real estate finance - full book (500 pgs)

The appraiser subtracts from the sales price of the

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Unformatted text preview: ocedures lenders use in qualifying or appraising a property for loan purposes: The neighborhood is analyzed, the property is inspected, and a value is determined so that a loan may be arranged. This chapter also reviews use of an appraisal form in depth and lists special considerations by lenders on planned unit developments and condominiums. LOAN UNDERWRITING DECISIONS There are two basic elements involved in determining the appropriate lending decision on residential real estate: 1. 2. Determination of the value of the underlying collateral by means of an appraisal. This serves to determine the upper limit of loan advance. Determination of the borrower's capacity to service the debt in a satisfactory manner – the subject matter of this chapter. Insofar as the second aspect of the process is concerned, this upper limit of loan advance may remain the same or be lowered based upon the borrower's repayment ability. QUALIFYING THE BORROWER The prospective borrower must be qualified in terms of ability to repay the loan and willingness to repay – credit record. Qualifying the borrower will be discussed in next chapter. Dynasty School (www.dynastySchool.com) 12-1 REAL ESTATE FINANCE QUALIFYING THE PROPERTY Real estate appraisers evaluate a neighborhood with great care because location has a great influence on the value of a property. Appraisers also pay particular attention to the condition and quality of the property. It is important to note, however, that redlining is illegal. Residential Property – It is the personal income of the borrower that is expected to repay a loan on a personal residence. For a qualified borrower, the qualification of the property becomes significant in case the borrower's ability or willingness to pay should change. The property value must be adequate to provide a security for the loan. In a foreclosure, the sale of the property would be expected to bring in adequate funds to repay the debt. Income Property – For loans on income– producing properties, it is the income of the property that is expected to repay the loan. The property must be evaluated not only as a security for the loan in the event of default, although t...
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This note was uploaded on 12/30/2010 for the course SOC 101 taught by Professor Zhung during the Spring '10 term at Punjab Engineering College.

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