Modern Real Estate Practice in Pennsylvania 12th Edition

1. Modern Real Estate Practice in Pennsylvania 12th Edition Chapter 20: Financing the Real Estate Transaction

2. 20 Real Estate Financing: Practice • Learning objectives • Identify the types of institutions in the primary and secondary mortgage markets • Describe the various types of financing techniques available to real estate purchasers • Explain role of government financing regulations • Distinguish the requirements and qualifications for conventional, FHA, and VA loan programs • Distinguish among the different types of “creative” financing techniques that address borrowers’ different needs • Define key terms

3. 20 Real Estate Financing: Practice • Real estate financing market • Secondary mortgage market • Fannie Mae • Freddie Mac • Ginnie Mae

4. 20 Real Estate Financing: Practice • Cost of Credit • Yield and risk • Determination of interest rate charged to buyer • Term of loan • Type of mortgage loan • Loan amount • Lender’s cost of money

5. 20 Real Estate Financing: Practice • Obtaining credit • Credit scores • Fair and Accurate Credit Transactions Act • Loan application • Underwriting the loan • Loan commitment

6. 20 Real Estate Financing: Practice • Financing legislation • Truth in Lending Act and Regulation Z • Creditor • Three-day right of rescission • Advertising trigger terms • Penalties • Equal Credit Opportunity Act • Prohibits discrimination in loan process • Race, color, religion, national origin, sex, receipt of public assistance, age, marital status • Denial, in writing, within 30 days

7. 20 Real Estate Financing: Practice • Financing legislation • Community Reinvestment Act • Meet credit needs of community in which located • Federally supervised financial institution • Periodically reviewed • Real Estate Settlement Procedures Act • Any residential real estate transaction • First mortgage loan • Federally related funds

8. 20 Real Estate Financing: Practice • Loan programs • Conventional loans • Loan-to-value ratio (LTV) • PITI ratios • Private mortgage insurance (PMI) • FHA-insured loans • MIP • Loan limits • Assumability • Discount points • Prepayment privileges

9. 20 Real Estate Financing: Practice • Loan programs • 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

10. 20 Real Estate Financing: Practice • Financing techniques • Amortized loans • Adjustable-rate mortgages (ARMs) • Balloon payment loan • Growing-equity mortgages • Reverse mortgages

11. Monthly payment (–Month’s interest) = Amount paid toward principal Principal balance × Annual interest rate / 12 = Month’s interest Principal balance (–Amount paid toward principal) = New principal balance 20 Real Estate Financing: Practice

12. 20 Real Estate Financing: Practice • Monthly payment (– Month’s interest) = Amount paid toward principal • $1,074.00 – $968.76 = $105.24 • $1,074.00 – $968.08 = $105.92 • Principal balance × Annual interest rate ÷ 12 = Month’s interest • $150,000.00 × 7.75% ÷ 12 = $968.75 • $149,894.76 × 7.75% ÷ 12 = $968.07 • Principal balance (– Amount paid toward principal) = New principal balance • $150,000.00 – $105.24 = $149,894.76 • $149,894.76 – $105.92 = $149,788.84

13. 20 Real Estate Financing: Practice • Other financing techniques • Purchase-money mortgages • Package loans • Blanket loans • Wraparound loans • Open-end loans • Open-end loans • Construction loans • Sale-and-leaseback • Buydowns • Home equity loans