Real Estate Sales Financing and Valuation 1 Flashcards

A borrower pays 2 discount points on a $240,000 mortgage loan. How much will the borrower owe in points at closing?

Answer: $4,800

One discount point equals 1% of the loan amount. Two points on a $240,000 loan = 2% × $240,000 = $4,800 paid at closing to reduce the interest rate.

A rental property generates $2,800 in gross monthly rent and recently sold for $392,000. What is the gross rent multiplier (GRM)?

Answer: 140

GRM = Sale Price ÷ Gross Monthly Rent = $392,000 ÷ $2,800 = 140. The GRM is used in the income approach as a quick valuation tool for residential income properties.

Using the cost approach, a building has a replacement cost of $310,000, accumulated depreciation of $55,000, and the land is valued at $90,000. What is the indicated property value?

Answer: $345,000

Cost Approach Value = (Replacement Cost − Depreciation) + Land Value = ($310,000 − $55,000) + $90,000 = $345,000. Land is never depreciated in this approach.

A conventional lender requires a 20% down payment to avoid private mortgage insurance (PMI). If a home is priced at $425,000, what is the minimum down payment needed to avoid PMI?

Answer: $85,000

20% of $425,000 = $85,000. When the borrower's equity is at least 20%, the loan-to-value ratio is 80% or less, eliminating the PMI requirement on conventional loans.

An adjustable-rate mortgage (ARM) has a start rate of 4.5%, a periodic adjustment cap of 2%, and a lifetime cap of 6%. What is the highest rate the loan can reach at the very first adjustment?

Answer: 6.5%

At each adjustment, the rate can increase no more than the periodic cap of 2%. Starting at 4.5%, the maximum after the first adjustment is 4.5% + 2% = 6.5%, regardless of how far the index moved.

A borrower earns $6,500 gross income per month. Using a conventional front-end debt-to-income (DTI) guideline of 28%, what is the maximum allowable monthly housing payment?

Answer: $1,820

Front-end DTI limits housing costs (principal, interest, taxes, insurance) to a percentage of gross monthly income. 28% × $6,500 = $1,820 is the maximum qualifying housing payment.