AZK RE L-12 C-14 Financing 1

  1. To buy or to rent considerations (6)
    • 1) How long the person wants to leave in a particular area
    • 2) Person's financial situation
    • 3) Housing affordability
    • 4) Current mortgage interest rates 
    • 5) Tax consequences of owning versus renting property
    • 6) What might happen to home prices and tax laws in the future
  2. Automatic (computerized) underwriting system
    - used by ...
    - to ...
    • - used by Credit Reporting Companies
    • - to determine what a prospective buyer can afford
  3. Federal Government requires each Credit Reporting Companies to...
    - to make a free copy of the report available annually to every consumer from whom a report is available
  4. Consumer can request a free report every
    - 4 months from a different Credit Reporting Companies each time
  5. Credit Score
    • FICO
    •    - Fair Isaac & Company
    •    - developed software to create Credit Score
  6. Credit Score Range
    • Risk: <400
    • High: 400 - 620
    • Marginal: 620 - 660
    • Acceptable: 660 - 900
  7. PITI
    • - Basic costs of owning a home
    • Principal 
    • Interest 
    • Taxes
    • Insurance
  8. In at least 10% of the down payment borrower could expect total monthly housing expense allowed
    • PITI
    •    - no more than 28% of the gross monthly income
  9. In at least 10% of the down payment borrower could expect total monthly housing expense plus other (non-housing) debt expense
    • PITI + other (non-housing) debt expense
    •    - not to exceed 36% of the gross monthly income
  10. In at least 10% of the down payment borrower could expect other (non-housing) debt expense
    • - car payments, student loans, other mortgages
    • - not to exceed 8% of the gross monthly income
  11. in at least 10% of the down payment borrower could expect insurance premiums, utilities, routine medical care expense
    - to be covered by 64% of the gross monthly income
  12. Gross monthly Income: 5,000
    Required down payment 10%: can be made
    -----------
    PITI = ?
    PITI + other (non-housing) expense = ?
    • 5,000 x 28% = 1,400 - PITI
    • 5,000 x 36% = 1,800 - PITI + other (non-housing) expense
  13. Investment considerations (4)
    • 1) Property with increased value can be sold
    • 2) Equity
    • 3) Tax deductions (5)
    • 4) Part of the profit made on the sale of a principal residence is not taxed at all
  14. Equity
    - difference between the market value of the property and the amount still owned on it
  15. Tax deductions (5)
    • - home owners can deduct from gross income:
    •      1) Mortgage interest payments on first and second homes if mortgage balance for
    •           - single or married filing a joint below 1 million
    •           - married filing separately below 500,000
    •      2) Property Tax (RE taxes)
    •           - but not interest paid on overdue taxes
    •      3) Certain Loan Origination Fees
    •      4) Loan discount points
    •      5) Loan prepayment penalties
  16. Tax deduction on Mortgage interest payments
    • - home owners on first and second homes can deduct from gross income mortgage interest payments if mortgage balance for
    • - single or married filing a joint               
    •    - bellow $1 million
    • - married filing separately
    •    - bellow $500,000
  17. Other tax benefits (3)
    • 1) Married couple can be excluded from Capital Gains Tax
    •     - file a joint: up to 500,000 in profit
    •     - files singly: up to 250,000 in profit
    • 2) First time home buyer 
    •     - penalty-free withdrawal from IRA (limit is 10,000)
    •     - must be spend within 120 days
    • 3) Tax credit for part of the purchase price
  18. Tax deduction on RE taxes
    • - home owners can deduct from gross income RE taxes
    • - but not interest paid on overdue taxes
  19. Promissory Note
    - or
    • - or Note
    • - or Financing Instrument
    • - borrower's personal promise to repay a debt according to the agreed terms
    • - contract between burrower (maker or payor) and lender (payee)
  20. If terms of the note are satisfied
    - debt is discharged
  21. If terms of the note are not met lender may
    • - sue payee to collect on that note
    • - foreclosed on any property that was used as security of the debt
  22. Loan Amount
    - term
    - formula
