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Lending Practices

Chapter 10. Lending Practices. 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.

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Lending Practices

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  1. Chapter 10 Lending Practices

  2. In This Chapter You will review the money aspects of notes, mortgages, and trust deeds.

  3. 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.

  4. Early Payoff • 15-Year Loan • Biweekly Payments • Existing Loans

  5. Repaying a 6-year, $1,000 Loan

  6. Interest per Year on the Loan

  7. Balance Owed Each Year of the Loan

  8. Amortization Table MonthlyPayment per $1,000 of Loan

  9. Balance Owing on a $1,000Amortized Loan

  10. 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%

  11. 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.

  12. VA and FHA in Comparison FHA VA 1944 Guarantees loans Funding fee Veterans only Rate negotiable Points No down payment 100% L-T-V 1934 Insures loans UFMIPAnyone qualified Rate negotiable Points 3.5% down 96.5% L-T-V

  13. VA and FHA Similarities • Owner-occupied • 1-4 family dwellings • Refinancing allowed • Assumption allowed (with approval)

  14. Want to know more? • FHA • http://www.hud.gov • DVA • http://www.homeloans.va.gov/veteran.htm • Conventional • http://www.ourbroker.com/limits.htm

  15. 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.

  16. Rural Housing Services Administration • offers programs to help purchase or operate farms

  17. 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

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