Lending Practices
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Transcript of Lending Practices
© 2012 Cengage Learning
© 2012 Cengage Learning
Lending PracticesChapter 10
© 2012 Cengage Learning
In This Chapter
You will review the money aspects of notes, mortgages, and trust deeds.
© 2012 Cengage Learning
Loans
Term loan – interest payments only until due. Amortized loan – regular equal payments for
life of loan including both principal & interest. Budget Mortgage – principal + interest +
taxes + insurance Balloon loan – any loan that has a final
payment larger than any of the previous. Partially amortized loan – series of amortized
payments with a balloon payment at maturity.
© 2012 Cengage Learning
Early Payoff 15-Year Loan Biweekly Payments Existing Loans
© 2012 Cengage Learning
Repaying a 6-year, $1,000 Loan
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Interest per Year on the Loan
© 2012 Cengage Learning
Balance Owed Each Year of the Loan
© 2012 Cengage Learning
Amortization Table MonthlyPayment per $1,000 of Loan
© 2012 Cengage Learning
Balance Owing on a $1,000Amortized Loan
© 2012 Cengage Learning
Loan-to-Value Ratio The relationship between the amount the
lender is willing to loan and the market value of the property.
Market value = $100,000 Loan = $80,000What is the loan-to-value ratio?
80%
© 2012 Cengage Learning
Equity – the difference between the value of the property and outstanding debt.
Loan Points – one percent of the loan amount.
Origination fee – a fee lender charges for making loan usually stated in terms of a percentage of loan amount.
Discount points – lender’s charge to raise the return on the loan usually stated as a percentage of the loan amount.
© 2012 Cengage Learning
1934Insures loans
UFMIPAnyone qualifiedRate negotiable
Points3.5% down96.5% L-T-V
1944Guarantees loans
Funding feeVeterans only
Rate negotiablePoints
No down payment100% L-T-V
FHA VA
VA and FHA in Comparison
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• Owner-occupied
• 1-4 family dwellings
• Refinancing allowed
• Assumption allowed (with approval)
VA and FHA Similarities
© 2012 Cengage Learning
Want to know more? FHA
http://www.hud.gov DVA
http://www.homeloans.va.gov/veteran.htm Conventional
http://www.ourbroker.com/limits.htm
© 2012 Cengage Learning
Private Mortgage Insurance PMI insures only the top 20% to 25% of a
loan. Insures lenders against foreclosure losses. If the principal of the loan is 80% or less of
the current fair market value of the home, the borrower may have the right to cancel the insurance.
© 2012 Cengage Learning
Rural Housing Services Administration offers programs to help purchase or operate
farms
© 2012 Cengage Learning
Key Terms Amortized loan Balloon loan Conventional loans Equity FHA Impound account Loan origination fee
Loan-to-value ratio Maturity PITI PMI Point Principal UFMIP VA