CH 23-24 Real Estate Financing Practice and Valuation Fundamentals
Ron needs to finance $215,000 to get the house he wants. He'd like to get a 15-year mortgage, and the lender quotes him an interest rate of 6.5%. Using the Amortization Table for Monthly Payment Per $1,000 of Loan, what is the estimated monthly P&I payment for that loan? $1,603.90 $1,744.00 $1,874.80 $1,932.85 YOU ANSWER
$1,874.80 You should have found the factor of 8.72 from the amortization table and multiplied that by 215 to get an estimated monthly payment of $1,874.80 for principal and interest.
Matt wants to sell his home. He must pay off his existing $93,800 mortgage and pay $5,500 in closing costs. If he pays a 6% commission, what is the minimum offer he can accept? Round your answer up to the nearest dollar. $99,217 $100,209 $102,803 $105,639
$105,639
The seller accepts a buyer's offer of $161,500 to buy a home. The appraisal on the property comes in at $163,000. If the lender requires an LTV of 80%, how much is the lender willing to lend? $129,200 $130,400 $145,350 $146,700
$129,200 The lender will use the sales price of $161,500 to consider the loan because it is less than the appraised value. With an LTV of 80%, the buyer could borrow $129,200 ($161,500 x .80 = $129,200).
James is selling his home. He needs to pay off a $96,000 first mortgage, a $12,000 second mortgage, and wants $10,000 cash in hand for himself. If his closing costs are $3,100 and he contracts to pay a 7% commission, how much must he sell the property for? Round your answer up to the nearest dollar. $118,877 $129,577 $130,216 $233,723
$130,216
Let's say the lender would accept an LTV of 90% on a $180,000 property. How much is the lender willing to lend? $171,000 $162,000 $153,000 $144,000
$162,000
Carrie is selling her home. She needs to pay off a $120,000 mortgage. Her estimated closing costs are $3,000, and she has agreed to pay a 6.5% commission. After the sale, Carrie wants to have at least $40,000 so that she can make a down payment on a new condo. What is the minimum she can accept on the sale of her home? $167,520 $170,380 $173,595 $174,332
$174,332 First, add all of the money that has been designated: $120,000 + $3,000 + $40,000 = $163,000. This is the desired net. Now, factor in the commission: 100% - 6.5% = 93.5%. Using T-Math: Whole (total sales price) = Part (net amount + expenses) / Percent (100% - commission) and plug in the known variables: $163,000 /0.935 = $174,332. The minimum offer Carrie should accept is $174,332.
A borrower is buying a house for $90,000. He provides a down payment of $10,000. If he pays three discount points, what is the total cost of the points? $3,000 $2,700 $2,400 $2,000
$2,400
Deb offers to buy Stan's home for $180,000, which he accepts. When she applies for a loan, the loan originator tells her that she can borrow $150,000 at 4.75% for 30 years. She can bring the interest rate down to 4.50% if she wants to pay two points upfront. How much would these points cost her? $1,500 $1,800 $3,000 $3,600
$3,000 A point is 1% of the loan amount. Since her loan would be for $150,000, each point would cost her $1,500. Deb could bring the interest rate down by 1/4 percent by paying $3,000 upfront.
Jon buys a house for $150,000. He makes a $30,000 down payment and pays three discount points. What is the total cost of the discount points? $1,500 $3,000 $3,600 $4,500
$3,600
Bonnie sold her condo for $105,000. She paid off the $58,000 owed on her mortgage, 7% commission, attorney fees of $200, prorated interest of $345, and transfer taxes of $157. How much did she net on the deal? $38,948 $38,998 $43,008 $43,057
$38,948
Penny sells her house for $235,000. She pays a 6% commission and has closing costs of $4,200. She also pays off her current mortgage of $163,000 and a $10,000 mechanic's lien. How much did Penny net on the sale of her home? $33,700 $43,700 $58,280 $62,000
$43,700
Let's say the lender ends up giving Bob a 30-year fixed loan for $110,000 at 6.5% interest to buy a $132,000 house. What is his monthly P&I payment based on the Amortization Table for Monthly Payment Per $1,000 of Loan? $821.60 $732.60 $695.20 $660.00
$695.20 The factor for a 30-year loan at 6.5% is 6.32. Multiply that by 110 (the loan amount divided by 1,000) to get a monthly payment of $695.20 to cover principal and interest only.