    • - total amount borrowed (w/o interest)
    • - (Sales Price or Appraised Value) x LTV
  23. Interest
    - term
    - formula
    • - charge for the use of money
    • - percentage of the remaining balance of the loan
    • - Principal x Interest Rate
  24. Principal
    - term
    - formula
    • - amount borrowed that has not yet been repaid
    • - Loan Amount – Amount paid toward Principal
  25. Loan Balance
    - term
    - formula
    • - amount still owed
    • - Principal + Interest
  26. LTV
    • - Loan-To-Value Ratio
    • - loan approved %%
    • - percentage of the Sales Price or Appraised Value (whichever is less)
  27. Parcel sold for 500,000.
    Loan approved 90%
    Interest rate 5%
    Appraised Value 450,000
    Amount paid toward principal 20,000
    ----------
    LTV ?
    Loan Amount ?
    Interest ?
    Principal ?
    Loan Balance ?
    • LTV: 90%
    • Loan Amount: 450,000 x 90% = 405,000
    • Interest: 405,000 x 5% = 20,250
    • Principal: 405,000 - 20,000 = 385,000
    • Loan Balance: 385,000 + 20,250 = 405,250
  28. Payment in Arrears
    or
    • - or End-Of-Period Payments
    • - interest due to the end of each payment
  29. Payment in Advance
    - interest due to the beginning of each payment
  30. Parcel sold for 335,200
    Loan approved 90% 
    Interest 4.5%
    Period 30 years
    Appraised Value of parcel 335,500
    ------------
    Interest of the 1st month ?
    • Loan amount = 335,200 x 90% = 301,680
    • Annual interest = 301,680 x 4.5% = 13,575.60
    • Interest of the 1st month = 13,575.60 ÷ 12 = 1,131.30
  31. Usury
    - charging interest in excess of the maximum rate allowed by law
  32. Legal Maximum Rate can be
    • - maximum rate allowed by law - Usury
    • - fixed amount (in some states)
    • - floating based on a Specific Economic Standard (in another states)
  33. Loan Origination Fee
    or
    • - or Transfer Fee
    • - processing of a mortgage application
    • to cover the expenses involved in generating that loan
    • - 1% of the loan amount
  34. Tax deduction on Loan Origination Fee
    - home owners can deduct from gross income Loan Origination Fee
  35. Discount points
    - used to increase the lender’s yield (rate of return) on its investment
  36. Tax deduction on Discount points
    - home owners can deduct from gross income Discount points
  37. %% of Discount Points of the loan amount?
    - 1 point = 1% of the loan amount
  38. %% of Discount points of the interest?
    - 1 point = 0.125% of the interest
  39. Discount points depends on 2 factors
    • 1) Difference between interest rate and yield required by the lender
    • 2) How long the lender expects it will take the borrower to pay off the loan
  40. Prepayment penalty
    - for any payments make ahead of schedule
  41. Tax deduction on Prepayment penalty
    - home owners can deduct from gross income Prepayment penalty
  42. Mortgage loan has 2 parts
    • 1) Debt itself 
    •     - financing instrument that creates the debt
    •     - promissory note which creates the amount of owned
    • 2) Security for the debt
    •     - it is Mortgage or a Deed of Trust
    •     - specifies the property that the debtor will use as collateral (дополнительный) for the debt
  43. Mortgage creates
    - lien on the property
  44. Deed of Trust transfers
    - legal title from the borrower to a third party to hold on behalf of the lender while the borrower's debt is still outstanding
  45. Basic Principle of Property Law
    - no one can convey more then he actually owns
  46. Hypothecation
    • - to pledge (заложить) property as security for loan w/o giving up possession of it
    • - debtor (borrower) retains the right of possession and control of the secured property
    • - creditor (bank) receives an Equitable right in the property
  47. Mortgagor
    • - borrower
    • - receives a loan
  48. Mortgagee
    • - lender
    • - receives Promissory Note and Mortgage
  49. Lien Theory
    • - Mortgagor (borrower)
    •     - retains both Legal and Equitable Title
    • - Mortgagee (lender)
    •     - has a lien on the property
    •     - must go though foreclosure procedure to obtain Legal Title
  50. Title Theory
    • - Trustor
    •     - person who creates the trust (Borrower - Mortgagor)
    •     - conveys Bare Legal Title to Trustee (third party)
    •     - conveys Promissory Note to Beneficiary (lender)

