real estate finance - full book (500 pgs)

Today there are no hard and fast rules used by all

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Unformatted text preview: ation of your buyer, you need to establish the underlying desire for home–ownership. There can be many reasons, including the following: • • Nesting– This is important to young people who either have or are expecting a child. Investment or Personal Use – Is the borrower buying the home for personal use, or is the purchase an investment that is going to be rented? If the purchase is for personal use, the borrower is more likely to keep up the payments. If the purchase is an investment, the borrower may not have the same motivation. Economic – To beat inflation or to use the home as a tax shelter. Retirement – An older couple who has owned a large home is now looking for housing that meets the needs of an older couple and can serve as a home for their later years. • • Borrower's Assets – When analyzing a borrower's capacity to pay, it should be apparent why lenders want to know how much money the borrower earns and the stability of those earnings. What is not so apparent is why lenders analyze borrower assets: because they want to be sure the borrower has enough cash for the down payment and closing costs. If borrowers can't show enough cash, the assumption is that the funds will be sought elsewhere and another debt incurred. This, in turn, can reduce the borrower's ability to make mortgage payments. Young couples often receive money for a down payment from their parents. If it is a gift and not a loan, no lender objects to it. However, most lenders insist that the gift be verified, usually in writing. This is called a “gift letter.” Gift giving is restricted in certain programs. For example, under certain loans, including FHA, homebuyers have to document the gift with cancelled check or other evidence showing that the funds came from the parents' account. Dynasty School (www.dynastySchool.com) 13-17 REAL ESTATE FINANCE The amount and type of assets a borrower has will influence lenders. If the borrower has substantial liquid assets, lenders feel more secure, realizing that, with ample assets, a borrower will continue making the loan payments ev...
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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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