© 2011 Cengage Learning

Real Estate Financing Chapter 11 © 2011 Cengage Learning

RATIONALE FOR CHAPTER The majority of real estate purchases are financed. Real estate practitioners should be keenly aware of how to qualify buyers and where to refer them for financing.

© 2011 Cengage Learning Focus of Presentation This chapter will teach the practical application of real estate finance to brokerage activities. Students will learn the difference between primary and secondary financing and what the primary and secondary mortgage markets are and how they work.

© 2011 Cengage Learning Focus of Presentation The various sources of real estate financing are discussed in detail. Conventional, FHA, VA and Cal-Vet loans are discussed Students will learn how lenders qualify buyers and what the loan underwriting process involves.

© 2011 Cengage Learning CHAPTER ELEVEN OUTLINE 11.1 AN APPRAISAL OR AN ESTIMATE OF VALUE? 11.2 FINANCING SOURCES 11.3 PRIMARY AND SECONDARY FINANCING 11.4 CONFORMING VS. NON- CONFORMING LOANS 11.5 TYPES OF LENDERS

© 2011 Cengage Learning CHAPTER ELEVEN OUTLINE 11.6 TYPES OF LOANS 11.7 GETTING THE BUYERS PRE- APPROVED (THE FINANCING PROCESS) 11.8 REAL ESTATE FINANCING REGULATIONS

© 2011 Cengage Learning YOUR MARKETING PLAN Appraiser certification why real estate agents are limited to using the term “estimate of value,” if they are not certified as an appraiser. California’s position on the matter of certification and the use of the term appraisal.

© 2011 Cengage Learning FINANCING SOURCES Ratio of income Benefits of knowing several good lenders in your respective areas as sources of financing for your clients.

© 2011 Cengage Learning PRIMARY AND SECONDARY FINANCING Priority of recording applies to a loan’s status as a first trust deed or a junior trust deed. Risk vs. reward issue as it relates to the interest rates charged by lenders for primary and secondary financing.

© 2011 Cengage Learning PRIMARY AND SECONDARY FINANCING Primary versus secondary loans differences primary and secondary money markets. Define FNMA, GNMA, and FHLMC, and their respective roles in the financing process. Briefly define the “Farmer Mac” loan program.

© 2011 Cengage Learning CONFORMING VS. NON-CONFORMING LOANS Difference between conforming and non-conforming loans how does a lender deal with the sale of each type of loan in the secondary market? Define what the current loan limit for a conforming loan - between $417,000 and $729,750.

© 2011 Cengage Learning CONFORMING VS. NON-CONFORMING LOANS Underwriting requirements for each loan why guidelines for non-conforming loans are more stringent. Where are non-conforming or jumbo loans sold (pension funds, etc.)?

© 2011 Cengage Learning TYPES OF LENDERS Three major types of institutional lenders and the types of loans they prefer to make. Discuss private mortgage insurance (PMI); when it is required and why.

© 2011 Cengage Learning TYPES OF LENDERS Other types of lenders. REITs Credit Unions Seller carry-back financing July 2008 Congress passed the Housing and Economic Recovery Act (HERA)

© 2011 Cengage Learning TYPES OF LENDERS Role of real estate brokers as mortgage loan brokers and the scope of lending activity they can perform. Role of mortgage bankers and their dual regulation by the California Department of Corporations and the California Department of Real Estate.

© 2011 Cengage Learning TYPES OF LOANS Duty of the agent’s awareness of the various types of real estate loans available. One-stop-shopping Conventional loans how to compare loans and lenders

© 2011 Cengage Learning TYPES OF LOANS Using the chart in the text (Figure 11.1), discuss government participation loans. Conduct a detailed discussion of VA loans and the “certificate of Reasonable value.” - List eligibility requirements. Discuss Cal Vet loans; how do they differ from other types of loans and who is eligible.

© 2011 Cengage Learning TYPES OF LOANS FHA loans Who is eligible for FHA financing? Alternative types of mortgages and trust deeds.

© 2011 Cengage Learning TYPES OF LOANS Wraparound financing Negative issues of this type of financing, such as due-on-sale clauses, etc. Bridge loan when is it used?

© 2011 Cengage Learning TYPES OF LOANS Reverse mortgages primary users Fixed-rate loans benefits drawbacks Discuss the interest savings obtained by a 15 year loan vs. a 30 year loan.

© 2011 Cengage Learning TYPES OF LOANS Adjustable loans benefits drawbacks Interest only loans Loan costs Agent’s role in helping choose the right loan for their particular needs.

© 2011 Cengage Learning GETTING THE BUYERS PRE-APPROVED (THE FINANCING PROCESS) Five basic steps to the financing process text page 327. Advantage to the buyer (and the agent) of being pre-approved. Qualifying process

© 2011 Cengage Learning GETTING THE BUYERS PRE-APPROVED (THE FINANCING PROCESS) Briefly review the Uniform Residential Loan Application Form (Figure 11.3). Discuss front-end ratios and back-end ratios and how to calculate them for a buyer. Discuss the process of qualifying the property, which is the collateral for the loan.

© 2011 Cengage Learning REAL ESTATE FINANCING REGULATIONS Discuss the Fair Credit Reporting Act.

© 2011 Cengage Learning REAL ESTATE FINANCING REGULATIONS Regulation Z RESPA, as it applies to real estate financing Controlled business arrangements (CBA)