Real Estat 2 exam questions

Part ÷ Percentage =

Total

Total x Percentage =

Part

Total revenue - Net costs =

Profit (or loss)

Annual interest ÷ 12 (months) =

Monthly interest

Equation: 100% - 10% =

90%

What are origination fees?

Origination fees are also called origination points.

What is the typical percentage of loan origination points?

Loan origination points are typically 1% of the loan amount but can vary.

one discount point

will lower a buyer's interest rate 0.25%.

Tax rate x Assessed value =

Property taxes

Annual taxes ÷ 365 days (or 360) =

Daily tax rate

Days between Jan. 1 and closing day =

Total seller days

Daily tax rate x Total seller days =

Prorated taxes

Calculate square footage

(multiply dimensions of property)

Divide square footage of land

by 43,560 ft.

Amortization

Loan repayment is made over time in equal installments of principal and interest.

an interest-only loan

The principal is paid off through an amortization schedule.

When is interest on amortized loans paid?

In arrears

What does it mean for interest to be paid in arrears?

the interest is paid after it's received/issued to borrower.

Principle of Anticipation

the present value of property affected by anticipated income or utility.

Principle of Contribution.

property's overall value made up of combined value of parts.

What is the Principle of Substitution?

The value of a property is influenced by the cost of getting a similar (substitute) item elsewhere.

How does the Principle of Substitution affect property value?

It states that the value of a property is influenced by the cost of getting a similar (substitute) item elsewhere.

What is the Principle of Change?

Any change in the market can change the value of the property.

Can changes in the market affect property value positively?

Yes, changes in the market can change the value of the property for good.

Can changes in the market affect property value negatively?

Yes, changes in the market can change the value of the property for bad.

Principle of Conformity.

Values are highest when the houses in the neighborhood look roughly the same.

Principle of Regression.

Lower-value houses around a house can lower its value.

Principle of Progression.

Higher-value houses around a house can raise its value.

What happens to property value when supply is low and demand is high?

The value of the property increases.

What happens to property value when supply is high and demand is low?

The value of the property decreases.

Demand:

If there are multiple buyers interested in a property, the property will increase in value.

Utility:

Properties must be useful to hold value; for instance, an empty lot is valuable for building a custom home.

Scarcity:

If the amount of housing in an area is low in supply, it grows in value.

What is an appraisal report?

A report from a licensed appraiser that sums up a property's market value based on collected data.

When is an appraisal report typically requested?

The lender usually asks for an appraisal report during the mortgage origination process.

Transferability:

Anything that restricts the transferability of real estate, such as government rules or title issues, reduces its value.

The appraisal report

is usually paid by the buyer.

The appraiser that will complete the appraisal report

is usually chosen by the lender.

Appraisal Process Checklist:

1. State the objective.

2. List needed data.

3. Gather and record data.

4. Determine highest and best use.

5. Estimate land value.

6. Estimate property value using appropriate approaches.

7. Reconcile final value estimate.

8. Present the value report.

The underwriter might call for an appraisal review

to double-check the accuracy of the appraisal.

Market value

is the price for which a property will sell if offered openly under normal conditions.

Depreciation

is the loss of value over time. It could be because of obsolescence (becoming obsolete) or deterioration.

What is depreciation tied closely with?

A property's effective age

What influences a property's effective age?

Updates and quality of maintenance

What is a Comparative Market Analysis (CMA) NOT?

An appraisal

How does a Comparative Market Analysis (CMA) assess property value?

By using information on recently sold homes in the area

What is the Sales Comparison Approach?

A method used by appraisers to estimate property value based on the sale prices of similar properties.

What data does an appraiser collect in the Sales Comparison Approach?

Data on previous sales of similar properties.

What features are considered in the Sales Comparison Approach?

Amenities, square footage, rooms, and location.

What is the cost approach used for in real estate appraisal?

To estimate a property's current market value

What does an appraiser need to estimate in the cost approach?

The current cost of reconstructing the property with improvements (the replacement cost)

The cost approach

is a great approach to value for appraisers to use on new construction.

Reproduction Cost - Depreciation + Land value =

Property value

Quantity survey method:

the appraiser tallies the value of everything that goes into the cost

Unit-in-place method:

Considers direct and indirect costs to simplify the total cost of a building component.

Square foot method:

The appraiser estimates a cost per square foot and multiplies it by the building's square footage.

