Real Estate - Section 12
What information does Schedule B-1 of a title commitment provide?
Requirements that must met before a title policy will be issued
Protects the buyer from defects in the title
Title insurance
The principle of ____ says if you've got a winning business, you're going to eventually attract competition in the same market, which will drive down your profits.
competition
The principle of ____ means that you get max value when the improvements on a property keep it in the same ballpark as the properties surrounding it."
conformity
Total Debt Ratio
(Monthly debt payments / gross monthly income) x 100 After the ratio is calculated, the lender checks to make sure it's within the lender's threshold.
Sort the factors based on their importance to a credit score, from most important (first) to least (last)
1 - Payment History 2 - Credit Usage 3 - Age of Accounts 4 - Inquiries 5 - Types of Accounts
Although the credit reports from each of the major reporting agencies may vary, you can expect to find the same type of information. Which items can be found on our sample credit report?
Accounts in good standing Contact information for the credit reporting company Credit history inquiries Personal information Potentially negative items
Completing a residential loan application requires providing information about the loan being requested, the property being purchased, and the ________.
Borrower purchasing the property
Which party to the loan approval process is responsible for completing a loan application and supplying supporting documentation?
Buyer
the rate that other properties are returning for their investors for similar investments in the area.
Cap Rate (capitalization rate)
Which document is used to establish the path and proof of ownership?
Chain of title
Lenders use credit scores when determining whether to approve a loan application. What does the score tell the lender?
How likely the applicant is to repay the money that's been borrowed The most common credit score is the Fair, Isaac, and Company (FICO®) score.
When an individual is self-employed, proving income and finances to a lender may take a little extra effort than for other individuals who are not self-employed. 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
Some items on a credit report may be viewed negatively by a lender. Which items would you expect to find in this section of the report?
Loan with a past due balance Bankruptcies Liens Court judgments Accounts sent to collections
What factor carries the heaviest weight when calculating a credit score?
Payment history
In order for the spousal support Kayla receives to be considered in the lender's income evaluation when Kayla applies for a home loan, what must be true?
Payments must have been received for at least one year, and must be expected to continue for at least three more years.
What are the 3 types of depreciation?
Physical depreciation Functional obsolescence External obsolescence
Where can a party that's reviewing a title commitment find exceptions that aren't covered by the title insurance policy?
Schedule B-2
In order for earnings from a second or part-time job to be considered as part of a lender's income evaluation, what must be true?
The applicant must have been employed for at least two years, and the employment must be expected to continue.
From a lender's perspective, the lower the credit score, _______.
The higher the risk
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.
A search of public records to provide a title commitment or abstract of title
Title search
What is the purpose of the loan transfer disclosure?
To notify the borrower that the loan is being resold on the secondary market, and how and where to make future payments
The principle of _____ means that a part of a property is valued according to its contribution to the value of the whole and so you get max value when the improvements on a property produce the highest net return.
contribution
Which appraisal approach is likely the best choice for appraising a movie theater?
cost
Name the 3 appraisal approaches
cost approach sales comparison approach income approach
the difference between what a property might be worth now and what it will cost to rebuild
depreciation
Programs for which SC Housing offers an assistance
o Down payment assistance o Low interest rate loans o Mortgage assistance o Mortgage tax credits o Rental assistance + more!! (in notes!)
If a cloud on a title is discovered, which party is generally responsible for clearing the cloud?
seller
Credit scores range between ______.
300-850
The approach used most often for residential properties is approach C, otherwise known as the ________.
Sales comparison approach
One of the pieces of information the depository institution provides on the Request for Verification of Deposit form is the average balance for the applicant's accounts. What time period does this average cover?
Two months
the appropriate total housing ratio for a conventional loan.
28%
A closing disclosure must be provided at least __ days before closing.
3 business days
A loan estimate must be provided within ___ days of a loan application
3 business days
Which range of credit scores do most consumers fall into?
670 to 739
Obtained from a title insurance company to provide evidence of title
Abstract of title
How are account numbers displayed in a credit report?
Accounts numbers are truncated for security purposes.
Kelly is reviewing Steve's loan application. She wants to verify that he has a solid history of paying obligations on time. What should she request to do this?
Credit report
Proves ownership of the property
Evidence of title
What is the purpose of the Request for Verification of Deposit form?
It allows the lender to verify the cash deposits listed on the applicant's loan application.
Who completes the REQUEST part of the Verification of Employment form?
the Lender
Total housing ratio
(Monthly housing expenses / gross monthly income) x 100 After the ratio is calculated, the lender checks to make sure it's within the lender's threshold.