Lester's stable monthly income is $6,800. Every month he pays: $485 car payment, $200 revolving credit payment, and $1,500 alimony. Using ratios of 31% and 43%, what is the maximum monthly mortgage payment he would qualify for on an FHA-insured mortgage loan? $739 $1,763 $1,972 $2,108
$739
Ned and Carla buy a house that is listed at $105,000; their offer for $5,000 less than that is accepted. They obtain a loan with an 80% loan-to-value ratio. The loan is for 30 years with a 5.5% interest rate. Taxes for the year are $4,000; insurance for the year is $800. Calculate their monthly PITI payment. Be sure to use the simplified amortization table that shows the monthly payment of P&I based on the loan term and interest for the loan amount they are getting. $454 $467 $854 $867
$854
Joan is selling her home. She needs to pay off a $65,000 first mortgage, a $15,000 second mortgage, and wants $10,000 in cash for herself. If her closing costs will total $1,200 and she must pay a seven percent commission, how much must she sell the property for? $84,816 $85,887.85 $97,584 $98,064.52
$98,064.52
Kelly's gross stable monthly income is $3,500. What is the maximum monthly mortgage payment (PITI) she would qualify for using the housing expense ratio of 28% for a conventional loan? $875 $980 $1,020 $1,750
$980
See if you can put the steps in the appraisal process in the proper order. Define the problem Apply the approaches of the value Determine the scope of work Report findings to intended user Collect data/ Analyze data Reconcile the final estimate of value
1.Define the problem 2.Determine the scope of work 3.Collect data/ Analyze data 4.Apply the approaches of value 5.Reconcile the final estimate of value 6.Report findings to intended user 1-Define the problem; 2-Determine the scope of work; 3-Collect data/analyze data; 4-Apply the approaches of value; 5-Reconcile the final estimate of value; 6-Report the findings to the intended user(s).
Agent Alex is using a comparative market analysis to set his seller client Pam's expectations about the sale of her property. His research shows that there are 12 current listings and only three listings have sold in the past 90 days. Based on this, how long should Pam expect that her house might be on the market?
12 months Given the current market in Pam's area—one house sold per month—it would not be unreasonable to think that her house could be on the market for 12 months.
How many business days after a borrower submits a loan application must the lender disclose the APR? 2 days 3 days 5 days 10 days
3 days Lenders must disclose the APR and an estimate of other closing costs within three business days after the submission of a loan application.
To calculate the maximum monthly payment allowable for an FHA-insured loan using the payment-to-income ratio, you would take the stable monthly income and multiply by 28%. 31%. 36%. 41%.
31%. The payment-to-income ratio for an FHA loan is calculated by taking the borrower's stable monthly income and multiplying by 31% (0.31).
By law, lenders must cancel PMI when the loan-to-value reaches what percent of the property's original value? 80% 78% 75% 72%
78%
A buyer can make a maximum cash down payment of $32,300. The sale price of the property is $161,500, so the buyer wants to borrow $129,200. The property was appraised at $159,500, and the lender requires an 80% loan-to-value ratio. What is the loan-to value ratio (LTV) for this transaction? 78% 80% 81% 90%
81%
The buyer has a $32,300 cash down payment. The sales price of the property is $161,500, so the buyer is looking at a mortgage of $129,200. What if the property appraisal came in, instead, at $159,500? What is the loan-to value ratio (LTV) for this transaction? 78% 80% 81% 90%
81% The LTV is calculated as $129,000 (loan amount) divided by $159,500 (appraised value) = .81 or 81%. You remembered that the LTV is calculated on the lower of the sales price or the appraised value. If the lender requires an 80% loan-to-value ratio, the lender would not make this loan.
A buyer is paying $200,000 for a house. He makes a $30,000 down payment, gets a first mortgage for $160,000, and a second mortgage to cover the balance. What is his CLTV? 80% 85% 90% 95%
85%
Private mortgage insurance (PMI) is required for FHA-insured loans. VA-guaranteed loans. 80% conventional loans. 90% conventional loans.
90% conventional loans.
Darlene is getting an FHA-insured loan to purchase a house. The purchase price is $278,000, and she's paying the minimum 3.5% down. She will have to pay an upfront mortgage insurance premium of $4,865, which will be financed as part of the loan. What is the loan-to-value on this loan? 93.50% 94.75% 96.50% 98.25%
96.50%
Which statement about a comparative market analysis is TRUE? A CMA can assist a buyer in determining a fair price to offer for a home. A CMA is most similar to the income approach to appraisal. A CMA may be used to determine property value for a federally regulated loan. A CMA should evaluate only currently listed competing properties.
A CMA can assist a buyer in determining a fair price to offer for a home.
Generally, what is the use for a competitive market analysis as compared to an appraisal? A CMA is used for marketing; an appraisal is a formal estimate of market value. A CMA is used for home improvement loans; an appraisal is a market analysis for primary financing. A CMA is used for valuing vacant land; an appraisal is a market analysis for land with improvements. They are identical.
A CMA is used for marketing; an appraisal is a formal estimate of market value. Appraisals are used to estimate actual value, usually at the request of a lender. A competitive market analysis is a marketing tool used to help set a listing price.
Which statement about a comparative market analysis is FALSE? A CMA assists the buyer in determining a fair price to offer for a home. A CMA helps the seller decide on an appropriate list price for the home. A CMA may be given to a client, prospective client, or customer. A CMA should evaluate only currently listed competing properties.
A CMA should evaluate only currently listed competing properties. A CMA can include currently listed competing properties, recently sold properties, and recently expired listings. It is administrative in nature and can benefit a buyer or a seller.
What is an advantage of a VA loan? An appraisal is not required. A down payment is not required. Interest rates are at least 1/2% lower than on a conventional loan. PMI is required only for loans exceeding 95% LTV.
A down payment is not required.
Which statements about the loan process are TRUE? Select all correct responses. Choose all that apply. A lender will NOT process a loan application unless there's a contract in place on a specific property. A prospective borrower must pay a loan origination fee when submitting a loan application. A seller may be more likely to accept an offer from a buyer who has a pre-approval letter from a lender.
