We think you have liked this presentation. If you wish to download it, please recommend it to your friends in any social system. Share buttons are a little bit lower. Thank you!
Presentation is loading. Please wait.
Published byMercy McDaniel
Modified over 4 years ago
©2011 Cengage Learning
Chapter 8 Part I: Real Estate Lenders California Real Estate Principles ©2011 Cengage Learning
Chapter 8 Part I 1. Compute loan qualifying ratios 2. List institutional and non-institutional lenders 3. Describe how private mortgage insurance has changed lending practices in California ©2011 Cengage Learning
Qualifying The Buyer ©2011 Cengage Learning Lender’s concern: C haracter (desire) Credit history C apacity (ability) Income to make the payments C apital (assets) Reserves to convert to cash
Credit ©2011 Cengage Learning A buyer’s credit is the most important factor that influences a lender Consumer’s should be encourage to protect their credit
Credit Report ©2011 Cengage Learning Information varies from credit bureau to credit bureau. A credit report is a detailed history of the borrower’s indebtedness over time.
Credit Bureaus ©2011 Cengage Learning Equifax www.equifax.comwww.equifax.com Experian www.experian.comwww.experian.com TransUnion www.transunion.comwww.transunion.com
Credit Scores ©2011 Cengage Learning FICO (Fair Isaac Company) developed a system of scoring by comparing a person’s credit report with many other credit reports to determine the risk of lending to the borrower. Credit scores have advantages over credit reports: Results can be delivered instantaneously Credit decisions are fairer Older credit problems count for less More Credit is Available Credit rates are lower
Composition of FICO Score ©2011 Cengage Learning Payment History – 35% Amounts Owed – 30% Length of credit History – 15% New Credit – 10% Types of Credit in Use – 10%
Front End Ratio ©2011 Cengage Learning Monthly housing payment includes payment of principal + interest + taxes + insurance + dues+ PMI. Divide monthly housing payments by gross income to determine the front end ratio. Monthly housing payment Gross monthly income = percentage %
Back End Ratio ©2011 Cengage Learning Total monthly expenses includes total monthly housing payments + long term debt. Divide total monthly expenses by gross monthly income to determine the back end ratio. Total monthly expenses Gross monthly income = percentage %
Ratios (%) ©2011 Cengage Learning Conventional FHADVA Front End28% 31% Back End36% 43%41%
Ratio Terms ©2011 Cengage Learning GROSS MONTHLY INCOME = All stable, legal income before taxes. MONTHLY HOUSING PAYMENT = Projected monthly loan payments + ½ of estimated property taxes and insurance premium monthly + PMI and association dues. LONG TERM DEBT = Monthly payments that continue for six months or longer. TOTAL MONTHLY EXPENSE = Monthly housing payments + monthly long term debts.