Title insurance is a common method for obtaining insurance of good title. Who is protected by title insurance?
- Borrower - Lender
the appropriate total debt ratio for a conventional loan.
36%
Which range of credit scores represents subprime borrowers?
580-669
What property information is provided in the loan application?
Address Estate type Legal description Names for title Year built
Several parties have a role in completing parts of the Request for Verification of Deposit form. Which of these parties are involved?
Applicant Lender Depository institution
What is an example of an inquiry a consumer initiated that may appear on a credit report?
Application for a loan
Payment history, age of accounts, inquiries, types of accounts, and _______ are factors considered in calculating a credit score.
Credit usage
type of depreciation that happens outside of the property, and can't be fixed. Maybe a runway was put in next door, or zoning changed and this impacts property value.
External obsolescence
Which party to the loan approval process is responsible for providing the Loan Estimate?
Lender
What type of borrower information does the loan application request?
Name Social Security number Current address Number and ages of dependents Marital status
Borrowers are also required to provide employment information. Let's assume a borrower works for a single employer and has worked for the employer for five years. What employment information must be provided?
Name and address of employer Years working in this job Years working in this profession/industry Position or title This is important to know because the lender may require additional documentation to verify the applicants' income. Lenders often require buyers to complete a verification of employment form, which gives their employer authorization to release information about the borrower, including wages.
The personal information section of Credit Report includes either information you reported to the credit reporting agency, or information your creditors or other sources reported to the agency. What information can you find in this section?
Name and name variations Year of birth Employers Spouse or co-applicant name Addresses
The difference between assets and liabilities
Net worth
The purpose of the loan is another piece of information the borrower must complete. If the loan is for construction, what five pieces of additional information must the borrower provide?
Original cost Existing lien amount Present value of lot Cost of improvements Year the lot was acquired
One of the final sections the borrower completes is Declarations. What does this section seek to uncover?
Outstanding judgments Previous bankruptcies or foreclosures Current delinquency or default on debt obligations Citizenship Intention to occupy the property as a primary residence Additionally, borrowers may provide information about their race, ethnicity, and sex, though this information is not required. In addition to the completed loan application, lenders may require supporting documentation or completed authorization forms to verify the information provided in the application.
When completing the Assets and Liabilities section of the application, what information should the borrower be prepared to provide?
Account number Cash value or unpaid balance Name and address of bank or company Monthly payment Additionally, the borrower should provide information requested about other assets (such as stocks, bonds, life insurance, automobiles, other real estate, etc.) and liabilities (such as alimony, child support, other expenses) as appropriate.
The sales comparison approach relies on ________.
Comparable properties
What is a marketable title?
Ensures the title to property is free and clear of liens and only subject to loan payoff and any taxes owed.
Normal wages are considered when a lender is evaluating an applicant's income. What must be true for overtime pay to be considered?
It must have been received regularly over the last two years.
Payment history, age of accounts, credit usage rate, inquiries, and _______ are factors considered in calculating a credit score.
Length of credit history
Means that the property's title is free and clear of liens and only subject to loan payoff and any taxes owed
Marketable title
What is a reason a lender may require a survey be performed?
To uncover potential changes that may have occurred to the property over time It's possible that over time, changes could have occurred. These might include improvements made to the property, zoning changes, encroachments, or changes to the lot size. The survey will help ensure the accuracy of a property's legal description.
A quitclaim deed does what?
Transfers without warranty any interest or title the grantor has when conveying it
Which of the following provides the lender with an accurate opinion of a property's market value?
Uniform Residential Appraisal Report
type of appraisal approach that forecasts the earning power of income-producing properties, such as one- to four-family residential properties, apartment buildings, and commercial properties.
income approach
The loan application is used to gather information needed to determine whether the applicant can repay the loan. What information is requested in the application?
o Assets and liabilities o Credit references o Employment history o Income sources
type of depreciation that occurs when the property is damaged or just from normal wear and tear.
physical depreciation
legal mechanisms that make it possible to grant a clear title to a single owner when there is the potential for several different claims to ownership
quiet titles
The ____ cost is the cost of rebuilding using today's building materials. For new construction, I can use reproduction costs, but for older I usually need to figure it based on replacement costs.
replacement
The ____ cost would be making an exact duplicate—which may not always be possible, especially in older properties.
reproduction
type of appraisal approach that compares a property to other similar properties that recently sold and is typically used with residential properties.
sales comparison approach
type of appraisal approach that estimates the cost of reproducing or replacing a property and is often used with unique properties such as historic buildings, or in instances when few comparables are available.
the cost approach
What factor carries the least weight when calculating a credit score?
type of accounts
Five factors are used to determine a FICO® credit score. What are they?
