This course provides an introduction to real estate finance. From qualifying the borrower and qualifying the property in the underwriting process to various types of financing, closing the sale, the Community Reinvestment Act and more, we discuss the monetary systems that control the market, delve into supply and demand, cover housing agencies and discuss the government influence on real estate. Most real estate is purchased with borrowed money. The methods of real estate finance are many and varied. Making real estate loans carries a certain amount of risk for lenders; for this reason, lenders must have a firm grasp of a borrowers financial qualifications. Lenders consider a borrowers income, credit, debt, source of funds and net worth. However, no analysis, no matter how thorough, of a borrowers creditworthiness can be enough to ensure that a loan is completely free of risk. You will learn the methods used by lenders to qualify loan applicants and how lenders qualify the property to be mortgaged. This involves a thorough and accurate property valuation, using the sales comparison or cost approach for residential property and a cap rate or discounted cash flow analysis for investment property. These methods of valuation will be discussed in depth so that you will feel confident and familiar with them when you meet them in the real world.The basics of the financing and the sale process are discussed over two lessons. You will learn how title (abstract ownership rights to the property) is transferred to the buyer with a deed. The earnest money contract will also be discussed: terms of the contract, contingencies and earnest money deposits. In another lesson, the focus turns to closing. You will learn the customary costs involved in a real estate transaction, how certain items are prorated between the buyer and the seller and the requirements set forth by the Real Estate Settlement and Procedures Act (RESPA).This course also covers foreclosure. We consider what happens when a borrower is in default of the mortgage contract and how lenders may help borrowers prevent foreclosure through forbearance, moratoriums and recasting. Also discussed is how, when these techniques fail, the property is foreclosed and sold at auction and how the creditors are repaid. No real estate finance course would be complete without discussing the types of mortgages available. We have two lessons that will detail the elements of conventional loans, both conforming and nonconforming; adjustable rate; graduated payment; growth equity; and reverse annuity mortgages, to name a few. The advantages and disadvantages of each type of financing are emphasized so that you may better understand the decision-making process inherent in real estate finance. Two specific types of financing, FHA-insured and VA-guaranteed loans, are reserved for separate lessons. FHA loans are insured by the government and perceived as less risky by lenders. They are available to all natural and naturalized U.S. citizens, but they carry a monthly insurance premium that cannot be canceled. VA loans are guaranteed in part by the government, but are available only to veterans, active servicemen and certain National Guard members and special reservists.The final lesson deals with a topic important to real estate investment: Internal Revenue Code (IRC) Section 1031 exchanges (a k a 1031s). Buying and selling real estate investments can be a tax-heavy business. By exchanging ones investments under the continuity of investment principle, investors can receive more financing and improve their portfolios.At the end of each lesson, you will be required to complete a quiz for that lesson before moving on to the next lesson. The course ends with a real-world practice lesson that brings together the concepts and material discussed throughout the entire course.
Upon completion of this course, the student will be able to:
– Explain how the forces of supply and demand in the real estate market affect and are affected by the primary lending market, identifying them in case studies.
– Demonstrate how the government influences real estate finance through agencies such as the Federal Reserve (the Fed) and the Department of Housing and Urban Development (HUD), and be able to cite examples.
– Define real estate investment trusts (REITs), describing them in detail.
– Explain the basic concepts of real estate finance, describing them in detail.
– Distinguish between the principal instruments of financing the promissory note, the mortgage, and the deed of trust and explain how they are used.
– Explain how interest rates affect the real estate market.
– State who lends money to the purchasers of real estate, identifying them with 100% accuracy.
– Discuss the operations of the secondary market for loans.
– Calculate the monthly payments for a fully amortized, fixed-rate loan.
– Distinguish between the tax deductions and tax credits associated with real estate ownership, and calculate each.
– Explain the use of and legal requirements placed on escrow accounts.
– Distinguish between lien theory and title theory states, explaining each in detail.
– Explain the function of a discount point, when it is offered, and when it should be bought.
– List the main points an underwriter looks for in approving a loan.
– List the elements of a credit report, and explain how FICO scores affect a consumers borrowing ability.
– Explain the provisions of the federal legislation that affect real estate lending, and distinguish between those of the Fair Credit Reporting Act (FCRA), the Equal Credit Opportunity Act (ECOA) and the Truth in Lending Act.
– Calculate a lenders qualifying income ratios.
– List the classification of types of debts, identifying each in a case study.
– List the steps of the appraisal process, with 100% accuracy.
– Explain the principal methods of property valuation, providing examples for each.
– Distinguish between sales comparison approach and cost approach to value real property.
– Explain the most common approach to valuing income-producing property the cap rate analysis.
– List the elements of a pro forma projection, in order, and describe its uses in discounted cash flow analyses.
– Utilize spreadsheet and investment software to calculate net present values and internal rates of return.
– Distinguish between the role of mortgage brokers and loan officers in the financing process, describing characteristics of each.
– Distinguish between constructive and actual notice and explain the buyers obligations under the principle of caveat emptor.
– List the lenders requirements for qualifying the title and explain how, through a title search, a title insurance company verifies that a mortgagee will have the first lien.
– Distinguish between the purpose and content of an earnest money contract and the earnest money deposit.
– Explain what a deed is and list the types of interest it can convey.
– Explain the exceptions and reservations that can be placed on a title, providing specific examples.
– Detail the RESPA requirements for closing procedures and disclosures at closing.
– Distinguish between face-to-face and escrow closings, and cite who presides over each.
– Explain the principles of proration, distinguishing between calendar years and bankers years.
– Distinguish between prepaid items and accrued items and demonstrate how to divide them by calculating a daily rate.
– List the current Fannie Mae and Freddie Mac loan limits.
– Explain private mortgage insurance (PMI) and state when it is required, when it is advisable and when it is cancelable.
– Discuss the function of Fannie Maes Desktop Underwriter and Freddie Macs Loan Prospector electronic underwriting programs.
– List the requirements for a borrowers financial qualifications in a conforming loan, with 100% accuracy.
– Distinguish between the different types of mortgages, including ARMs, GEMs, GPMs and balloon mortgages, explaining each in detail.
– Distinguish between temporary and permanent buy downs, detailing the procedure for each.
– Demonstrate an understanding of the most important FHA programs, especially Section 203(b).
– Name the various underwriting requirements for FHA-insured loans, such as down-payment and closing-cost requirements.
– Distinguish between the FHAs mortgage insurance premium (MIP) and PMI, identifying each in a case study.
– List the key elements of the VA loan guarantee program.
– State who is eligible for the VA program and describe the documents required to prove ones eligibility.
– State the current amount of a veterans maximum entitlement and calculate remaining entitlement.
– Explain the purpose of Internal Revenue Code (IRC) Section 1031.
– Define like kind and discuss what property qualifies for a like-kind exchange.
– Calculate an investors adjusted basis in a property, and identify the relationship to boot.
– Distinguish between realized and recognized gain and explain how it is important to the tax laws.
– Explain how boot is calculated.
– Explain the delayed (Starker) exchange format the 45/180-day time limits and the rules for replacement property identification.
– Explain how an investor can leverage saved capital from tax-deferred exchanges, citing examples.
– Identify the role of the qualified intermediary (QI) in the delayed exchange as a safe harbor.
– Explain the reverse exchange format, detailing the exchange accommodation titleholder (EAT), title parking and describing allowable arrangements between the exchanger and the EAT.
– Explain the tax benefits of installment sales.