A lender will NOT process a loan application unless there's a contract in place on a specific property. A seller may be more likely to accept an offer from a buyer who has a pre-approval letter from a lender. Some lenders might waive loan origination fees in order to be competitive with other lenders. The other two statements are true: As Lin indicated, there must be an accepted offer on a specific property before a lender will process a loan. When a buyer is pre-approved, the financing should not hold up the transaction, and the sale might close more quickly.
Who would NOT be considered a member of a protected class under the Equal Credit Opportunity Act when applying for a mortgage loan? Amy and John, who have four children Joseph, who is African-American Tabitha, whose primary source of income is public assistance Usama, who is a 69-year-old Muslim
Amy and John, who have four children
Which is TRUE regarding a standard 203(b) FHA loan? An FHA appraisal is required. The maximum loan term is 20 years. No down payment is required. Secondary financing from an institutional lender may be used for the down payment.
An FHA appraisal is required. FHA loans require an appraisal by an appraiser who has met the educational and certification requirements for inclusion on the FHA's roster of approved appraisers. Secondary financing provided by a close family member is allowed, but secondary financing from an institutional lender is not allowed. A minimum 3.5% down payment is required.
What are the qualifications to perform an appraisal for an FHA-insured loan? Select all correct responses. An appraiser must meet the value indicated in the sales contract. An appraiser must be on the FHA's approved list. An appraiser must be state-certified. An appraiser must be state-licensed.
An appraiser must be on the FHA's approved list. An appraiser must be state-certified Appraisers for FHA-insured loans must be state-certified and on the approved list. It is unethical for any appraiser to take an assignment contingent upon the reporting of a predetermined value.
A property owner expects property values to drop if the waste water treatment plant is built nearby.
Anticipation Expecting a change in value is anticipation; an over-improvement whose price cannot be recaptured is contribution; a buyer willing to settle for a similar house is substitution; a small house with greater value because of the highly desirable large houses around it is progression.
Which statement about VA-guaranteed loans is FALSE? Applicants must have a service-connected disability to qualify. Loan approval can be made only for veterans with an honorable discharge. The loan proceeds must be used for the purchase of an owner-occupied residential property. The veteran must have a Certificate of Eligibility.
Applicants must have a service-connected disability to qualify.
Ben is applying for a loan. Of the following, which will the lender consider MOST important when evaluating the loan's risk? the sales price of other homes in the area the property's appraised value the loan's interest rate Ben's income and financial stability
Ben's income and financial stability
Monitors how financial institutions meet local credit needs
CRA
Which document is NOT required by RESPA to be given to consumers within three business days of a loan application? Closing Disclosure Loan Estimate Mortgage Servicing Disclosure Statement Your Home Loan Toolkit
Closing Disclosure The Closing Disclosure must be made available three business days prior to closing. The other documents must be given to consumers within three business days of a completed loan application.
A property owner spends $25,000 to put in a new in-ground pool, but finds the market value increases only by $10,000.
Contribution Expecting a change in value is anticipation; an over-improvement whose price cannot be recaptured is contribution; a buyer willing to settle for a similar house is substitution; a small house with greater value because of the highly desirable large houses around it is progression.
A new house in a growing subdivision
Cost approach Cost approach is best for a new house in a growing suburb.
Of these transactions, which would NOT fall under the provisions of RESPA? April is buying a condominium in a 20-unit building. Brad is buying a three-unit apartment building as an investment. Carla is buying a house she might turn into a bed and breakfast. Dick is buying an old barn to turn into a car wash.
Dick is buying an old barn to turn into a car wash.
Prohibits discrimination in lending
ECOA
Which statements about FHA-insured loans are TRUE? Select all correct responses. Choose all that apply. FHA defines income limits to determine who is eligible. FHA loans are targeted to low-income borrowers. FHA loans require a smaller down payment than conventional loans. FHA provides funds directly to borrowers. Only first-time homebuyers can qualify for an FHA loan.
FHA loans require a smaller down payment than conventional loans.
(T/F) A professional appraisal reflects the actual value of the subject property.
False
(T/F) If a buyer tells you he has been pre-approved for a loan, you can move forward with confidence that the loan will close.
False
(T/F) Su, a 49-year-old Asian woman, is turned down for a mortgage loan because her credit score is very low and she is still going through bankruptcy reorganization. The lender is in violation of the Equal Credit Opportunity Act because Su is a member of a protected class.
False
(T/F) The market value of a parcel of property is always equal to the selling price.
False
(T/F) A house is violating conformity, and so its value is less than it might be in a more suitable neighborhood. This is an example of progression.
False A "superior" property that is worth less because it does not conform is an example of regression. An "inferior" property that is worth more in a neighborhood to which it does not conform would be an example of progression.
(T/F) A point is equal to 1% of the sales price of the property.
False A point is 1% of the loan amount, which is generally the sales price minus any down payment. Next, let's hear from Sam Martin as he illustrates the use of discount points.
(T/F) A real estate licensee might use the front- and back-end qualifying ratios to pre-approve a buyer client.
False Earlier you learned about the difference between pre-qualifying and pre-approving. A licensee cannot pre-approve someone for a loan, but they would certainly want to know whether their buyer is a viable purchaser and might, therefore, want to walk through these ratios before showing houses.
