South-Western Publishing©2002 By Charles J. Jacobus Real Estate Principles Ninth Edition Real Estate: An Introduction to the Profession Ninth Edition South-Western Publishing©2002

Chapter 11 Lending Practices _______________________________________

South-Western Publishing©2002 Loans Term loan – interest payments only until due. Amortized loan – regular equal payments for life of loan including both principal & interest. 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.

South-Western Publishing©2002 Repaying a 6-year, $1,000 Loan

South-Western Publishing©2002 Carrying 9% Interest per Year on the Loan

South-Western Publishing©2002 Balance Owed During Each Year of the Loan

South-Western Publishing©2002 Amortization Table: Monthly Payment per $1,000 of Loan

South-Western Publishing©2002 Balance Owing on a $1,000 Amortized Loan

South-Western Publishing©2002 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 = $80,000 What is the loan-to-value ratio? 80%

South-Western Publishing©2002 Equity – the difference between the value of the property and outstanding debt. 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.

South-Western Publishing©2002 VA and FHA in Comparison Insures loans UFMIP Anyone qualified Rate negotiable Points 3-5% down 97-95% L-T-V Guarantees loans Funding fee Veterans only Rate negotiable Points No down payment 100% L-T-V FHAVA

South-Western Publishing©2002 VA and FHA Similarities Owner-occupied 1-4 family dwellings Refinancing allowed Assumption allowed (with approval)

South-Western Publishing©2002 Key Terms Amortized loan Balloon loan Conventional loans Equity FHA Impound account Loan origination fee Loan-to-value ratio Maturity PITI Point Principal UFMIP VA