Chapter 13 Flashcards
Home Mortgage: A conventional mortgage…
-A conventional mortgage is a first mortgage granted by an institutional lender where the amount of the loan does not exceed 75% of the appraised lending value.
Home Mortgages: (5)
- Mortgage is security for a loan
- It is a transfer of an interest in property to a creditor as security for repayment of debt with “right of redemption” by the borrower upon repayment of debt.
- Mortgager gives the security to obtain the loan
- Mortgagee is the lender who receives title to the property until the debt is fully repaid
- Equity of redemption can be used as security for other loans (ex. second and third mortgages)
Home Mortgages: A high ratio value mortgage…
- A high ratio value mortgage exceeds 75% and must be insured by through an NHA loan or private insurer (Insurance is paid by the borrower to protect the lender from default)
Down Payment of …
-Down payment of 20% is required for a conventional mortgage
Non-Conventional Mortgage Financing: (2)
- High ratio mortgage
- Vendor-take-back mortgage
High Ratio mortgage: (2)
- Covered with mortgage insurance
- Mortgagor pays insurance premium
Vendor-take-back mortgage: (3)
- Vendor provides financing
- Mortgage is usually short term and below market interest rate
- Vendor can sell mortgage for cash or hold as an investment
What are returns from home ownership?: (3)
- Potential capital gain: capital gain on principal residence is tax exempt
- Imputed rental income: imputed rental income is tax exempt
- Non-financial returns include pride of ownership, ability to modify, decorating, etc.
What are risks from home ownership?: (2)
- Historically, there have been long periods with no appreciation in house values
- House prices can decline as was in 1970 and 1980
Home Market Values: (3)
- Market value is defined as highest price that a buyer will pay in the open market assuming:
- Reasonable time
- Neither buyer or seller acting under any peculiar circumstances (loss of employment, divorce, etc.
Most important factor in home valuation:
-Location
Some other important factors in home valuation: (6)
- Lot size
- Building size
- Type of construction
- Bathrooms
- Family room
- Kitchen, Deck, Fireplace, Landscaping, Corner lot, driveway
Valuation approaches for houses: (2)
- Direct Market Comparison (DMC)
- Cost Approach
Direct Market Comparison Approach: (2)
- Locate properties similar to subject property
- Adjust selling prices of these properties based on differences with the subject property
Direct Market Cost Adjustments: (3)
- Adjust comparable properties to be as similar as possible to the subject property
- This includes differences in kitchen, bathrooms, garage, family room, deck, fireplace, air conditioning, etc.
- Discard outdated sales or sales requiring extreme adjustments
