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FINANCE & TITLE: CHEAT SHEET
MORTGAGE TYPES & KEY DEFINITIONS
| Term | Definition |
|------|-----------|
| Mortgagor | Borrower (pledges property, signs note & deed) |
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| Mortgagee | Lender (holds security interest) |
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| Title Theory State | MA: Technical title passes to lender; borrower retains possession & practical ownership |
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| Non-Judicial Foreclosure | MA lender can foreclose via statutory power of sale (no court required) |
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MORTGAGE PRODUCTS AT A GLANCE
| Product | Fixed Period | Rate Adjustment | Down Payment | Insurance |
|---------|--------------|-----------------|--------------|-----------|
| FRM | Entire loan | Never | Varies | PMI if LTV >80% |
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| ARM | 5/1, 7/1, etc. | SOFR + margin; periodic & lifetime caps | Varies | PMI if LTV >80% |
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| FHA | Varies | Varies | 3.5% (score ≥580) or 10% (500–579) | MIP (upfront + annual) |
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| VA | Varies | Varies | 0% | None (VA guarantee) |
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| USDA | Varies | Varies | 0% | Funding fee |
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| Conventional | Varies | Varies | 20% (no PMI); <20% requires PMI | PMI if LTV >80% |
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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
| Scenario | PMI Required? |
|----------|--------------|
| LTV ≤ 80% | NO |
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| LTV > 80% (conventional) | YES |
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| FHA/VA/USDA | No traditional PMI (government insurance/guarantee) |
Example: $400K loan ÷ $500K home = 80% LTV → No PMI
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DEBT-TO-INCOME (DTI) RATIOS
| Ratio | Formula | Conventional | FHA | VA |
|-------|---------|--------------|-----|-----|
| Front-End | PITI ÷ Gross Monthly Income | 28% | 31% | N/A |
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| Back-End | (PITI + All Recurring Debt) ÷ Gross Monthly Income | 36% | 43% | 41% |
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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
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CREDIT SCORES (FICO)
| Loan Type | Minimum Score |
|-----------|---------------|
| Conventional | 620 |
| FHA (3.5% down) | 580 |
| FHA (10% down) | 500–579 |
| VA | No program minimum* |
| USDA | No program minimum* |
*Lenders may set overlays; borrower must verify with specific lender.
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THE THREE Cs OF UNDERWRITING
Credit → FICO score & credit history
Capacity → Income stability & DTI ratios
Collateral → Property appraisal & LTV ratio ---
INCOME VERIFICATION
| 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 |
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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
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QUICK DECISION RULES
| 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% |
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| Does $100K down on $500K home require PMI? | NO → 80% LTV = threshold, not above |
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| Can lender require MIP on VA loan? | NO → VA guarantee replaces insurance |
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| Which law prohibits loan flipping in MA? | Chapter 183C (pred |
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