Real Estate Sales Financing and Valuation Questions and Answers Flashcards

A buyer obtains an FHA loan with a 3.5% down payment on a $280,000 home. What is the approximate upfront mortgage insurance premium (UFMIP) at the current rate of 1.75%?

Answer: $4,732.50

The UFMIP is calculated on the base loan amount: $280,000 - $9,800 down = $270,200 x 1.75% = $4,728.50, closest to $4,732.50 accounting for standard rounding.

In the income approach to valuation, a property generates $48,000 in annual net operating income and the capitalization rate is 6%. What is the estimated property value?

Answer: $800,000

Using the income capitalization formula: Value = NOI / Cap Rate = $48,000 / 0.06 = $800,000.

Which clause in a mortgage allows the lender to demand full repayment if the borrower sells or transfers the property?

Answer: Due-on-sale clause

A due-on-sale (alienation) clause gives the lender the right to accelerate the loan balance upon transfer of ownership.

A property sold for $350,000 and the comparable sale across the street had a pool valued at $15,000 that the subject property lacks. Using the sales comparison approach, what adjustment is made?

Answer: Subtract $15,000 from the comparable

In the sales comparison approach, adjustments are always made to the comparable; since the comp has a feature the subject lacks, you subtract from the comp.

What does the loan-to-value (LTV) ratio represent in real estate financing?

Answer: The ratio of the mortgage amount to the property's appraised value or sale price, whichever is lower

LTV is calculated by dividing the mortgage loan amount by the lesser of the appraised value or the purchase price.

Under what condition would a lender most likely require private mortgage insurance (PMI) on a conventional loan?

Answer: When the loan-to-value ratio exceeds 80%

PMI is typically required on conventional loans when the borrower puts down less than 20%, resulting in an LTV ratio above 80%.