Questions and Answers of Real Estate Principles

Mr. Qualify is applying for a $100,000 GPM loan for 25 years at an interest rate of 9 percent. Payments would be designed so as to graduate at the rate of 7.5 percent for three years beginning with
What are loan closing costs? How can they be categorized? Which of the categories influence borrowing costs and why?
A property is purchased for $70,000. The purchase is financed with a GPM carrying a 12 percent interest rate. A 7.5 percent rate of graduation will be applied to monthly payments beginning each year
A fully amortizing mortgage loan is made for $100,000 at 6 percent interest for 30 years. Determine payments for each of the periods a–d below if interest is accured:a. Monthly.b. Quarterly.c.
Why do the monthly payments in the beginning months of a CPM loan contain a higher proportion of interest than principal repayment?
As inflation increases, the impact of the tilt effect is said to become even more burdensome on borrowers. Why is this so?
A fully amortizing mortgage loan is made for $80,000 at 6 percent interest for 25 years. Payments are to be made monthly. Calculate:a. Monthly payments.b. Interest and principal payments during month
Define amortization. List the five types discussed in this chapter.
Why do monthly mortgage payments increase so sharply during periods of inflation? What does the tilt effect have to do with this?
A borrower obtains a fully amortizing CPM loan for $125,000 at 11 percent interest for 10 years. What will be the monthly payment on the loan? If this loan had a maturity of 30 years, what would be
What are the major differences between the four CPM loans discussed in this chapter? What are the advantages to borrowers and risks to lenders for each? What elements do each of the loans have in
A loan of $60,000 is due 10 years from today. The borrower wants to make annual payments at the end of each year into a sinking fund that will earn compound interest at an annual rate of 10 percent.
A pension fund is making an investment of $100,000 today and expects to receive $1,600 at the end of each month for the next five years. At the end of the fifth year, the capital investment of
A corporation is considering the purchase of an interest in a real estate syndication at a price of $75,000. In return, the syndication promises to pay $1,000 at the end of each month for the next 25
The Dallas Development Corporation is considering the purchase of an apartment project for $100,000. They estimate that they will receive $15,000 at the end of each year for the next 10 years. At the
What is an internal rate of return? How is it used? How does it relate to the concept of compound interest?
John is considering the purchase of a lot. He can buy the lot today and expects the price to rise to $15,000 at the end of 10 years. He believes that he should earn an investment yield of 8 percent
What is the sinking-fund factor? How and why is it used?
Walt is evaluating an investment that will provide the following returns at the end of each of the following years: year 1, $12,500; year 2, $10,000; year 3, $7,500; year 4, $5,000; year 5, $2,500;
Would you prefer making a $25,000 investment that will earn interest at the rate of 6 percent compounded monthly or making the same $25,000 investment at 7 percent compounded annually?
Jim makes a deposit of $12,000 in a bank account. The deposit is to earn interest compounded annually at the rate of 6 percent for seven years.a. How much will Jim have on deposit at the end of seven
What is meant by mortgage foreclosure, and what alternatives are there to such action?
How must one discount a series of uneven receipts to find PV?
What is an annuity? How is it defined? What is the difference between an ordinary annuity and an annuity due?
An investor is considering an investment that will pay $2,150 at the end of each year for the next 10 years. He expects to earn a return of 12 percent on his investment, compounded annually. How much
Suppose you have the opportunity to make an investment in a real estate venture that expects to pay investors $750 at the end of each month for the next eight years. You believe that a reasonable
How does discounting, as used in determining present value, relate to compounding, as used in determining future value? How would present value ever be used?
Suppose you deposit $2,500 at the end of year 1, nothing at the end of year 2, $750 at the end of year 3, and $1,300 at the end of year 4. Assuming that these amounts will be compounded at an annual
Suppose you deposit $1,250 at the end of each quarter in an account that will earn interest at an annual rate of 10 percent compounded quarterly. How much will you have at the end of four years?
What general rule can be developed concerning maximum values and compounding intervals within a year? What is an equivalent annual yield?
Jones can deposit $5,000 at the end of each six-month period for the next 12 years and earn interest at an annual rate of 8 percent, compounded semiannually. What will the value of the investment be
What is the essential concept in understanding compound interest?
What is a deficiency judgment and how is its value to a lender affected by the Bankruptcy Code?
What are the risks to the lender if a borrower declares bankruptcy?
Is a foreclosure sale sometimes desirable or even necessary when the mortgagor is willing to give a voluntary deed?
What special advantages does a mortgagee have in bidding at the foreclosure sale where the mortgagee is the foreclosing party? How much will the mortgagee normally bid at the sale?
What is the difference between the equity of redemption and statutory redemption?
What dangers are encountered by mortgagees and unreleased mortgagors when property is sold “subject to” a mortgage?
Explain the difference between a buyer assuming the mortgage and taking title “subject to” the mortgage.
Name possible mortgage able interests in real estate and comment on their risk as collateral to lenders.
Ms. Brown purchased a property consisting of one acre of land and a building for $100,000 five years ago. She obtained an $80,000 mortgage loan from ABC Bank at that time. The building was very old
How can mechanics’ liens achieve priority over first mortgages that were recorded prior to the mechanics’ lien?