(T/F) Whenever a developer assembles multiple parcels into a larger parcel, the overall value of the property increases.
False Assemblage does not always result in plottage. Nor does subdivision always result in a collective increase in value, though usually, that's the goal. Now let's review.
(T/F) A borrower who has a prior bankruptcy would NOT be able to get a mortgage loan.
False A bankruptcy does eventually come off a borrower's credit report, so once it's discharged, it should not be a factor in applying for a loan. Actually, some lenders may be willing to make loans to borrowers who still have a bankruptcy on their credit report under certain circumstances.
A comparative market analysis is an appraisal of the property that the seller uses to arrive at an appropriate asking price.
False A comparative market analysis is NEVER an appraisal, and licensees should take care not to use that specific terminology.
(T/F) Generally speaking, the purpose of an appraisal in a sales transaction is to arrive at the selling price.
False An appraisal provides an opinion of market value, in other words, what the property should sell for in the marketplace. Price, cost, and value are very different things, as we'll see next.
(T/F) Once the analysis of data is complete, the appraiser considers the three appraisal approaches and averages the estimates of value to arrive at a final opinion.
False An appraiser must use their skill and expertise to reconcile the data, and should NEVER average it. Sam will discuss this critical point next.
A borrower's right to bring the balance of the loan current before a foreclosure action is filed is known as redemption.
False This is actually the right of reinstatement, not the right of redemption.
A four-unit apartment being purchased by an investor
Income approach Income approach is best for a four-unit apartment being purchased by an investor.
An advertisement for a house includes only the following phrase about financing: "Assume the owner's original loan with only a $1,000 down payment!" What is wrong with this advertisement? It doesn't also include the loan's annual percentage rate and other financing terms. It doesn't also include the loan's original balance. It doesn't give the brokerage firm's name as licensed. Nothing, so long as it is the real estate licensee's own property.
It doesn't also include the loan's annual percentage rate and other financing terms.
Each of these borrowers is getting a conventional loan. Who will NOT be required to pay PMI? Kevin, who is borrowing $85,000 to purchase a house for $100,000 Lori, who is borrowing $150,000 to purchase a house for $200,000 Maurice, who is borrowing $205,000 to purchase a house for $250,000 None of them; PMI is only for FHA-insured loans.
Lori, who is borrowing $150,000 to purchase a house for $200,000 Private mortgage insurance (PMI) is required on conventional loans that have a loan-to-value in excess of 80%. Lori's loan-to-value is 75% ($150,000 / $200,000 = .75 or 75%), so she will not have to pay PMI. Kevin and Maurice have LTVs above 80%.
Which of the following statements about prepayment penalties is TRUE? Both the FHA and VA loan programs impose prepayment penalties. FHA loans include prepayment penalties, but VA loans do not. VA loans include prepayment penalties, but FHA loans do not. Neither the FHA nor VA loan programs allow prepayment penalties.
Neither the FHA nor VA loan programs allow prepayment penalties. Prepayment penalties are prohibited in FHA-insured and VA-guaranteed loans.
(Y/N) Chris makes an offer of $180,000 on a house. He has $36,000 to put down. He uses an online mortgage calculator to find that a 30-year conventional loan for $144,000 at 5.25% would make the monthly principal and interest (P&I) about $795. If Chis has a stable monthly income of $2,850 and no debts, would he likely qualify for that loan using the front-end ratio?
No
(Y/N) Joe takes out an 80% conventional loan, and also gets a 10% home equity line of credit at the same time, for a combined loan-to-value of 90%. Will Joe be required to purchase private mortgage insurance?
No Only the loan-to-value ratio of the first mortgage is considered for PMI, so a borrower with a higher CLTV would not have to pay PMI if the LTV is 80% or less.
A buyer is unfamiliar with the concept of discount points and asks a licensee to explain. The licensee responds, "Discount points are used to replace funds that are being held by the Federal Reserve so that more funds are available to lend." Is this description correct? No, discount points are used to increase the yield for lenders who will sell the loans on the secondary market. No, discount points are used to pay brokers' commissions. Yes, banks hold discount points in escrow until sufficient funds have been accumulated to make more loans. Yes, discount points lower interest rates, making loans more affordable for everyone.
No, discount points are used to increase the yield for lenders who will sell the loans on the secondary market.
Which statement about pre-approval of a buyer is TRUE? Pre-approval can improve a buyer's negotiating position. Pre-approval is not binding on the lender. Pre-approval may be performed by a real estate licensee. Pre-approval must be performed before showing any properties.
Pre-approval can improve a buyer's negotiating position.
What is an important distinction between pre-qualification and pre-approval? Pre-qualification always requires an application fee. Pre-qualification of a buyer is not binding on the lender. Pre-qualification of a buyer is not useful to a real estate licensee. Pre-qualification requires the lender to pull a credit report.
Pre-qualification of a buyer is not binding on the lender.
A 1,200 sq. ft. house on a street of highly desirable 3,000 sq. ft. homes will be more valuable than it would be on a street of similar 1,200 sq. ft. homes.
Progression Expecting a change in value is anticipation; an over-improvement whose price cannot be recaptured is contribution; a buyer willing to settle for a similar house is substitution; a small house with greater value because of the highly desirable large houses around it is progression.
