Real Estate Finance & Mortgages Flashcards

Rising mortgage interest rates typically have what effect on the residential rental market?

Answer: Rental demand increases as fewer renters can afford to buy

Higher rates reduce homebuying affordability, keeping more households in rentals.

Using the income approach, what is the value of a property with NOI of $45,000 and a market cap rate of 6%?

Answer: $750,000

Value = NOI / cap rate = $45,000 / 0.06 = $750,000.

On a non-recourse mortgage, if the borrower defaults and the foreclosure sale falls short, the lender can generally:

Answer: Recover only from the pledged property itself

Non-recourse loans limit the lender's remedy to the collateral, barring deficiency claims except for carve-outs.

The mortgage constant (loan constant) is calculated as:

Answer: Annual debt service divided by the original loan amount

The mortgage constant is the ratio of annual debt service to the loan amount.

A buyer wants to purchase a fourplex with an FHA loan and a 3.5% down payment. What is a key requirement?

Answer: The buyer must occupy one unit as a primary residence

FHA financing on 1-4 unit properties requires the borrower to live in one unit.

Under the federal Protecting Tenants at Foreclosure Act, a bona fide tenant with a lease in a foreclosed property generally may:

Answer: Remain until the lease ends, unless the buyer will occupy it as a primary residence, with at least 90 days' notice

The PTFA lets bona fide tenants finish their lease (subject to the owner-occupant exception) and requires at least 90 days' notice to vacate.

A building has gross potential rent of $500,000, a 6% vacancy and collection loss, and $10,000 in other income (laundry, parking). What is effective gross income?

Answer: $480,000

EGI = $500,000 - $30,000 + $10,000 = $480,000.