Lending Practices

© 2012 Cengage Learning


Lending PracticesChapter 10


In This Chapter

You will review the money aspects of notes, mortgages, and trust deeds.


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.


Early Payoff 15-Year Loan Biweekly Payments Existing Loans


Repaying a 6-year, $1,000 Loan


Interest per Year on the Loan


Balance Owed Each Year of the Loan


Amortization Table MonthlyPayment per $1,000 of Loan


Balance Owing on a $1,000Amortized Loan


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%


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.


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


• Owner-occupied

• 1-4 family dwellings

• Refinancing allowed

• Assumption allowed (with approval)

VA and FHA Similarities


Want to know more? FHA

http://www.hud.gov DVA

http://www.homeloans.va.gov/veteran.htm Conventional

http://www.ourbroker.com/limits.htm


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.


Rural Housing Services Administration offers programs to help purchase or operate

farms


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

Documents

Lending Practices