better exam 2 study guide

In real estate markets, a transaction occurs only when what condition is met regarding investment values?

Buyers maximum they would pay and sellers minimum they would accept.

Which approach to valuation projects the property’s future expected cash flows?

Income approach.

Which type of property would most likely use the cost approach to valuation?

Education facility.

What is an example of external obsolescence?

Increased traffic flow due to more intensive use in the local area.

Changes in tastes, preferences, innovations, or standards cause what type of depreciation?

Functional obsolescence.

What is the single reconciled value derived from the sales comparison approach called?

Indicated value.

What type of transaction is most appropriate for the sales comparison approach?

Arm’s-length transaction.

What is an unbiased written estimate of a property’s market value called?

Appraisal.

What is the most common lease term length for office, retail, and warehouse tenants?

Three to five years.

What is the income a property would generate with 100% occupancy and no losses?

Potential gross income.

What are costs for replacements or improvements that extend a building's life called?

Capital expenditures.

What is the rental income being paid under a legal lease agreement called?

Contract rent.

What is the fundamental element used to determine market value for income-producing properties?

Net operating income.

Which of the following is not an operating expense: insurance, utilities, mortgage, or property taxes?

Mortgage payments.

What is the relationship between going-in and going-out cap rates in a normal market?

Going-in cap rate is typically higher if the property’s income is expected to decline as it ages.

What is the right to reclaim property before the foreclosure sale in states like Georgia?

Equity of redemption.

What is the dominant mortgage loan structure for income-producing properties?

Balloon mortgage loan.

What does the mortgage (not the note) provide in terms of property information?

An unambiguous legal description of the property pledged as collateral.

What is a loan where the borrower isn’t personally liable unless there’s fraud or contamination?

Nonrecourse loan.

Which statement about foreclosure is false?

Foreclosure extinguishes all superior liens (this is incorrect).

What happens when scheduled mortgage payments don’t cover interest and the balance increases?

The loan is negatively amortizing.

What is the illegal practice of denying loans in specific areas regardless of applicant qualifications?

Redlining.

What type of loan holds the borrower personally liable in the event of default?

Recourse loan.

What is the market-determined interest rate used in adjustable rate mortgages?

Index rate.

Which act created a consumer financial protection agency after the 2007 crisis?

Dodd-Frank Wall Street Reform and Consumer Protection Act.

What do we call it when the seller finances part of the sale and the buyer provides a note?

Purchase money mortgage.

Who is the largest purchaser of residential mortgages?

Government sponsored enterprises (GSEs).

For conventional loans, PMI is typically required when the LTV ratio is greater than what?

80%.

What is the range of annual MIP rates for FHA loans in normal cost areas (as of 2022)?

0.45% to 0.85% of the average annual loan balance.

Who pays FHA mortgage insurance and who does it protect?

Paid by the borrower, protects the lender from borrower default.

Which FHA program allows homebuyers to finance both the purchase and rehab of a property?

Section 203(k) mortgage loan.

What is a second mortgage loan that allows borrowing against home equity called?

Home equity loan.

What is the primary revenue source for mortgage banks?

Loan sales.

What is the process used to evaluate the default risk of a mortgage loan?

Loan underwriting.

Which of the following is not included in PITI: property taxes, insurance, mortgage, or capital expenditures?

Capital expenditures.

Who provides origination services and initial funding in mortgage lending?

Mortgage banker.

What does GMI (gross monthly income) represent in underwriting?

The borrower’s total monthly income, used as the denominator in the housing expense ratio.

Which of the “three C’s” is addressed using the debt-to-income ratio?

Capacity.

Which agency guarantees mortgage-backed securities for FHA, VA, and RHS loans?

Government National Mortgage Association (Ginnie Mae).

As of 2021, which institutions held over 40% of home mortgage loans?

Banks and thrifts.