% LTV Rule (Section 50(a)(6))

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> Why it matters for brokers: If a seller has a home equity loan, total liens cannot exceed 80% LTV. Brokers must ensure the sale price plus remaining liens don't create a payoff problem.

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Key Texas Finance Facts

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Ratio	Formula	Conventional	FHA	VA	USDA
Front-End (Housing)	PITI ÷ Gross Monthly Income	≤ 28%	≤ 31%	No set limit	≤ 29%
Back-End (Total DTI)	(PITI + All Debts) ÷ Gross Monthly Income	≤ 36–43%	≤ 43–50%*	≤ 41%*	≤ 41%
Feature	Conventional	FHA	VA	USDA
Min. down payment	3–5%	3.5% (score ≥ 580)	0%	0%
Min. credit score	~620	580 (3.5% down); 500 (10% down)	No set minimum (typically 620)	Typically 640
Mortgage insurance	PMI if < 20% down	MIP: upfront (1.75%) + annual	VA Funding Fee (1.25–3.3%)	Guarantee fee (1% upfront + 0.35% annual)
Property eligibility	Any	Any FHA-approved	Any	Rural areas only
Income limits	None	None	None	≤ 115% area median income
Who qualifies	Any borrower	Any borrower	Eligible veterans/active duty/surviving spouses	Rural/suburban buyers
Loan limits (2024)	~$766,550 (conforming)	Varies by county (~$498K–$1.15M)	No limit (with full entitlement)	Area-based
Item	Annual
Gross potential rent	$43,200
Less vacancy (6%)	−$2,592
Gross Operating Income	$40,608
Property taxes (2.5%)	−$10,000
Insurance	−$2,400
Management (10%)	−$4,061
Maintenance/reserves	−$2,400
NOI	$21,747
Feature	Detail
Eligibility	Texas resident; served ≥ 90 days active duty (any era); honorable discharge
Loan types	Home loans, land loans, home improvement loans
Interest rate	Below-market rate set by VLB; competes with conventional and VA
Down payment	As low as 0% (varies by program)
Stacks with VA	Texas veteran can use VLB + federal VA benefits — they are separate programs
Administered by	Texas General Land Office
Party	Role
Trustor (Borrower/Grantor)	Owns the property; pledges it as collateral; executes the deed of trust
Trustee	Third party (often a title company or attorney) holding title in trust; has power of sale
Beneficiary (Lender)	Holds the promissory note; benefits from the security arrangement
Rule	Detail
Maximum total debt	Cannot exceed 80% of the property's fair market value
Minimum loan amount	$4,000
Cooling-off period	Must wait 12 days after application before closing
Rescission	3-day right to rescind after closing
One loan at a time	Only one home equity loan outstanding at a time
Primary residence only	Section 50(a)(6) applies only to homestead properties
Fees cap	Closing costs cannot exceed 2% of loan amount (some exclusions)
Topic	Key Number / Rule
Property tax rate	2.0%–2.8% of assessed value annually
State income tax	None — no state capital gains tax
Transfer tax	None — Texas has no real estate excise/transfer tax
1031 exchange ID deadline	45 days from sale of relinquished property
1031 exchange close deadline	180 days from sale of relinquished property
Conventional conforming loan limit (2024)	~$766,550
PMI cancellation	Required when LTV reaches 80% (Homeowners Protection Act)
Texas homestead exemption	Protects primary residence from forced sale for most debts