New York Real Estate for Brokers, 5th e

New York Real Estate for Brokers, 5th e By Marcia Darvin Spada Cengage Learning Chapter 3 Real Estate Finance II

Chapter 3 Real Estate Finance II Chapter 3 Real Estate Finance II

Chapter 3 Key Terms Adjustable rate mortgage (ARM) Amortized mortgage Bridge loan Buydown Construction loan Conventional loans Convertible mortgage Department of Veteran Affairs (VA) Depression Disintermediation Federal Housing Administration (FHA) Gap financing Ground lease Home equity loan Inflation Chapter 3 Real Estate Finance II

Chapter 3 Key Terms (continued) Installment land contract (contract for deed) Mortgagee/mortgagor Primary mortgage market Recession Redlining Release clause Sale leaseback Secondary mortgage market Stagflation State of New York Mortgage Agency (SONYMA) Subordinate lease Underwriting Usury Chapter 3 Real Estate Finance II

Mortgagor and Mortgagee Theborrowergives a mortgage to the lender Mortgagor Thelender receives a mortgage from the borrower Mortgagee Chapter 3 Real Estate Finance II

Mortgage Clauses Chapter 3 Real Estate Finance II

Monthly Mortgage Payment P= Principal I = Interest T = Taxes I = Insurance Chapter 3 Real Estate Finance II

Lender’s Criteria for Granting a Loan Investment quality of the property Loan-to-value ratio Borrower’s ability to repay loan Chapter 3 Real Estate Finance II

Loan-to-Value Ratio Ratio of loan amount to property value Loan ÷value = ratio Example: Loan = $144,000 Value = $160,000 144,000 = 90% 160,000 Chapter 3 Real Estate Finance II

Qualifying Ratios Chapter 3 Real Estate Finance II

Mortgage Loan Origination Chapter 3 Real Estate Finance II

Conventional and Government Loans Conventional loan No participation by a government agency Government loan Guaranteed, insured or funded by a government agency Chapter 3 Real Estate Finance II

Types of Mortgages FHA-insured loans VA Guaranteed loans Rural Housing Service State of New York Mortgage Association (SONYMA) Chapter 3 Real Estate Finance II

Mortgages Chapter 3 Real Estate Finance II

Other Mortgages Chapter 3 Real Estate Finance II

Special Types of Mortgages Chapter 3 Real Estate Finance II

Construction Mortgage Short term loan Disbursed in stages Interest not charged until the money has been disbursed When project is complete, converted to permanent long-term loan called take-outor end loan Chapter 3 Real Estate Finance II

Sale Leaseback Chapter 3 Real Estate Finance II

How to Secure FHA Financing • FHA does not make mortgage loans • FHA-insured loans protects lenders against financial loss • Buyer pays for this insurance protection by paying an upfront mortgage insurance premium • FHA does not set maximum sales price, only a maximum loan amount • FHA insured mortgages require mortgage insurance Chapter 3 Real Estate Finance II

FHA Mortgage • Advantages • Credit criteria for a borrower are not as strict • Borrower’s allowable costs can be partially wrapped into loan • 100% of down payment and closing costs can be gifted • Loans are assumable • Disadvantages • With a 30-year FHA loan, and a down payment of more than 5% of the loan amount, the upfront mortgage insurance premium (MIP) is 2.25 percent of the loan amount in addition to the 1.10 percent annual renewal premium that a borrower pays for the life of the loan • FHA limits the amount that can be borrowed Chapter 3 Real Estate Finance II

The Primary and Secondary Mortgage Market Chapter 3 Real Estate Finance II

Secondary Mortgage Market Organizations Chapter 3 Real Estate Finance II

Truth-in-Lending Act Disclosure Cooling off period Advertising (Regulation Z) Penalties Chapter 3 Real Estate Finance II

Lending Discrimination Laws Chapter 3 Real Estate Finance II

Interest rates/indices Affordability of property for buyers The Economy Valuation of Seller’s property Stock Market The Economy and How it Affects the Real Estate Market Employment Chapter 3 Real Estate Finance II

Predatory Lending Practices-What is it? • High-cost (subprime loans) include conventional first mortgages that have an interest rate of more than 8 percent and junior mortgages that have an interest rate of more than 9 percent • High-cost loans also include conventional loans for more than $50,000 when the points and fees exceed 5 percent of the loan Chapter 3 Real Estate Finance II

Predatory Lending • Lender may target certain ethnic group • Takes advantage of consumer • Lender makes unaffordable loans based on assets of borrower, not ability to repay • Induces refinancing • (flipping) • Fraud regarding true nature of loan obligation Chapter 3 Real Estate Finance II

Flipping • Real estate investors or speculators believe that they can turn quick profits by buying the property at a certain price and then immediately selling the property at a higher price • Flipping may be a problem because it can drive up prices • The investor attempts to buy low and sell high Chapter 3 Real Estate Finance II

Subprime Loans • Borrowers considered subprime if they have a less-than-perfect credit report • Subprime lenders • Companies that provide loans to home-buyers who do not have good credit histories or who are risky candidates for loans because of their incomes Chapter 3 Real Estate Finance II

New York Anti-Predatory Lending Law • Places many restrictions on high-cost (subprime) loans that are first or junior (second) mortgages • Loans covered under New York Law • Maximum indebtedness of $300,000 • For family or personal reasons • Applies to one- to four-unit property that is the borrower’s personal residence Chapter 3 Real Estate Finance II

New York Real Estate for Brokers, 5th e