© 2008 by South-Western, Cengage Learning Chapter 11 Chapter 11 Charles J. Jacobus Thomas E. Gillett

© 2008 by South-Western, Cengage Learning Georgia Real Estate An Introduction to the Profession Seventh Edition Chapter 11 Lending Practices

© 2008 by South-Western, Cengage Learning Loans Loans Term loan Interest payments only until due. Renewal Amortized loan Regular equal payments for life of loan including both principal & interest.

© 2008 by South-Western, Cengage Learning Repaying a 6-year, $1,000 Loan

© 2008 by South-Western, Cengage Learning 9% Interest per Year on the Loan

© 2008 by South-Western, Cengage Learning Balance Owed Each Year of the Loan

© 2008 by South-Western, Cengage Learning Amortization Table Monthly Payment per $1,000 of loan.

© 2008 by South-Western, Cengage Learning Loans Loans

© 2008 by South-Western, Cengage Learning Loans Loans Balloon loan Any loan that has a final payment larger than any of the previous. Partially amortized loan Series of amortized payments with a balloon at maturity

© 2008 by South-Western, Cengage Learning Loan Balance Table Balance owing on a $1,000 amortized loan.

© 2008 by South-Western, Cengage Learning Earlier Payoff 15 Year Loan Bi-weekly Payment Existing Loans

© 2008 by South-Western, Cengage Learning Loan-to-Value Loan-to-Value Relationship between the amount of the loan and market value of the property. Market Value = $100,000 Loan Amount = $80,000 What is the loan to value ratio? $80,000 $100,000 = 80%

© 2008 by South-Western, Cengage Learning Equity – difference between the value of the property and outstanding debt. Points – 1% of the loan amount. Origination fee – fee lender charges for making loan usually stated in terms of a percentage of loan amount. Discount points – lender’s charge to raise the return on the loan usually stated as a percentage of the loan amount.

FHA Insures Lenders against loss Required qualification of buyer Current FHA Coverage Loans up to $50,000 – 98.75% Loans over $50,000 – 97.75% Maximum Coverage 2007 SFR Georgia Maximum Loan: $252,850 Must be owner occupied

© 2008 by South-Western, Cengage Learning FHA Assumability Loans originated after December 15, 1978 require qualification Mortgage Insurance 1.5% Up front 1/2 of 1% annual loan balance Eliminated at 78% LTVR

© 2008 by South-Western, Cengage Learning FHA Floating Interest Rates Loan Qualification Established loan application review Debt for 10 months or more

© 2008 by South-Western, Cengage Learning FHA Minimum requirements in building standards Maintain value Construction Regulations

© 2008 by South-Western, Cengage Learning VA No Down Payment Maximum guarantee 25% of conforming loan limit Lenders typically lend 4 times guarantee

© 2008 by South-Western, Cengage Learning VA Certificate of eligibility Proves qualification Amount of guarantee CRV Estimated value by VA Owner occupancy

VA Financial Liability Responsible for any loss due to default Funding Fee Interest Rates 1% Origination Fees Assumptions

VA / FHA Comparison Insures loans UFMIP Anyone qualified Rate negotiable Points 3% down 97% L-T-V Guarantees loans Funding fee Veterans only Rate negotiable Points No down payment 100% L-T-V

© 2008 by South-Western, Cengage Learning VA / FHA Similarities Owner occupied 1-4 family dwellings Refinancing allowed Assumption allowed (with approval)

© 2008 by South-Western, Cengage Learning Loan Limits Info Loan Limits Info VA FHA Conv jhtml?p=About+Fannie+Mae&s=Loan+Limits

© 2008 by South-Western, Cengage Learning Mortgage Insurance Mortgage Insurance Private Mortgage Insurance (PMI) Insures Lenders against foreclosure losses Inures the top 20% to 25% Fee: less than 1% up to 2% or greater Cancellation 78% of original value Equity is 80% of popery value May refuse to cancel with poor payment record

© 2008 by South-Western, Cengage Learning Key Terms Key Terms Amortized loan Balloon loan Conventional loans Equity FHA Impound account Loan origination fee Loan-to-value ratio Maturity PITI PMI Point Principal UFMIP VA