Requires disclosure of the estimated closing costs
RESPA
A condominium in a community with high turnover
Sales comparison approach Sales comparison approach is best for a condo in a community with high turnover.
A buyer can't afford the house in Goddard Farms subdivision, but finds a nearly identical model in Westland subdivision for $30,000 less.
Substitution Expecting a change in value is anticipation; an over-improvement whose price cannot be recaptured is contribution; a buyer willing to settle for a similar house is substitution; a small house with greater value because of the highly desirable large houses around it is progression.
Requires disclosure of the annual percentage rate
TILA
Of these, which do you think would LEAST LIKELY qualify as financial hardship for a homeowner seeking a short sale? The homeowner experiences a catastrophic illness. The homeowner expects to be laid off from his job. The homeowners get a divorce. The new interest rate on an ARM makes the mortgage payment impossible.
The homeowner expects to be laid off from his job.
What is the first step necessary to kick off a judicial foreclosure proceeding? The judge issues a summary judgment. The lender exercises the power of sale clause. The lender files a foreclosure action. The lender files a notice of foreclosure.
The lender files a notice of foreclosure. The first thing that must happen is that the lender files a notice of foreclosure in the county in which the property is located. That notice must be served on the borrower before the foreclosure clock starts ticking.
In which of the following cases would you MOST LIKELY expect to see market price equal to market value? The parties to the sale were related. The sale was a foreclosure. The sale was made with an anticipation of a change in zoning. The sale was an arm's-length transaction.
The sale was an arm's-length transaction. A typical transaction, also called an arm's-length transaction, means that the transaction occurred under typical conditions in the marketplace where each of the parties were acting in their own best interests. When that happens, market price and market value should be generally equal.
(T/F) A homeowner spends $50,000 for kitchen cabinets in a neighborhood where the high-end value of homes is $175,000. This is an example of negative contribution.
True
(T/F) Cathy is applying for a loan to purchase a condominium. The monthly condo association fees would be included as part of the PITI.
True
(T/F) Let's revisit Deb, who is paying two discount points to lower her interest rate. The points that Deb pays will be accounted for in the annual percentage rate.
True
(T/F) The APR on a loan is typically going to be higher than the interest rate.
True
(T/F) The immobility of land hurts its value in a bad market.
True
It is the seller who decides how to price their property when listing it for sale.
True
To determine a property's market position, you must evaluate how many similar properties are for sale in the same neighborhood and for a similar price.
True
(T/F) A borrower with a high credit score is less likely to default on a mortgage loan than a borrower with a lower credit score.
True The higher the credit score, the better credit risk a borrower is; the lower the score, the higher the risk of default. Let's hear again from Lin as she discusses this critical element.
(T/F) If a house sits on a widened street and is surrounded by commercial buildings, that land would be more valuable if it were put to a commercial use.
True This is the very essence of the concept of highest and best use. Land achieves its greatest value when it is put to its maximally productive use. Sam Martin will discuss this important task in the appraisal process next.
What is the methodology that dictates the standards, rules and guidelines that licensed appraisers must follow when completing an appraisal report? URAL URAR USPAP USRAR
USPAP
Will and Gwen are getting a divorce and need to sell their house. Ursula is considering purchasing the home. Her agent, Betty, just finished a competitive market analysis on the home. Who is the most likely audience for Betty's value estimation? Gwen's accountant Ursula Ursula's lender Will's attorney YOU ANSWERED CO
Ursula
Abe's stable monthly income is $3,500. Every month he pays: $250 car payment, $100 student loan payment, and $50 gym membership. What is the maximum monthly mortgage payment he would qualify for on a conventional loan (assume a payment-to-income ratio of 28% and a debt-to-income ratio of 36%)? $1,260 $980 $910 $860
Using the payment-to-income ratio, we get $980. But using the debt-to-income ratio, we find: $3,500 (income) multiplied by 0.36, which equals $1,260. From that, you subtract monthly debts ($250 + $100) which total $350 (the gym membership is not considered a debt since it can be cancelled). So, this leaves $910.
Will and Gwen are getting a divorce and need to sell their house. Ursula is considering purchasing the home. Listing agent Bill just finished a comparative market analysis on the home. Who is the most likely audience for his value estimation? Gwen's divorce attorney Ursula Ursula's lender Will and Gwen
Will and Gwen Listing agent Bill's value estimation is really only for his clients, Will and Gwen. Other parties to this transaction might need a formal appraisal performed by a licensed appraiser.
(Y/N) The lender is willing to lend $129,200 on the sale price of $161,500. The prospective buyer has $34,000 to make a down payment. Is that enough to buy this house?
Yes
(Y/N) Let's say your CMA indicates that a reasonable asking price for Carrie's property is $160,000, and you're sure that her house will not sell for $175,000. Are you obligated to list for $175,000 if that's what she wants?
Yes The list price is always the decision of the seller. Your duty of obedience means that you would have to defend your client's pricing decision. Sam will wrap up this topic with another example and share some test-taking advice, and then it's time for the terminology review.
What type of loan considers residual income in addition to total debt service ratio when qualifying borrowers? a conventional loan a Fannie Mae conforming loan an FHA-insured loan a VA-guaranteed loan
a VA-guaranteed loan A VA-guaranteed loan looks at total debt service ratio as well as an additional qualifying component based on residual income.
