Financing and Valuation Flashcards

A borrower has a $300,000 loan at 6% annual interest. What is the monthly interest charge for the first month?

Answer: $1,500

$300,000 × 6% ÷ 12 = $1,500 monthly interest.

Which appraisal approach is most commonly used to value a single-family residential home?

Answer: Sales comparison approach

The sales comparison approach is preferred for residential properties because comparable sales data is readily available.

A deed of trust differs from a mortgage primarily because it involves:

Answer: A trustee who holds title until the loan is repaid

A deed of trust uses a neutral third-party trustee to hold title, while a mortgage involves only the borrower and lender.

What does a loan-to-value (LTV) ratio of 80% mean?

Answer: The borrower is financing 80% of the property's value

An 80% LTV means the mortgage amount equals 80% of the appraised property value, with a 20% down payment.

Which type of mortgage allows the interest rate to change periodically based on an index?

Answer: Adjustable-rate mortgage (ARM)

An ARM has an interest rate that adjusts at set intervals based on a market index such as SOFR or the Treasury index.

Under the cost approach to appraisal, which of the following is subtracted from the replacement cost of improvements?

Answer: Accrued depreciation

The cost approach formula is: land value + replacement cost – accrued depreciation = property value.

A property generates $24,000 in annual net operating income and is valued at $300,000. What is the capitalization rate?

Answer: 8%

$24,000 ÷ $300,000 = 0.08 or 8% capitalization rate.