Mr. Smith acquired a property consisting of one acre of land and a two-story building five years ago for $100,000. He also obtained an $80,000 mortgage loan from ACE Bank to provide financing to
What is a land contract?
A debtor has filed a plan to reorganize his affairs under Chapter 13 of the Bankruptcy Code. The plan calls for payment of 10 cents on the dollar to all unsecured creditors over the next three years.
What does deficiency judgment mean?
Bob entered into a land contract to purchase real estate from Sam. The purchase price was to be paid over a 10-year period by monthly amortization. At the end of five years, Bob defaulted, having
When might a borrower want to have another party assume his liability under mortgage loan?
What does default mean? Does it occur only when borrowers fail to make scheduled loan payments?
What is meant by a “purchase money“ mortgage loan? When could a loan not be a purchase money mortgage?
Mort owns a property. Jessica Rosen holds a first mortgage against it, and Alex Nelligan holds a second mortgage. Mort defaults on his mortgage payments. Ms. Rosen forecloses without joining Mr.
What does assignment mean and why would a lender want to assign a mortgage loan?
What does non-recourse financing mean?
Last year Jones obtained a mortgage loan for $100,000. He just inherited a large sum of money and is contemplating prepaying the entire loan balance to save interest. What are his rights to prepay
Can borrowers pay off, part or all, of loans anytime that they desire?
If, in Problem1, there was no definite agreement for future advances between Sedgewick and the bank at the time the initial $30,000 loan was closed, would your answer be different?
What does it mean when a lender accelerates? What is meant by forbearance?
Sedgewick arranged for an open-end construction loan from the Second National Bank not to exceed $50,000. The loan was closed and Sedgewick drew $30,000 initially. Three months later he drew the
Distinguish between a mortgage and a note.
Would it be legal for you to give a quitclaim deed for the Statue of Liberty to your friend?
Name the three general methods of title assurance and briefly describe each. Which would you recommend to a friend purchasing a home? Why?
What is an abstract of title?
How can a leased fee estate have a value that could be transferred to another party?
What is meant by an estate? Why are estates important in real estate finance?
Given the following situation and facts, complete a closing settlement statement similar to that shown in Exhibit 13-4. On May 15, 2017, Eric Martin signed a contract to purchase a rental house for
Using the “CFj” key of your financial calculator determine the IRR of the following series of annual cash flows: CF0= -$31,400; CF1 = $3,292; CF2 = $3,567; CF3 = $3,850; CF4 = $4,141; and CF5 =
What will be the taxes due on sale? Assume 6% selling costs, 33% percent ordinary income tax rate, a 15 percent capital gains tax rate, and a 25 percent recapture rate.
What will be the after-tax equity reversion (cash flow) from the sale?
What is your annual depreciation deduction? Ignore the mid-month convention.
If you never sold the property, what would be the present value of the annual tax savings from depreciation?
If you sold the property at the end of five years, what would be the present value of the depreciation deductions, net of all taxes due on sale?
Black Acres Apartment, Inc needs to compute taxable income (TI) for the preceding year and wants your assistance. The effective gross income (EGI) was $52,000; operating expenses were $19,000; $2,000
Assuming a two-year holding period, should the investor make this investment given a required levered, after-tax, rate of return of 14 percent?
Compute the after-tax cash flows and after-tax equity reversion for the holding period.
Identify the limits or caps placed on changes in the interest rate on an adjustable rate mortgage?
Discuss the quality of the major ARM indexes cited in the text?
What is the major constraint on lenders in setting new interest rates for an adjustable rate mortgage?
What are the advantages to a home buyer of a graduated payment mortgage?
What is the purpose of recording documents?
Describe a conforming loan?
What is the principal risk for the buyer/borrower in a contract for deed?
Explain the differences between a regular mortgage and a deed of trust?
Explain the difference between the equity right of redemption and the statutory right of redemption?
Describe the difference between a buyer taking title subject to the mortgage versus assuming the mortgage?
What is the underlying purpose of requiring a borrower to escrow money each month for the payment of property taxes?
In a foreclosure, how are priorities determined among lien claimants on the collateral property?
Explain the relationship and purpose of a promissory note and the two primary forms of security instruments?
What would be the price of a $100,000 loan if discounted by three points?
Discuss the purpose and operation of Ginnie Mae?
Define a mortgage purchase “for portfolio”?
Explain the differences between a CMO and a mortgage pass-through type of security?
Describe the impact of the originate-to-distribute model on the growth of the subprime mortgage market?
Explain the two basic kinds of mortgage pools used to back securities and the two different methods used to generate the securities?
How can tax-exempt bonds offer lower-cost mortgage money and how is this money generally used?
What market does Freddie Mac serve, and how does it raise money for the purchase of mortgage loans?
Define the term point and explain how it is used, and list the different charges that can be quoted in points?
Explain the relationship between the price and the yield on a mortgage loan?
Without a national mortgage exchange, how are mortgages traded in the United States?
Are there any good sources of mortgage money available in your locality outside of mortgage companies and regulated lending institutions?
Describe a warehouse line of credit and who may use it?

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