Chapter 9 Qualifying the Property

Chapter 9 Qualifying the Property - Financing Residential...

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Financing Residential Real Estate Lesson 9: Qualifying the Property
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Introduction In this lesson we will cover: a lender’s perception of value, appraisal standards, the appraisal process, appraisal methods, and how to deal with low appraisals.
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Lender’s Perception of Value In addition to qualifying the buyer, underwriter must qualify the property being purchased. I Is the property worth enough to serve as collateral for the loan?
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Lender’s Perception of Value Evaluation of property for underwriting purposes is based on an appraisal. Appraiser analyzes property and issues objective estimate of its market value. Appraisal
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Lender’s Perception of Value Widely accepted definition of market value: “The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.” Market value
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Lender’s Perception of Value Lender uses property’s appraised value to determine how much money to loan with the property as security. Loan-to-value ratio expresses relationship between loan amount and property’s value. Appraised value and loan-to-value ratio
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Lender’s Perception of Value LTV affects: Risk of default LTV and risk
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Lender’s Perception of Value LTV affects: Risk of default I Lower LTV = larger downpayment I Borrower with large investment less likely to default. LTV and risk
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Lender’s Perception of Value LTV affects: Risk of default I Lower LTV = larger downpayment I Borrower with large investment less likely to default. Risk of loss in case foreclosure required LTV and risk
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Lender’s Perception of Value LTV affects: Risk of default I Lower LTV = larger downpayment I Borrower with large investment less likely to default. Risk of loss in case foreclosure required I Sale proceeds more likely to cover debt. LTV and risk
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Lender’s Perception of Value LTV affects: Risk of default I Lower LTV = larger downpayment I Borrower with large investment less likely to default. Risk of loss in case foreclosure required I Sale proceeds more likely to cover debt. Lower LTV = Lower Risk LTV and risk
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Lender’s Perception of Value Lenders tend to charge higher interest rates and loan fees on high-LTV loans. I Offsets additional risk for lender. LTV and cost of loan
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Lender’s Perception of Value Lenders use LTVs to set maximum loan amounts. I Maximum LTV rules applied depend on type of loan. Maximum loan amount
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Maximum loan amount for transaction based on: sales price, or appraised value, whichever is less . Maximum loan amount
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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 9 Qualifying the Property - Financing Residential...

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