Age of accounts Credit usage Inquiries Payment history Types of accounts
Provides approximate loan-related costs, along with loan's terms
Loan Estimate
where lenders analyze their results and come up with a final estimate of value.
reconciliation
Charlie and Wendy's monthly expenses look like this: $400 credit card payment (it was a beautiful wedding and honeymoon!) and a $150 payment for a student loan that will be paid off in six months. They're anticipating a house payment close to $1,500. The couple's combined gross monthly income is $6,500. When calculating ratios, the lender doesn't consider any debt with 10 or fewer payments remaining. What's their current housing ratio?
23.1% $1,500/$6,500 x 100 = 23.07
type of depreciation that occurs if a property was designed poorly or the design is outdated—old wiring, plumbing, or maybe it was even overbuilt for the area and use.
Functional obsolescence
Provides details if the loan were sold to another servicer
Loan Transfer Disclosure
Why might self-employed individuals who want to obtain financing for a home purchase, choose not to write off valid expenses on their tax statements?
It increases demonstrated income.
The median credit score for consumers is 670-739. This is a good credit score, and these consumers are "acceptable" borrowers and only stand an 8% chance of falling into serious delinquency in the future. Consumers in the 800+ range are well above the average credit score and generally have an easy time getting approved for new credit. Consumers in the 740-799 also fall above the average credit score and tend to qualify for better interest rates than those in the "acceptable" category. Subprime borrowers have a credit score of 580-669. They may have some challenges getting a loan, and if they do qualify, it will likely be at a higher interest rate, given that they are a higher credit risk. Sixty-one percent of consumers with a credit score of 579 and lower are likely to become seriously delinquent. Because of this, they're unlikely to be approved for loans, any credit cards issued may include extra fees or require deposits, and utility companies may also require deposits from these consumers.
...
Income may come from a variety of sources, some viewed more favorably than others. What are sources of income a lender might consider?
Alimony Bonuses Child support Government entitlement funds Normal wages or earnings Pensions Bonuses and overtime will be considered if they've been received regularly. Earnings from a second job may also be considered if that employment has occurred for two years and is expected to continue. So, if an applicant picked up a seasonal job for a couple of months to help save some money to buy a new home, that income wouldn't be considered.
Let's walk through the loan application. What type of information does the application request?
Amortization type Amount Interest rate Length Mortgage type
Several parties have a role in completing parts of the Verification of Employment form. Which of these parties are involved?
Applicant Lender Applicant's Employer
Philomena and Barbara are the buyer and seller in a real estate transaction. By when must the closing disclosure be provided to them?
At least three days prior to closing
Several parties are involved in the loan approval process. Who are four of the major players in a typical financing arrangement?
Borrower Lender Settlement Agent Underwriter
Provides final loan terms and closing costs for the borrower
Closing Disclosure
What information does Schedule B-2 of a title commitment provide?
Conditions that must be cleared before the title can be exchanged
What is the purpose of the request for verification of employment?
It allows the lender to verify the employment listed on the applicant's loan application.
The Winchester Mystery House is a truly unique property. If it were appraised, would the appraiser use the sales comparison approach?
No, because there's nothing to compare it to.
In which section of a credit report may a lender expect to find a loan that the consumer is delinquent on?
Potentially negative items
Which of the following is an example of an inquiry initiated by a creditor (without the consumer's permission) that may appear on a credit report? Application for a mortgage loan Application for consumer credit Consumer review of credit report Pre-approved credit
Pre-approved credit
Current employers provide quite a bit of information to the lender in the Verification of Employment form. Which items are provided?
Probability of continued employment Gross base pay amount Overtime, bonuses, or commissions paid Likely continuance of bonus or overtime pay Information about last and next pay increase
What additional five pieces of information must the borrower provide in a loan application when requesting a refinance?
Reason for refinancing Original cost Existing lien amount Cost and description of improvements made or to be made Year the property was acquired
The Accounts in Good Standing section lists accounts that may be viewed favorably by a lender. These are generally accounts without any late payments or that have been paid off or closed. What type of accounts may be listed here?
Revolving and Installment
Where can a party reviewing a title commitment find requirements that must be met before a title insurance policy will be issued?
Schedule B-1
What is the purpose of the Uniform Residential Appraisal Report (URAR)?
To provide the lender with an accurate opinion of the property's market value
