Real Estate Finance Section 10

How do you calculate LTV?

(Amount financed / property value) x 100

What is the formula for calculating the total housing ratio?

(Monthly housing expenses ÷ gross monthly income) × 100

How do you calculate total debt ratio?

(Total of monthly debt obligations / monthly gross income) x 100

How do you calculate the housing ratio?

([Principal + interest + taxes + insurance + association fees] / monthly gross income) x 100

Suit to quiet title

A court action intended to establish or settle the title to a particular property, especially when there is a cloud on the title.

Chain of Title

A history of the ownership affecting title to a parcel of land.

Functional Obsolescence

A loss in value due to conditions within the structure which make the building outdated when compared with a new building. (4 bedrooms and 1 bath, insulation, narrow stairway, etc.)

Gross Rent Multiplier

A number that is multiplied by a property's gross rent to produce an estimate of the property's worth or sales price divided by monthly rental income

What's included in a total debt ratio (a.k.a., debt-to-income ratio, total obligation, back-end ratio)?

All recurring (or installment) debt that will last longer than 10 months, such as monthly mortgage, car, credit, and loan payments

What's a loan-to-value (LTV) ratio?

Amount being borrowed compared to the value of a property (either the appraised value or sales price, whichever is less)

Torrens system

An optional alternative title search, used in only a handful of states, that only goes back to the previous title search, assuming that the last search was done appropriately

Cloud on Title

Any document, claim, unreleased lien, or encumbrance that may impair the title to real property or make the title doubtful; usually revealed by a title search and removed by either a quitclaim deed or suit to quiet title.

Principle of Conformity

Appraisal theory that affirms that the maximum value is realized if the use of land conforms to existing neighborhood standards.

What's a loan origination fee?

Fees charged by a lender for processing or originating a loan

Appraiser John is determining how a property is being used to determine a more optimal function. What is he determining?

Highest and best use

what additional documents may a self-employed individual need to provide when obtaining a loan?

IRS Form 4506-T Profit-and-loss statement Tax returns

Schedule B-2

Identifies exceptions to title insurance coverage

Principle of Competition

Increased competition results in decreased profits for current providers

What is the purpose of request for Verification of Deposit?

It allows the lender to verify the cash deposits listed on the applicant's loan application.

Schedule B-1

Lists required actions to take before the title policy will be issued

How do you calculate a loan origination fee?

Loan amount x origination rate (divide a percentage by 100 to obtain the rate, so an origination fee of 2% is the same as 0.02)

External Obsolescence

Losses of property value caused by forces or conditions beyond the borders of the property. The losses are deducted from a building's reproduction cost in the cost approach to estimating market value.

Marketable title

Means that the property's title is free and clear of liens and only subject to loan payoff and any taxes owed

What's included in the housing ratio (a.k.a., front-end ratio)?

Monthly housing obligation, (principal, interest, taxes, insurance), homeowners or condo association fees

Valuation

Process of forming an opinion of a property's value

Evidence of title

Proof of ownership of property; commonly a certificate of title, an abstract of title with lawyer's opinion, title insurance, or a Torrens registration certificate.

Loan Transfer Disclosure

Provides details if the loan were sold to another servicer

Closing Disclosure

Provides final loan terms and a breakdown of the closing costs for both the buyer and the seller

Loan Estimate

Provides information about the loan's features, costs, and risks so the borrower can understand the affordability of the loan and make an educated decision about whether to obtain that loan from the lender

Schedule A

Provides information related to the transaction, including legal description and parties

If a cloud on a title is discovered, which party is generally responsible for clearing the cloud?

Seller

Evaluation

Study of a property, potentially for land use or marketability

title search

The examination of public records relating to real estate to determine the current state of the ownership.

Cost Approach

The process of estimating the value of a property by adding to the estimated land value the appraiser's estimate of the reproduction or replacement cost of the building, less depreciation.

Sales Comparison Approach

The process of estimating the value of a property by examining and comparing actual sales of comparable properties.

Income Approach

The process of estimating the value of an income-producing property through capitalization of the annual net income expected to be produced by the property during its remaining useful life.

Capitalization Rate

The rate of return a property will produce on the owner's investment.

Principle of Contribution

The value of any component of property is determined by how much value the improvement contributes to the value of the whole property.

Tina is applying for a home loan. In order for child support payments she receives to be considered in the income evaluation by her lender, what must be true?

There must be a consistent track record of payment or the payments must be the result of a court order.

Janie's a lender at Super National Bank. She's working with the Downings to perform a title search. Why did she also request a property survey?

To identify any changes to the legal description of the property

What's the purpose of the appraiser independence requirements?

To protect parties, such as investors and homebuyers

Which of these is a reason a lender may require a survey of collateral property to be performed?

To uncover potential changes that may have occurred to the property over time

Appraisal

Unbiased estimate of value of a specific property on a specific date

What standards do appraisers follow?

Uniform Standards of Professional Appraisal Practice

Title Insurance

a type of insurance that protects the buyer if problems with the title are found later

comparative market analysis (CMA)

an unbiased estimate or opinion of the market value of real property by a real estate licensee who isn't a licensed or certified appraiser.

Abstract of title

btained from a title insurance company to provide evidence of title

broker's price opinion (BPO)

estimate or opinion of the market value of real property by a real estate licensee who isn't a licensed or certified appraiser that is usually ordered by a lender in a foreclosure situation

Physical Depreciation

loss in value resulting from wear and tear

Title Commitment

the commitment by a title insurance company, to provide that title insurance