ABC Mortgage is seeking a deficiency judgment against a borrower. The most likely reason is because the property has lost value in the local market. the borrower failed to pay the second part of his annual property taxes. the borrower was late making his mortgage payment. a foreclosure sale produced insufficient funds to satisfy the unpaid debt.
a foreclosure sale produced insufficient funds to satisfy the unpaid debt.
A BPO is most often request by who? an appraiser a buyer a lender a seller
a lender Though similar to a comparative market analysis used to determine an appropriate listing price, a broker price opinion is more often requested by a lender for real estate owned property that may be sold at a foreclosure sale. Remember that a real estate licensee cannot perform an appraisal on any federally regulated transaction. That requires a licensed or certified appraiser.
Which of the following loans would be subject to the Truth in Lending Act? a loan to a first-time home buyer a loan to a homeowners association a loan to a residential subdivision developer a loan to buy a 20-unit apartment complex
a loan to a first-time home buyer
A home buyer can seek an FHA-insured loan from which of the following? Fannie Mae FHA a qualified Federal Housing Administration lender (such as a bank) Federal Home Loan Mortgage Corporation
a qualified Federal Housing Administration lender (such as a bank)
Mike is appraising a property for a lender. Which of the following will he consider when conducting the appraisal? the cost to update the subject property the original price paid for the property the average value of all available comparables a reconciliation of values if more than one appraisal method has been used
a reconciliation of values if more than one appraisal method has been used
Which property would NOT be subject to the disclosure requirements of the RESPA? a condominium unit in a high-rise building a farmhouse on a 10-acre lot a four-unit apartment building a single-family home bought for cash
a single-family home bought for cash
Which of the following persons could be eligible to receive a VA-guaranteed loan? a veteran or a deceased veteran's children a veteran or a deceased veteran's children or unremarried spouse a veteran or a deceased veteran's unremarried surviving spouse only a veteran themself
a veteran or a deceased veteran's unremarried surviving spouse A veteran's surviving spouse may be eligible for a VA loan if they have not remarried, and the veteran was killed in action or died of service-related injuries.
A mortgage must include a power of sale clause in order to be foreclosed by advertisement (nonjudicial foreclosure). judicial foreclosure. a writ of satisfaction. lis pendens.
advertisement (nonjudicial foreclosure).
Which principle of value is primarily evidenced in the income approach to value? anticipation conformity contribution substitution
anticipation
Farmer Joe wants to know the value of his property before approaching a developer about subdividing it, so he hires Becca, a fee appraiser. When do Joe and Becca settle on the fee she will charge for the appraisal? before she starts working on the appraisal after she develops an opinion of value after Joe approves her appraisal report if the developer's offer is acceptable to Joe
before she starts working on the appraisal
When is the appraiser's fee determined? after the appraisal report is completed before undertaking the appraisal when the client approves the final estimate of value at any time before the report is completed
before undertaking the appraisal The fee is determined before starting the appraisal.
The lender usually does not allow the source of a borrower's down payment to be borrowed funds. a gift from a relative. proceeds from the sale of a house. savings.
borrowed funds.
Income, net worth, and credit history are all factors involved in determining the buyer's qualifications. seller's qualifications. sale price for a property. loan-to-value ratio.
buyer's qualifications.
Debts that are considered as part of a borrower's obligations when qualifying for a loan include car payments. life insurance premiums. membership fees. utility payments.
car payments.
When performing a CMA, which properties should a licensee evaluate? Select all correct responses. Choose all that apply. closed transactions current listings expired listings pending sales
closed transactions current listings expired listings pending sales Each of these properties—if similar in size, style, and neighborhood—could be considered when performing a comparative market analysis.
In which step of the appraisal process would you determine highest and best use? apply the approaches of value collect data/analyze data define the problem reconcile the final estimate of value
collect data/analyze data
A nice, well-kept house located in the heart of an all-residential area, surrounded by other well-kept houses of similar style and value is an example of conformity. contribution. regression. substitution.
conformity.
Harvey owns a large home in a nice neighborhood. His house, impeccably maintained, is at the upper limit of its value. After he retired, Harvey spent $28,000 building a new deck and greenhouse on the back of his property. Although he enjoyed the new features, they did not add anything to the value of his home. This is an example of the principle of conformity. contribution. regression. substitution.
contribution. In this case, the deck and greenhouse didn't add any value, so this is an example of the principle of contribution, which states that a specific feature added to a home is only worth what it actually contributes in value to a piece of property.
Monica has been preapproved for a loan of up to $250,000 to buy her first house. She has good credit and plans to make a down payment of at least 20%. Which type of loan is she MOST LIKELY to use? blanket mortgage conventional loan swing loan wraparound mortgage
conventional loan
Which of these concepts could be an "estimate" or a "fact"? cost price value
cost
A bank notifies a homeowner that she is delinquent on her mortgage and threatens foreclosure. The homeowner offers to give the property to the bank if the bank will NOT file the foreclosure suit against her. This is known as deed in lieu of foreclosure. deed of trust. deficiency judgment. quitclaim deed.
deed in lieu of foreclosure.
The first step of the appraisal process is to collect data. define the appraisal. define the data sources. determine highest and best use.
define the appraisal.