    • - Trustee
    •     - third party
    •     - holds Bare Legal Title on behalf of lender (beneficiary)

    • - Beneficiary
    •     - lender - Mortgagee
    •     - holds Promissory Note
    •     - has right to immediate possession
  51. Mortgage or Deed typically include 2 provisions for default
    • 1) Acceleration Clause
    •     - to assist the lender in foreclosure
    •     - to accelerate the maturity of the debt
    •     - lender may declare the entire principal balance due and payable immediately (w/o of suing the borrower)

    • 2) Lender can take care of the property
    •     - if the borrower
    •        - does not pay taxes or insurance premiums
    •        - fails to make necessary repair on the property
  52. Assignment of the mortgage
    • - Promissory Note maybe soled to a 3rd party
    • - assignor
    •     - original mortgagee
    • - assignee
    •     - third party
  53. Defeasance Clause
    • - дифи’сэнс - анулирование
    • - provision that requires the lender to execute a Satisfaction of Mortgage when the loan is fully paid
    • - NOT Deficiency Judgment
  54. Satisfaction of Mortgage
    or
    • - or release
    • - or discharge
    • - released by lender when all loan payments have been made
    • - promissory note has been paid in full
  55. Impound
    - Escrow Account required by lender to reserve fund of borrower for RE taxes and property insurance
  56. 2 ways to purchase RE w outstanding Mortgage or Deed of Trust
    • 1) “subject to” Mortgage or Deed of Trust
    •     - buyer is personally NOT obligated to pay the debt in full
    •     - takes Title to RE
    •     - must make payments on existing loan
    •     - in buyer’s default
    •          - lender forecloses and the property is sold by court 
    •          - buyer is not liable for the difference
    •          - seller might continue to be liable

    • 2) Assumption of Mortgage
    •     - buyer is personally obligated for payment of the entire debt
    •     - Novation Agreement
    •         - b/w seller, buyer and lender
    •         - make seller to be completely free of the original mortgage loan
  57. Novation Agreement
    • - when RE purchased w outstanding Mortgage or Deed of Trust using Assumption of Mortgage
    • - Novation Agreement makes
    •      - seller to be completely free of the original mortgage loan
    •      - buyer solely responsible for any default on the loan
  58. Alienation clause
    or
    • - or Resale Clause
    • - or Due-On-Sale-Clause
    •       - paid immediately on the date of sale
    • - or Call Clause
    • - lender may prevent a future purchaser from being able to assume the loan (interest rate is low)
    • - when property is sold debt loan paid immediately (Due-On-Sale-Clause)
  59. Recording of mortgage or deed of trust
    Mortgage or Deed of Trust MUST be recorded
  60. Priority of A Mortgage or Deed of Trust
    - determined by the order in which they wear recorded
  61. Subordination Agreement
    - to change priority of loan (if a second lien is higher than the first)
  62. Basic costs of owning a home
    • - PITI
    •    Principal
    •    Interest
    •    Taxes
    •    Insurance
  63. Note
    or
    • - or Promissory Note
    • - or Financing Instrument
    •    - borrower's personal promise to repay a debt according to the agreed terms
    •    - contract between burrower (maker or payor) and lender (payee)
  64. payee
    lender
  65. payor
    • - burrower
    • - maker
  66. assignor
    • - Promissory Note maybe soled to a 3rd party
    • - original mortgagee
  67. assignee
    • - Promissory Note maybe soled to a 3rd party
    • - third party
Author
flashsmilenet
ID
347699
Card Set
AZK RE L-12 C-14 Financing 1
Description
AZK RE L-12 C-14 Financing 1
Updated