financing the RE transaction u 19

What are the three primary requirements for qualifying a real estate transaction?

The seller must provide marketable title, the property must appraise at an acceptable value, and the buyer must be financially qualified.

the cost of credit ideas...

Yield and risk

Determination of interest rate charged to buyer

Term of loan

Type of mortgage loan

Loan amount

Lender's cost of money

obtaining credit

Credit scores

Fair and Accurate Credit Transactions Act

Three major credit bureaus must issue a free report every 12 months upon

request

Loan application

Relevant data on income, assets, debts,

Must give full and complete info

Underwriting the loan

The math that goes into issuing a loan

Company assess the risk

Evaluates collateral

Loan-to-Value Ratio = debt to price of home

80% is good.

Mortgage insurance can be required if putting less than 20% down

Loan commitment

Lender's pledge with contingencies

Fair and Accurate Credit Transactions Act

Three major credit bureaus must issue a free report every 12 months upon

request

What factors influence the cost of credit for a mortgage?

Yield and risk, interest rate, loan term, mortgage type, loan amount, and the lender's cost of money.

What is the purpose of the Fair and Accurate Credit Transactions Act regarding credit reports?

It mandates that the three major credit bureaus must issue a free report to consumers every 12 months upon request.

loan application

An initial statement of personal and financial information required to apply for a loan.

Relevant data on income, assets, debts,

Must give full and complete info

What is the purpose of loan underwriting?

To assess the risk of issuing a loan by evaluating the borrower's financial data and the collateral.

The math that goes into issuing a loan

Company assess the risk

Evaluates collateral

Loan-to-Value Ratio = debt to price of home

80% is good.

Mortgage insurance can be required

How is the Loan-to-Value (LTV) ratio calculated?

By dividing the loan amount by the price of the home.

loan to value ratio

=debt to price of home

80% is good.

Mortgage insurance can be required

loan committment

Lender's pledge with contingencies

When is private mortgage insurance (PMI) typically required?

When a borrower makes a down payment of less than 20% of the home's value.

Truth in Lending Act (Reg Z)

Creditor must inform borrowers of the true cost of obtaining credit.

Protects everyone and gives borrowers ability to shop.

Three-day right of rescission

Borrower has 3 days - conventional loans and home equity loans

Advertising trigger terms

Penalties

$10,000.00 per day after administrative order

$10,000.00 for unfair or deceptive practices

Many more

What is the primary goal of the Truth in Lending Act (Regulation Z)?

To ensure creditors inform borrowers of the true cost of obtaining credit, allowing them to shop effectively.

What is the three-day right of rescission?

A period during which a borrower can cancel certain types of loans, such as conventional or home equity loans.

Borrower has 3 days - conventional loans and home equity loans

What are the penalties for violating the Truth in Lending Act?

$10,000 per day after an administrative order and $10,000 for unfair or deceptive practices and Many more

What does the Equal Credit Opportunity Act prohibit?

Discrimination in the loan process based on race, color, religion, national origin, sex (including sexual orientation and gender identity), public assistance receipt, age, or marital status.

Denial, in writing, within 30 days

What is the purpose of the Community Reinvestment Act (CRA)?

To require federally supervised financial institutions to meet the credit needs of the communities in which they are located.

Meet credit needs of community in which located

Federally supervised financial institution

Periodically reviewed

Created to help communities within a geographic area

loan programs:

• Conventional loans

Loan-to-value ratio (LTV)

Higher # = Higher Risk

Lower # = lower risk

Ie. Appraised value of $200k with $180k loan

= 180/200

• Private mortgage insurance (PMI)

This is how buyers get a loan with less than 20% down.

At a certain point the insurance is no longer needed. Varies by lender

• FHA-insured loans

Federally insured loans

Allow low downpayments with fixed rates

12

• VA-guaranteed loans

Certificate of eligibility

Certificate of reasonable value

Funding fee

Prepayment privileges

Certain assumption rules

• Agricultural loan programs

Farm Service Agency

Farm Credit System

Farmer Mac

conventional loans

Loan-to-value ratio (LTV)

Higher # = Higher Risk

Lower # = lower risk

Ie. Appraised value of $200k with $180k loan

= 180/200

Private Mortgage Insurance (PMI)

This is how buyers get a loan with less than 20% down.

At a certain point the insurance is no longer needed. Varies by lender

Federally Insured Loans

Federally insured loans

Allow low down payments with fixed rates

What is the main advantage of an FHA-insured loan?

It allows for low down payments with fixed interest rates.

VA-guaranteed loan

certificate of eligibility

Certificate of reasonable value

Funding fee

Prepayment privileges

Certain assumption rules

What are two key documents required for a VA-guaranteed loan?

A Certificate of Eligibility and a Certificate of Reasonable Value.

Agricultural loan programs

Farm Service Agency

Farm Credit System

Farmer Mac

main finance techniques

• Amortized loans

• Adjustable-rate mortgages (ARMs)

• Balloon payment loan

• Reverse mortgages

Owner gets paid monthly based on equity!

Often used by older owners who need income.

What is a reverse mortgage?

A loan where the owner receives monthly payments based on their home equity, often used by older owners for income.

How is the monthly interest on a mortgage calculated?

By multiplying the principal balance by the annual interest rate and dividing by 12.

How is the amount paid toward the principal determined in an amortized loan?

By subtracting the month's interest from the total monthly payment.

basic finance chart

Monthly payment (-Month's interest) =

Amount paid toward principal

goes to this

Principal balance × Annual interest

rate / 12 = Month's interest

goes to this

Principal balance (-Amount paid toward

principal) = New principal balance

then back to monthly pmt

basic fin chart w/math

Monthly payment (- Month's interest) = Amount

paid toward principal

1. $1,074.00 - $968.76 = $105.24

2. $1,074.00 - $968.08 = $105.92

goes to this

Principal balance × Annual interest

rate ÷ 12 = Month's interest

1. $150,000.00 × 7.75% ÷ 12 =

$968.75

2. $149,894.76 × 7.75% ÷ 12 =

$968.07

goes to this

Principal balance (- Amount paid toward

principal) = New principal balance

1. $150,000.00 - $105.24 = $149,894.76

2. $149,894.76 - $105.92 = $149,788.84

then back to monthly pmt

What is a purchase-money mortgage?

A financing technique also known as seller financing.

What is a buydown in real estate financing?

Additional money provided at closing to reduce interest rates for a specific period.

What is the function of a loan commitment?

It serves as the lender's formal pledge to provide a loan, subject to specific contingencies.

What does the term 'appraisal' refer to in a real estate transaction?

An assessment of the property's value to ensure it meets the lender's requirements for the loan amount.

What is the consequence of a high Loan-to-Value (LTV) ratio?

It indicates higher risk for the lender.

What is the timeline for a lender to provide a written denial of a loan application?

Within 30 days.

Buydowns

A fee is paid to the lender to reduce the interest rate in the early years of the loan.

Additional money given at closing to reduce interest rates for a certain

period of time

Home Equity Loan

a loan secured by equity value in the borrower's home

Borrow on your equity

Other financing techniques

Purchase-money mortgages

Aka seller financing

Package loans

Blanket loans

Wraparound loans

Open-end loans

Open-end loans

Construction loans

Sale-and-leaseback

Buydowns

Additional money given at closing to reduce interest rates for a certain

period of time

Home equity loans

Borrow on your equity