Loans ©2011 Cengage Learning LTV = Loan-to-value Appraised Price or Sales Price (lesser value) x 80% = Maximum loan Loan Origination fee 1 point = 1% of the loan amount Appraisal fees Credit Report fee with extensive information Escrow and Title fees are negotiable Beneficiary Demand Statement showing existing loan balance
Monthly Payment ©2011 Cengage Learning It’s A PITI to have to make the payment! ssociation dues rincipal nterest on the loan axes on the property nsurance
Conventional Qualifying Ratios Example: ©2011 Cengage Learning Gross monthly income $4,000 Long term debts $500 $4,000 [x] 28% [=] $1,120 for PITI $4,000 [x] 36% [=] $1,440 for PITI and debts - 500 debts = $ 940 The lower of the two. For the above: $1120 vs. $940 = Maximum payment of $940 per month for PITI
California Loan Market ©2011 Cengage Learning High demand Increasing population Numerous large financial institutions Use of mortgage companies for out-of-state lenders Escrow and title companies provide fast service Loan security is Trust Deed not a mortgage contract Active secondary market to trade loans for cash to generate more loans
Lenders ©2011 Cengage Learning Institutional Savings & Loan Banks Insurance Companies Non-Institutional Mortgage Companies Mortgage Brokers Real Estate Investment Trusts (REIT) Pension Funds Credit Unions Individuals
©2011 Cengage Learning Savings & Loan or Thrift Institutions Commercial BanksInsurance Companies CharterFederal & State State Loan-to-value ratio Usual maximum 90% (Can go to 95%) Usually 80% (Can go to 95%) 75% Loan term30 + years 25 to 30 Interest ratesUsually at the higher end of the market Usually middle of the market Usually at the lower end of the market Favorite real estate loans Prefer conventional made on single family dwellings, apartments buildings, mobile homes, condominiums Prefer construction loans with backup takeout loan assured from another lender; Equity home loans Business loans FHA/VA backed Prefer high quality loans Larger commercial and industrial properties with AAA tenants Hotels and office buildings -FHA/VA CustomerGreatest share of marketPresent or formerLend through loan correspondents-mortgage companies
Second Deed of Trust Junior Lien ©2011 Cengage Learning Purpose Close the gap between the sales price and the first loan plus down payment Private lenders Short term loan on single family dwellings Mortgage brokers: agents for private loans Mortgage bankers: lend their own or other’s funds Real Estate Investment Trust (REIT) Created by Federal law; involves at least 100 investors Credit Unions are a group of voluntary savers
Private Mortgage Insurance (PMI) ©2011 Cengage Learning Required on LTV greater than 80% Lender reimbursed if borrower defaults Premiums paid by borrower PMI sold by private insurance companies Strict credit requirements due to higher risk
Residential Mortgage Loans
Business Math, Eighth Edition Cleaves/Hobbs © 2009 Pearson Education, Inc. Upper Saddle River, NJ All Rights Reserved 15.1 Mortgage Payments Find.
Home Buying Process Financial Options. Objectives Define the Four “Cs” of the Loan Process Determine How Much You Can Afford for a House Calculate Front-End/Back-End.
UNDERWRITING AND FINANCING RESIDENTIAL PROPERTIES Chapter Objectives
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved McGraw-Hill/Irwin Slide 1 1 CHAPTER EIGHT UNDERWRITING AND FINANCING RESIDENTIAL PROPERTIES.
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved McGraw-Hill/Irwin Slide 1 CHAPTER EIGHT UNDERWRITING AND FINANCING RESIDENTIAL PROPERTIES.
Credit History Credit Scoring Lenders Require a Three bureau merged Report – Experian, Trans Union, Equifax Alternative Credit – Rental History Credit.
Florida Real Estate Principles, Practices & Law 38th Edition
Chapter 9 Buying a Home.
Financing Residential Real Estate Lesson 1: Finance and Investment.
Mortgage Loans Fixed Income Securities. Outline What is a mortgage? Major Originators Alternative Mortgage Instruments Prepayments and their impacts.
Topic 4 Financing Strategies. Topic 4: Financing Strategies Learning Objectives – (a) Analyze the various sources of borrowing available to a client and.
The Costs and Advantages of Home Ownership Fixed-Rate Mortgages Adjustable-Rate Mortgages Closing Costs Taxes, Insurance, and Maintenance -4-2.
Residential Mortgage Lending: Principles and Practices, 6e
©2011 Cengage Learning.
Shopping for an Automobile Loan What Do I Need to Know? Using Standard Calculators.
CHAPTER 9 MORTGAGE MARKETS. Copyright© 2003 John Wiley and Sons, Inc. The Unique Nature of Mortgage Markets Mortgage loans are secured by the pledge of.
Carl Johnson Financial Literacy Jenks High School.
Chapter 08: Underwriting and Financing Residential Properties McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.
Objective 2.03 Analyze financial and legal aspects of home ownership.
© 2019 SlidePlayer.com Inc. All rights reserved.