Chapter 9 Real Estate Finance Practices and Closing Transactions 2010©Cengage Learning. All Rights Reserved

Chapter 9Real Estate Finance Practices andClosing Transactions

2010©Cengage Learning. All Rights Reserved.

http://www.cengage.com/realestate/fraser

IN THIS CHAPTER

• Various loans the buyer may use to finance real property with a lending institution.

• The types of mortgage loans: 1. Conventional loans 2. FHA or VA mortgage loans

• Methods of closing, items required at closing, and proration calculations.



CONVENTIONAL LOANS

• one that has no participation by an agency of the federal government

• can be either uninsured or insured• private mortgage insurance (PMI)



CONVENTIONAL MORTGAGES TERMS

• Junior Mortgage• Term Mortgage• Amortizing Mortgage• Fifteen-Year Mortgage• Balloon Mortgage• Open-End Mortgage



CONVENTIONAL MORTGAGE TYPES

• Budget Mortgage• Graduated Payment Mortgage (GPM)• Adjustable Rate Mortgage (ARM)• Renegotiated Rate Mortgage• Graduated Payment Adjustable Mortgage• Reverse Annuity Mortgage (RAM)• Shared Appreciation Mortgage (SAM)



CONVENTIONAL MORTGAGES

• Growing Equity Mortgage (GEM)• Participation Mortgage• Package Mortgage• Blanket Mortgage• Construction Mortgage• Purchase Money Mortgage• Land Contract• Leasehold Mortgage



FHA-INSURED LOANS

• An agency of the U.S. Department of Housing and Urban Development (HUD)

• Created during the Depression of the 1930s

• FHA-insures loans to protect lenders against financial loss

• Popular program is the FHA 203(b) loan• FHA Mortgage Insurance Premium (MIP)



VA-GUARANTEED LOANS

• the VA guarantees• repayment of the top portion of the loan

to the lender in the event of default by the borrower

• certificate of reasonable value (CRV)• loan amount may be 100 percent of CRV



Eligibility

To be eligible for a VA-guaranteed loan, the borrower must qualify as a veteran under requirements of the Department of Veteran Affairs.



CLOSING COSTS

1. Discount points 2. loan origination fee or loan service charge3. appraisal fee4. Attorney’s fee5. Survey fee6. Credit report charge7. Assumption fee if buyer is assuming loan8. Private mortgage insurance premium9. Mortgage title insurance premium10. Cost of termite inspection and certification



Loan Origination

• Application• Authorizations

1. Verification of employment. 2. Verification of rent or mortgage.3. Verification of bank account balance.4. Verification of outstanding loans.5. Verification of sales contract deposit.6. Verification of pension (if applicable).7. Authorization to release information.8. Consent to credit check and verification.



Loan Processing• Appraisal• Credit Report• Application Review• Loan Underwriting• Buyer Ability to Pay• Buyer Willingness to Pay• Property Valuation• Discount Points



FINANCING LEGISLATION• Truth-in-Lending Simplification and

Reform Act (TILSRA)• Disclosure of APR• Three day right of rescission• Regulation Z• State of Michigan Usury Laws– unqualified lender is limited to a maximum

rate of 11% interest on loans secured by a first lien on residential real property, a land contract, or a land lease.



LEGISLATION• Real Estate Settlement Procedures Act

(RESPA)• Equal Credit Opportunity Act (ECOA)• Michigan Consumer Protection Act



CLOSING

• Face-to-Face Closing• Escrow Closing• Title Companies



Closing Preliminaries• Parties• Survey• Pest Inspection• Title Examination, Insurance, and Defects• Property Inspection• Insurance• Perc, Soil, Well, and Septic Tests



Additional Documents


• Bill of sale of personal property• Certificate of occupancy• Closing or settlement statement • Deed• Note• Disclosure statement• Estoppel certificate• Flood insurance policy• hazard insurance policy• Land contract• Lease• Lien waivers• Mortgage• Mortgage guarantee insurance policy• Option and exercise of option• Sales contract


PRORATIONS• unpaid real estate taxes• rents• interest on seller’s mortgage assumed• prepaid taxes and insurance premiums• utilities billed and paid in advance



Rules and Methods

• Buyer or the seller may pay the costs of the day of closing.

• Every year is considered to have 360 days; every month has 30 days.

• Real estate taxes & interest are paid in arrears.



CHAPTER TERMINOLOGY REVIEW


accrued expensesadjustable rate mortgage (ARM)annual percentage rate (APR)appraisalballoon mortgageballoon paymentblanket mortgagebudget mortgagecertificate of reasonable value (CRV)closing statementconstruction mortgageconventional mortgage loancooling-off periodcreditsdebitsdisclosure statementdiscount pointsEqual Credit Opportunity Act (ECOA)Federal Housing Administration (FHA)FHA-insured loansgood faith estimate



more CHAPTER TERMINOLOGY REVIEW


graduated payment adjustable mortgagegraduated payment mortgage (GPM)growing equity mortgageGuaranteed Loan Programimpound accountjunior mortgageland contractleasehold mortgageloan origination feeloan-to-value ratiomarginMichigan Consumer Protection ActMichigan usury lawsmortgage insurance premium (MIP)negative amortizationopen-end mortgagepackage mortgagepartial release clauseparticipation mortgageperc testPITI paymentprepaid expenses



more CHAPTER TERMINOLOGY REVIEW


prepayment penaltyprivate mortgage insurance (PMI)prorationpurchase money mortgageReal Estate Settlement Procedures Act (RESPA)Regulation Zreverse annuitymortgage (RAM)Rural Housing Service (RHS)settlementshared appreciation mortgage (SAM)soil testtake-out loanterm mortgageTruth-in-Lending Simplification and Reform Act (TILSRA)underwritingVA-guaranteed loanvendor’s affidavitwell and septic report

