Chapter 1 Finance & Investment

Chapter 1 Finance & Investment - Financing Residential...

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Unformatted text preview: Financing Residential Real Estate Lesson 1: Finance and Investment Introduction This lesson will cover: Mortgage financing and how it works Investments and returns Types of investments Investment risks Market interest rates and factors affecting them Borrowing Money to Buy a Home Buying a home is the most expensive purchase most people ever make. Typically requires borrowing a large amount of money. Borrowing Money to Buy a Home An individual or familys ability to afford a home depends on: housing prices, income level, tax considerations, availability of mortgage financing, and many other factors. Borrowing Money to Buy a Home In a typical loan transaction: 1. Lender loans buyers a portion of the purchase price. Borrowing Money to Buy a Home In a typical loan transaction: 1. Lender loans buyers a portion of the purchase price. 2. Buyers provide the rest of the purchase price amount as a downpayment. Borrowing Money to Buy a Home In a typical loan transaction: 1. Lender loans buyers a portion of the purchase price. 2. Buyers provide the rest of the purchase price amount as a downpayment. 3. Buyers execute mortgage or deed of trust, giving lender a security interest in purchased property. Borrowing Money to Buy a Home In a typical loan transaction: 1. Lender loans buyers a portion of the purchase price. 2. Buyers provide the rest of the purchase price amount as a downpayment. 3. Buyers execute mortgage or deed of trust, giving lender a security interest in purchased property. 4. Lien released when loan paid off. Borrowing Money to Buy a Home Buyers agree to pay back the loan with monthly payments over a specified period. Borrowing Money to Buy a Home Buyers agree to pay back the loan with monthly payments over a specified period. Loan term period of loan repayment Principal amount borrowed Interest the cost of borrowing money Borrowing Money to Buy a Home Remember that a lender sees a loan as an investment. Borrowing Money to Buy a Home Remember that a lender sees a loan as an investment. Interest paid by the buyer is the lenders profit from the investment. Investments and Returns The national economy is driven in part by investment capital : money used to fund business enterprises, ventures, and projects. Investments and Returns An investors return may take various forms. Investments and Returns An investors return may take various forms. Return on investment = a profit over and above the amount originally invested. Investments and Returns An investors return may take various forms. Return on investment = a profit over and above the amount originally invested. Return of investment = getting the full amount originally invested back (also called recapture). Summary Investments and Returns i Principal i Loan term i Interest i Investment capital i Return on investment i Return of investment Types of Investments Two general categories of investments: 1) Ownership investments 2) Debt investments Types of Investments...
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This note was uploaded on 09/30/2011 for the course REAL 102 taught by Professor N/a during the Spring '10 term at City College of San Francisco.

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Chapter 1 Finance & Investment - Financing Residential...

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