Chapter 10 Lending Practices

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Chapter 10Lending Practices

• ______________________________

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Loans

• Term loan interest payments only until due.
• Amortized loan regular equal payments for life
  of loan including both principal interest.
• 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.

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Repaying a 6-year, 1,000 Loan
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9 Interest per Year on the Loan
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Balance Owed Each Year of the Loan
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Amortization Table Monthly Payment per 1,000 of
Loan
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Balance Owing on a 1,000 Amortized Loan
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Loan-to-Value

• 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
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• Equity the difference between the value of the
  property and outstanding debt.
• Points one percent of the loan amount.
• Origination fee fee lender charges for making
  loan usually stated in terms of a percentage of
  loan amount.
• Discount points lenders charge to raise the
  return on the loan usually stated as a percentage
  of the loan amount.

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VA / FHA Comparison
FHA
VA
Guarantees loans Funding fee Veterans only Rate
negotiable Points No down payment 100 L-T-V
Insures loans UFMIPAnyone qualified Rate
negotiable Points 3-5 down 97-95 L-T-V
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VA / FHA Similarities

• Owner occupied
• 1-4 family dwellings
• Refinancing allowed
• Assumption allowed (with approval)

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Loan Limits Info

• VA
• http//www.homeloans.va.gov/
• FHA
• https//entp.hud.gov/idapp/html/hicostlook.cfm
• Conv
• http//www.fanniemae.com/aboutfm/loanlimits.jhtml?
  pAboutFannieMaesLoanLimits

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Mortgage Insurance

• Private Mortgage Insurance
• PMI
• Insures lenders against losses

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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