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CHAPTER EIGHT

CHAPTER EIGHT. UNDERWRITING AND FINANCING RESIDENTIAL PROPERTIES. Underwriting Default Risk. Underwriting Is the process of evaluating a borrower’s loan request in terms of potential profitability and risk. Two methods are used namely:

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CHAPTER EIGHT

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  1. CHAPTER EIGHT UNDERWRITING AND FINANCING RESIDENTIAL PROPERTIES

  2. Underwriting Default Risk Underwriting • Is the process of evaluating a borrower’s loan request in terms of potential profitability and risk. Two methods are used namely: • Payment-to-income ratio (MPs on the loan amount plus other housing expenses divided by borrower’s income) • Loan-to-value ratio (amount of loan requested divided by property’s value).

  3. Affordability Ratios • Payment to income • PITI/ gross income equals or is less than 28% • Total obligations to income • PITI plus other obligations/ gross income equals or is less than 36% • Percentages vary with kind of loan program

  4. The Underwriting Process- Income Retirement annuity Social security Public assistance Borrower assets Credit history Estimated housing expense Other obligations and debt • Employment • Working spouse • Rentals • Child support • Commissions • Self employment • Bonuses • Dividends or interest

  5. Closing Costs- Financing Costs are one-time costs associated with buying a property or obtaining a loanCosts incurred include as below: Next slide

  6. Closing Costs- Financing • Loan application • Credit report fee • Loan origination • Attorney fees • Appraisal fees Fees for survey Loan documentation fees Discount points Prepaid interest

  7. Closing Costs- other • Property taxes, proration and escrow accounts • Mortgage insurance (default) • Hazard insurance • Title insurance • Pest inspection • Real estate commissions • Statutory costs

  8. Chapter Ends here!!

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