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Lending Practices

Lending Practices. ______________________________. I. Loan Terminology:. Principal Interest Rates Duration of Loan Debt Service Amortization Equity – the difference between the value of the property and the outstanding debt. Points – one percent of the loan amount.

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Lending Practices

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  1. Lending Practices ______________________________

  2. I. Loan Terminology: • Principal • Interest Rates • Duration of Loan • Debt Service • Amortization • Equity – the difference between the value of the property and the outstanding debt.

  3. Points– one percent 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. [Should you pay discount points or not?]

  4. Loan-to-Value • The relationship between the amount the lender is willing to loan and the market value of the property. • Market value = $100,000 Loan = $80,000What is the loan-to-value ratio? 80%

  5. Mortgage Insurance • Private Mortgage Insurance • PMI • Insures lenders against losses

  6. II. Loan Types • Term loan– interest payments only until due. • Amortized loan– regular equal payments for life of loan including both principal & interest. • Budget Mortgage • 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 payment at maturity. [Should pay mortgage off early?]

  7. Repaying a 6-year, $1,000 Loan

  8. 9% Interest per Year on the Loan

  9. Balance Owed Each Year of the Loan

  10. Amortization Table: Monthly Payment per $1,000 of Loan

  11. Balance Owing on a $1,000 Amortized Loan

  12. III. Loan Programs • Conventional • VA • FHA

  13. VA / FHA Comparison FHA VA Guarantees loans Funding fee Veterans only Rate negotiable Points No down payment 100% L-T-V Insures loans UFMIPAnyone qualified Rate negotiable Points 3-5% down 97-95% L-T-V

  14. VA / FHA Similarities • Owner occupied • 1-4 family dwellings • Refinancing allowed • Assumption allowed (with approval)

  15. Loan Limits Info • VA • http://www.homeloans.va.gov/ • FHA • https://entp.hud.gov/idapp/html/hicostlook.cfm • Conv • http://www.fanniemae.com/aboutfm/loanlimits.jhtml?p=About+Fannie+Mae&s=Loan+Limits

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