Agent Kelly is helping her sellers decide on a proper listing price for their property. The agent might do all of the following, EXCEPT perform a comparative market analysis. encourage the seller to get an independent appraisal. examine the home's square footage and improvements. determine the amount of private mortgage insurance that will be necessary.
determine the amount of private mortgage insurance that will be necessary.
The primary purpose of the Truth in Lending Act (Regulation Z) is to require the lender to provide the borrower with a statement showing its aggregate interest charge for similar properties in today's marketplace. include in any advertisement about available financing the annual percentage rate, plus the applicable finance charges. disclose the complete cost of credit to consumer loan applicants. reveal the true cost of all real estate loans, except purchase money loans.
disclose the complete cost of credit to consumer loan applicants.
Jacob defaults on his mortgage but has the right to redeem the property before the foreclosure sale. Jacob has a(n) default redemption. owner's right of redemption. statutory right of redemption. equitable right of redemption.
equitable right of redemption.
Every month, borrower Steve pays an additional $385 to his lender to cover the costs of his property taxes and homeowners insurance. The bank maintains these funds in a(n) beneficiary account. escrow account. promissory account. trustee account.
escrow account.
An appraiser is hired to do which of the following? advise the property owner on the suitability of offers made on the property determine market value estimate market value determine the price of the property
estimate market value
Which of the following most accurately describes an appraisal? determination of value statement of value estimate of value unilateral contract
estimate of value
Which CANNOT define a neighborhood's boundaries? physical boundaries ethnicity of residents income level of residents upkeep and maintenance
ethnicity of residents
A seller wanting to get an estimate of the value of their property before settling on a listing price should obtain a(n) abstract of title. assessment. fee appraisal. title search.
fee appraisal. An appraisal is an estimate of a property's value, as of a given date. A seller would obtain an appraisal from a fee appraiser, an independent appraiser hired to value a particular property for a fee.
Maggie's lender is allowing her to make reduced mortgage payments for three months, as long as she brings the loan current with nine months. This arrangement is known as a forbearance agreement. loan modification. mortgage assumption. repayment plan.
forbearance agreement.
Which is NOT an accepted appraisal approach? cost approach income approach highest and best use approach sales comparison approach
highest and best use approach Determining the highest and best use is something that should be considered in every appraisal approach; it is not a recognized appraisal approach in and of itself.
Which homes should a real estate licensee consider when performing a CMA? Select all correct answers. homes currently listed for sale in the market homes that have sold recently in the market and area where the subject is located homes where the listing agreements have expired homes that were taken off the market
homes currently listed for sale in the market homes that have sold recently in the market and area where the subject is located homes where the listing agreements have expired homes that were taken off the market
If you use this calculation when evaluating income—PITI / Gross Monthly Income—you have just determined what? housing expense ratio loan-to-value net income total debt-to-income
housing expense ratio
Considering the highest and best use of land is important in every appraisal. only when the site is vacant. only in the analysis of developed property. only when land is ready for rezoning.
in every appraisal.
Benito purchases a small commercial property, and he finances it with a 65% loan. The lender charges 9.25% annual interest and three discount points. The discount points increase the mortgage payments. decrease the annual percentage rate. increase the lender's upfront yield. increase the nominal interest rate.
increase the lender's upfront yield.
In a lien theory state, what foreclosure process generally must be followed? actual foreclosure judicial foreclosure nonjudicial foreclosure strict foreclosure
judicial foreclosure
Of the following factors, which one is the most significant in influencing value? annual property tax bill building materials location style of building
location
The principle of highest and best use states that a property's value cannot exceed the value of equivalent substitute properties available in the market. market value is determined according to the most profitable use of the property. the value of a component, regardless of cost, is equal to the value it adds to the property as a whole. value is affected by expectations of buyers regarding future benefits to be gained.
market value is determined according to the most profitable use of the property.
A gift letter can come from a borrower's parent or guardian only. cannot be used for part of the down payment. must be signed by the donor. must state when the gift is to be repaid
must be signed by the donor. While a gift may be accepted for a borrower's down payment, there must be a gift letter—signed by the donor—stating the gift does not have to be repaid.
The principle of substitution says that an informed buyer would pay ________ for the property than what the buyer would pay to obtain a similar one with the same benefits and utility. considerably less less more no more
no more
Credit scoring refers to the dollar amount of the loan a lender is willing to make to the borrower. the lender's decision to approve the loan application. numerical values the lender assigns to qualify the borrower. the review of a loan application by the underwriting department.
numerical values the lender assigns to qualify the borrower.
You think a house should list for $220,000, but your clients insist that they need $249,000. If you decide to take the listing anyway, which of these fiduciary duties requires you to list at $249,000? accountability disclosure obedience reasonable care
obedience
When qualifying for a conventional mortgage loan, which would be LEAST LIKELY to count as allowable income? annual bonuses occasional overtime retirement income salary
occasional overtime
What type of clause allows the lender to sell the property to pay the debt the borrower owes without going through the courts? alienation clause defeasance clause power of sale clause subordination clause
power of sale clause
A property's market value could be described as the present worth of future benefits. ad valorem value. price paid by a purchaser. price accepted by the seller.
present worth of future benefits. A concise definition of market value is "the present worth of future benefits." More commonly, it's the probable price a property should bring in a competitive and open market. The price paid and the price accepted is considered the property's market value only if the sale took place under normal conditions, an arm's length transaction, in other words. For instance, if the buyers were not acting prudently and knowledgeably, the price they paid may be higher than the true market value.
