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

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. 2010©Cengage Learning. All Rights Reserved.

CONVENTIONAL LOANS one that has no participation by an agency of the federal government can be either uninsured or insured private mortgage insurance (PMI) 2010©Cengage Learning. All Rights Reserved.

CONVENTIONAL MORTGAGES TERMS Junior Mortgage Term Mortgage Amortizing Mortgage Fifteen-Year Mortgage Balloon Mortgage Open-End Mortgage 2010©Cengage Learning. All Rights Reserved.

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) 2010©Cengage Learning. All Rights Reserved.

CONVENTIONAL MORTGAGES Growing Equity Mortgage (GEM) Participation Mortgage Package Mortgage Blanket Mortgage Construction Mortgage Purchase Money Mortgage Land Contract Leasehold Mortgage 2010©Cengage Learning. All Rights Reserved.

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) 2010©Cengage Learning. All Rights Reserved.

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 2010©Cengage Learning. All Rights Reserved.

Eligibility To be eligible for a VA-guaranteed loan, the borrower must qualify as a veteran under requirements of the Department of Veteran Affairs. 2010©Cengage Learning. All Rights Reserved.

CLOSING COSTS 1. Discount points 2. loan origination fee or loan service charge 3. appraisal fee 4. Attorney’s fee 5. Survey fee 6. Credit report charge 7. Assumption fee if buyer is assuming loan 8. Private mortgage insurance premium 9. Mortgage title insurance premium 10. Cost of termite inspection and certification 2010©Cengage Learning. All Rights Reserved.

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. 2010©Cengage Learning. All Rights Reserved.

Loan Processing Appraisal Credit Report Application Review Loan Underwriting Buyer Ability to Pay Buyer Willingness to Pay Property Valuation Discount Points 2010©Cengage Learning. All Rights Reserved.

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. 2010©Cengage Learning. All Rights Reserved.

LEGISLATION Real Estate Settlement Procedures Act (RESPA) Equal Credit Opportunity Act (ECOA) Michigan Consumer Protection Act 2010©Cengage Learning. All Rights Reserved.

CLOSING Face-to-Face Closing Escrow Closing Title Companies 2010©Cengage Learning. All Rights Reserved.

Closing Preliminaries Parties Survey Pest Inspection Title Examination, Insurance, and Defects Property Inspection Insurance Perc, Soil, Well, and Septic Tests 2010©Cengage Learning. All Rights Reserved.

Additional Documents 2010©Cengage Learning. All Rights Reserved. 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 2010©Cengage Learning. All Rights Reserved.

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. 2010©Cengage Learning. All Rights Reserved.

CHAPTER TERMINOLOGY REVIEW 2010©Cengage Learning. All Rights Reserved.  accrued expenses  adjustable rate mortgage (ARM)  annual percentage rate (APR)  appraisal  balloon mortgage  balloon payment  blanket mortgage  budget mortgage  certificate of reasonable value (CRV)  closing statement  construction mortgage  conventional mortgage loan  cooling-off period  credits  debits  disclosure statement  discount points  Equal Credit Opportunity Act (ECOA)  Federal Housing Administration (FHA)  FHA-insured loans  good faith estimate

more CHAPTER TERMINOLOGY REVIEW 2010©Cengage Learning. All Rights Reserved.  graduated payment adjustable mortgage  graduated payment mortgage (GPM)  growing equity mortgage  Guaranteed Loan Program  impound account  junior mortgage  land contract  leasehold mortgage  loan origination fee  loan-to-value ratio  margin  Michigan Consumer Protection Act  Michigan usury laws  mortgage insurance premium (MIP)  negative amortization  open-end mortgage  package mortgage  partial release clause  participation mortgage  perc test  PITI payment  prepaid expenses

more CHAPTER TERMINOLOGY REVIEW 2010©Cengage Learning. All Rights Reserved.  prepayment penalty  private mortgage insurance (PMI)  proration  purchase money mortgage  Real Estate Settlement Procedures Act (RESPA)  Regulation Z  reverse annuity  mortgage (RAM)  Rural Housing Service (RHS)  settlement  shared appreciation mortgage (SAM)  soil test  take-out loan  term mortgage  Truth-in-Lending Simplification and Reform Act (TILSRA)  underwriting  VA-guaranteed loan  vendor’s affidavit  well and septic report