Appraisers typically use this for commercial properties such as shopping centers, offices, and apartments.

the income approach

Presently, the FDIC insures deposits up to

$250,000 per depositor, per account.

What is the Federal Reserve System?

The nation's central bank

What are the functions of the Federal Reserve System?

Maintain sound credit conditions, counteract inflation and deflation, and create a favorable economic climate.

The Federal Reserve (or "Fed")

can affect the economy by raising or lowering the fund reserve requirements or the discount rate.

The Real Estate Settlement Procedures Act (RESPA)

protects consumers from abusive lending practices.

RESPA

is enforced by the Consumer Financial Protection Bureau (CFPB).

Regulation Z:

The regulation that puts TILA into action.

What did the Real Estate Settlement Procedures Act (RESPA) outlaw?

Kickbacks and unearned referral fees in the lending market

Truth in Lending Act (TILA):

Required lenders to disclose loan terms, introduce APR, and create advertising rules.

What disclosures are required by the Real Estate Settlement Procedures Act (RESPA)?

Closing cost disclosures such as good faith estimate and HUD-1

TRID:

Integrated TILA and RESPA rules, introducing the Loan Estimate (LE) and Closing Disclosure forms.

What does the Equal Credit Opportunity Act (ECOA) prohibit?

Lending discrimination based on race, color, religion, national origin, sex, marital status, age, public assistance, sexual orientation, or gender identity.

What are some protected characteristics under the Equal Credit Opportunity Act (ECOA)?

Race, color, religion, national origin, sex, marital status, age, public assistance use, sexual orientation, and gender identity.

Dodd-Frank:

Created stricter regulations for banks and created the Consumer Finance Protection Bureau.

Safe Mortgage Licensing Act:

Required MLOs to be registered in a national database and take pre-licensing and continuing education.

Community Reinvestment Act:

Required banks to make investments in the communities in which they do business.

Fannie Mae (FNMA):

Formal Name: Federal National Mortgage Association.

Closing Disclosure

creditors must provide reflecting the actual, final terms of the transaction.

What are accrued items in real estate transactions?

Expenses owed by the seller but paid by the buyer later.

Can you give examples of accrued items?

Unpaid property taxes, interest on an assumed mortgage, utility bills.

What is involved in the preparation for closing?

Ordering and reviewing various documents

What documents are typically reviewed during closing preparation?

Title insurance commitment, survey, property insurance policy, lender's closing instructions

2. Freddie Mac (FHLMC):

- Formal Name: Federal Housing Loan Mortgage Corporation.

- Government Sponsored Enterprise.

- Specializes in Purchasing loans from smaller "thrift banks."

3. Ginnie Mae (GNMA):

- Formal Name: Government National Mortgage Association.

- Government Owned Enterprise.

- Specializes in Buying loans to help housing assistance and support programs.

4. Farmer Mac (FAMC):

- Formal Name: Federal Agriculture Mortgage Corporation.

- Government Sponsored Enterprise.

- Specializes in Making credit available for agricultural and rural loans.

the secondary mortgage market

is the place where mortgages are bought and sold.

Primary Market:

- Mortgages Originate here.- Mortgage Lenders and borrowers operate here.

- Major actors.

include credit unions, homebuyers, and banks

Secondary Market:

- Mortgages are bought and sold here.

- Major actors

include Fannie Mae, Freddie Mac, Ginnie Mae, Farmer Mac.

What are Government-sponsored enterprises (GSE)?

Privately held corporations created for public purposes by Congress to reduce the cost of loans for borrowers.

Where do Government-sponsored enterprises (GSE) primarily operate?

In the secondary mortgage market.

With respect to mortgage loans,

Fannie Mae and Freddie Mac are the two major GSEs players in this effort.

Amortized loans:

A fixed-rate amortized loan payment plan features constant payments of principal and interest throughout the life of the loan; also called direct reduction loans.

Adjustable-rate mortgage:

An ARM has a periodically changing interest rate based on an index, with initial rates and payments lasting for a limited time.

Balloon payment loans:

Does not fully amortize, leaving a balance due at maturity and requiring a large final "balloon" payment.

Conventional loans:

Conventional loans refer to mortgages not backed or insured by government agencies.

FHA loans:

Refers to a loan insured by the agency, protecting the lender from borrower default.

Who guarantees VA loans?

The Department of Veterans Affairs (VA)

What does a VA loan refer to?

A loan guaranteed by the Department of Veterans Affairs (VA) for eligible veterans and their spouses