The amount that one particular person paid for property is its cost. market value. price. value.
price.
Marcy is behind on her mortgage loan payments, and she wants to sell her home as a short sale. In order for Marcy's lender to consider a short sale, she must have a good credit score. have some equity in the home. hire an agent to negotiate the deal with the lender. prove financial hardship.
prove financial hardship.
In the event of a default, which debt is normally paid first from the proceeds of the foreclosure sale? deficiency judgment first recorded lien mechanic's lien real estate taxes and associated costs of sale
real estate taxes and associated costs of sale
Appraiser Alan developed all three approaches to value. What is Alan's next step in the appraisal process? analyze the data determine highest and best use prepare the appraisal report reconcile the approaches
reconcile the approaches After developing the approaches to value, the next step is reconciliation, where the appraiser analyzes the values derived from the different appraisal approaches to find a final value opinion.
When a mortgagor regains property after foreclosure by paying whatever the foreclosure sale purchaser paid for the property, plus interest and expenses, it is called recapture. redemption. reversion. replevin.
redemption.
The three appraisal approaches were briefly described earlier. Based on what you know about CMAs so far, which formal appraisal approach do you think it most resembles? cost approach income approach sales comparison approach It has elements of all three.
sales comparison approach The tasks and analysis that a real estate licensee performs to do a CMA are very similar to those an appraiser performs when doing an appraisal using the sales comparison approach. Sam Martin will provide an overview of the CMA next.
One of the economic characteristics of real estate is immobility, location. scarcity. topography.
scarcity.
A lender agrees that a seller who owes $400,000 on a mortgage that is in default may list the property at $350,000, which is the current market value of the property. This type of transaction is known as a deed in lieu. foreclosure. loan workout. short sale.
short sale.
Of the following, which would have the greatest effect on the supply of real estate in a particular market? demographic change employment rates local amenities size of labor force
size of labor force
What factor is given the LEAST consideration when evaluating a mortgage loan application? amount of income credit history debt source of income
source of income
To perform an appraisal for the purpose of securing a mortgage from a federally-regulated lender, the appraiser must be employed by the federal government. employed by the lender. an independent general appraiser. state-certified or state-licensed.
state-certified or state-licensed.
Sheila lives in a state where she can pay the debt after a foreclosure sale and regain the property. What is her right called? statutory right of redemption title redemption debt redemption equitable right of redemption
statutory right of redemption
Tom and Margo find their dream house, which includes the stainless steel appliances they wanted, but it's priced high. They decide to buy a house two blocks away with nearly identical features, minus the appliances, for $20,000 less. They figure they can replace the appliances later if they choose and still come out ahead financially. What theory is at work? conformity contribution regression substitution
substitution
Which principle of valuation is best represented by the previous discussion on the buyer's options? anticipation conformity regression substitution
substitution Substitution says that an informed buyer will not pay more for a home than a comparable substitute. Although each home is said to be unique, there's a price point beyond which a buyer won't select a particular home.
Which principle of value is the underlying foundation for all three of the appraisal approaches? anticipation conformity contribution substitution
substitution While all of the value principles must be considered, the principle of substitution is the foundation of all three approaches. You will see the concept of substitution at work in the following units as we look at each appraisal approach.
Market price is equal to market value. the amount, in dollars, actually paid for the property. the amount, in dollars, asked for by the seller. the amount, in dollars, that a property should bring on the open market.
the amount, in dollars, actually paid for the property. Market price is what the property actually sold for, and it is highly likely this is different from the asking price (the price the seller asked for the property when it was first put on the market) or the offering price (the price the buyer first proposed to buy the property for).
Private mortgage insurance is NOT required on a conventional loan when a buyer makes less than a 20% down payment on a loan. interest rates are high. interest rates are low. the loan has been paid down to 78% or less of the property's current value.
the loan has been paid down to 78% or less of the property's current value.
The market price of a property would be best defined as the amount paid to obtain the property. the initial basis, plus capital improvements and minus depreciation. the price that the property would likely bring in a sale under normal circumstances. the value of the property to a particular owner.
the price that the property would likely bring in a sale under normal circumstances.
Each of these is a physical characteristic that may affect real estate values EXCEPT immobility. indestructibility. transferability. uniqueness.
transferability. Physical characteristics include land's immobility, uniqueness, and indestructibility. Transferability is a value characteristic associated with real estate. The other value characteristics are demand, utility, and scarcity. Remember D-U-S-T.
Before a loan can be approved, it must go through a process that is used to determine the desirability and risk to the lender. This process is known as processing. qualification. underwriting. evaluation.
underwriting.
A physical characteristic of real estate includes its scarcity. uniqueness. transferability. mobility.
uniqueness.
When determining a listing price, the value of an improvement is equal to the amount the owner adds to the selling price of the home when the improvement is made. what it actually contributes in value to that piece of real estate. only what the owner spent on the materials necessary to make the improvement. what it actually cost to make the improvement in both materials and labor.
what it actually contributes in value to that piece of real estate.
