MBA CRU flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

PITI

The four components of a housing payment: principal, interest, property taxes, and hazard insurance. Lenders add mortgage insurance, HOA dues, and assessments to derive the full qualifying housing expense.

Housing ratio

The proposed housing payment divided by gross monthly income. Conventional guidelines commonly cap it near 28%, while FHA allows roughly 31% with compensating factors.

Total debt ratio

All monthly obligations including the housing payment divided by gross monthly income. Conventional guidance commonly caps it near 36%, and FHA near 43%.

Compensating factors

Strengths that offset layered risk, such as substantial reserves, low payment shock, long employment tenure, or minimal credit use. They justify approving a file near or above standard ratio limits.

Loan-to-value ratio

Loan amount divided by the lesser of the purchase price or appraised value. It determines mortgage insurance needs, maximum loan limits, and pricing adjustments.

Combined loan-to-value

The sum of all liens secured by the property divided by the property value. It captures subordinate financing such as a second mortgage or home equity line.

Mid credit score

For each borrower, the middle of three bureau scores. On multi-borrower files the lowest of the borrowers' mid-scores typically controls eligibility and pricing.

Reserves

Liquid assets remaining after closing, expressed in months of PITI. Requirements rise with occupancy type, property units, and the number of financed properties.

Payment shock

The percentage increase between a borrower's current housing payment and the proposed payment. Large increases are layered risk that may require compensating factors.

Self-employed income calculation

Qualifying income is the 2-year average of adjusted gross income from tax returns, adjusted for nonrecurring income, depreciation add-backs, and business-use-of-home deductions.

Commission income treatment

Commission and bonus income generally requires a 2-year history, is averaged over that period, and is excluded or reduced when the trend is declining or continuity is doubtful.

Overtime income

Usually averaged over 2 years and included when the employer confirms it is likely to continue. Recent onset or declining amounts are treated conservatively.

Verbal verification of employment

A documented call to the employer shortly before closing confirming the borrower remains employed. It protects against fraud and last-minute job loss.

Tax transcript requirement

Lenders obtain IRS transcripts to validate reported income against filed returns. Discrepancies between documents and transcripts must be resolved before approval.

Gift funds

Down payment funds from a relative or eligible party. They require a gift letter, evidence of transfer, and donor ability; repayment terms disqualify the funds.

Seasoned assets

Funds held in the borrower's account for a required period, commonly 60 days. Large recent deposits must be sourced to be counted toward closing.

Maximum conventional LTV

Primary residence purchases can reach 97% LTV with mortgage insurance. Second homes cap near 95%, 2-unit properties 85%, and 3-4 unit properties 75%.

Investment property LTV

Investment purchases generally cap near 85% LTV and require larger reserves, commonly 6 months of PITI, with added reserves for multiple financed properties.

Installment debt exclusion

An installment obligation may be omitted from the debt ratio when roughly 10 or fewer payments remain, provided the payment does not materially affect qualification.

Student loan payment

When a deferred or income-driven student loan shows no required payment, lenders typically use a percentage of the balance or the documented payment, whichever applies.

Credit card minimum payment

The obligation counted is generally the greater of the stated minimum or a set percentage of the balance, often around 3 to 5 percent.

Contingent liability

A debt owed by another party that the borrower guarantees, such as a co-signed loan. It is counted unless proof of the other party's payments is documented.

Alimony and child support

Ongoing court-ordered obligations are counted in the debt ratio. Support received may be counted as income if documented and expected to continue.

Automated underwriting findings

An electronic recommendation of approve/eligible, refer, or ineligible. A refer result requires manual review and may need compensating factors or additional documentation.

Manual underwriting

A file reviewed without an automated approval. It demands full documentation, layered risk analysis, and clear compensating factors to support the decision.

Appraisal review

Confirmation that the appraisal is complete, the value is supported by comparable sales, and the property meets condition and marketability standards for the loan program.

Property type risk

Condominiums, 2-4 unit properties, rural acreage, and mixed-use buildings carry added risk and often require stricter LTV limits or project approval.

Occupancy type

Primary residence, second home, or investment property. Occupancy drives maximum LTV, reserve requirements, pricing, and documentation depth.

Prepayment penalty

A charge for paying a loan early. Many residential programs restrict or prohibit it, and it must be disclosed to the borrower.

Escrow account

An account holding funds for taxes and insurance, collected as part of the monthly payment. High-LTV loans generally require escrow unless an exemption applies.

Housing payment history

Rental or mortgage payment records showing timely payments. A clean 12 to 24 month history supports approval when credit history is thin.

Non-occupant co-borrower

A borrower who will not live in the property. Programs limit their use, often requiring the occupant borrower to meet minimum contribution or ratio standards.