7. What is the amount paid on. interest with a monthly payment of $1,900 $150

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1 Chapters Classroom work 1. What are the three basic components of the real estate financing market? Federal Reserve, primary mortgage market and secondary mortgage market The FED helps to counteractt inflation or deflation and promote a the general welfare of the market by controlling the discount rate and reserve requirements of banks. The primary mortgage market makes money available for home buyers. The secondary mortgage market buys loans from the primary, insures loan (types; thereby making capital available for the primary market. 2. What institutions make up the primary mortgage market? Thrifts, savings associations, commercial banks, Insurance companies, Credit Unions, Pensions funds, Endowment funds, Investment group financing and mortgage banking companies 3. What institutions make up the secondary mortgage market? Fannie Mae, Freddie mac and Ginnie Mae 4. What is the difference between a Balloon payment loan and a Straight loan? A straight loan has monthly interest only payments with a payment of the entire principal due at a future date. A Balloon loan amortizes the principal with monthly payments of principal and interest for set period of time with a final large balloon of the principal. 5. What is the difference between a growing equity mortgage and an ARM mortgage? GEM increase the principal portion at an accelerated rate set by a schedule thus increasing the payments through principal. ARM is an Adjustable Rate Mortgage whereby the interest rate can adjust causing the payments to increasee through interest. The principal portion of the payment is constant and amortized through the entire life of the loan. GEM changes principal and ARM changes interest; either way the payment amount will change. 6. What is the amount paid on principal 1 st payment? Scenario a mortgage on $350,000 loan at 6% interest with a monthly payment of $1,900 $ What is the amount paid on principal in the third payment? Same scenario as above $ What is the difference between a purchase-money mortgage and an assumption mortgage? Purchase-money mortgage is when the seller agrees to finance a portion of the purchase price (seller financing). An assumption is when the buyer assumes the existing loan on the house from the seller. Seller must be assured by lender that they are released from the loan. 9. What is the difference between a package loan and blanket loan? A package loan consists of personal and real property; whereas a blanket loan consists of a loan for multiple properties. This is common with builders buying several lots at the same time. It will require a partial release (remove specified lot as collateral) when the builder sells a house built on a lot in a blanket loan.

2 10. What is the Truth in Lending Act and Regulation Z? Regulation Z is a product of the TIL Act. It requires creditors (25 X lending money or 5 X lending money on houses a year) to disclose the true cost of interest NCLUDING loan fees, finder fees, service charges and discount points. It creates the Annual Percentage Rate, APR, which is the true rate of interest taking into account fees. It allows for a 3 day right to rescind except for owner carry and 1 st mortgages. 11. What is the Federal Equal Credit opportunity Act (ECOA)? Prevents decimation in lending in regards to race, color, religion, national origin, sex, marital status, age,, and dependence on public assistance 12. What is the Community Reinvestment Act of 1977 (CRA)? Requires lending institution collect and reinvest in their community as established by geographic boundaries. 13. What is federal Real Estate Settlement Procedures Act (RESPA)? Applies to residential transactions designed to reduce the cost of closing (settlement) by not allowing referrals and kickbacks. 14. What is the difference a Good Faith Estimate (GFE) and a HUD 1? A Good Faith Estimate is a document that estimates the projected costs in a residential real estate transaction. A HUD 1 is the federal form used to demonstrate the buyer and seller s credit and debits. It is the final accounting form used in real estate transaction. 15. What is the difference between an Estate for Years and an Estate form Period to Period? An estate for years has specific begging and ending date, and thereforee not additional notice is required by either party to terminate. The lease simply terminates on the end date. An estate form Period to Period (periodic tenancy) is a lease for an indefinite period of time with no expiration date. An Estate for Years turns into and estate from Period to Period when the tenant remains in the property with no new agreement. 16. What is the difference between an estate at Will and an estate at Sufferance? An estate at will is when a leasehold tenancy is given with an unspecific and an uncertain term (friend living in your basement). An Estate at Sufferance is when a tenant will not leave at the end of a tenancy. 17. What are the differences between a gross lease, net lease and percentage lease? a. In a Gross lease the tenant pays a fixed rent and the landlord pays taxes, insurance, repairs, utilities and maintenance (common in residential). A Net leasee the tenant pays all or most of property charges plus the rent (common in commercial and industrial). A Percentage lease can use a Gross or Net lease plus a percentage of gross income received by the tenant (common in Wal-Mart stores). 18. What is the difference between an actual eviction and a constrictive eviction? An actual eviction is when the tenant is force out of the property due to the tenant s default on the terms of the lease. A constructive eviction is when the tenant leaves a property because the landlord has defaulted on the lease or the property is not habitable. 19. What must a property manager do for his client? Achieve the goals of the owners, generate income and preserve and increase value of the property

3 20. What is the American with Disabilities Act? A landlord is required to make a property habitable with reasonable accommodations for a person with a disability. 21. What are the regulations affecting appraisals? FIRREA of 1989 requires and appraisal with any federally related transaction (mostsecondary mortgage market). The UNIFORM STANDARD OF PROFESSIONAL APPRISAL PRACTICE (USPAP); establishes forms and practices for appraisers. 22. What is the difference between a Broker Price Opinion and a Competitive Market Analysis? A CMA is property valuation using active, under contract and sold for use by a buyer or seller. A BPO is a valuation by a real estate licensee generally for a bank. It is less formal an expensive than an appraisal. 23. What is plottage? Plottage is the increase of value in real estate when two properties are combined (greater than the sum of individual properties). 24. How is the difference between Regression and Progression? Regression is when a more valuable property is adversely affected in value by surrounding lower value properties. Progression is the increase in value of a lower value property due to presence of higher value properties in the area. 25. How do substitution, highest and best use and supply and demand affect appraisals? The principal of substitution says the value of a property is equal to cost to replace an equally desirable property. Highest and best use says a property should be valued at it highest value for a legal purpose (i.e. development land verses farm land). Supply and Demand says that the value of property is directly affected by availability of similar properties on the market. 26. Compare/contract the Sales Comparison Approach with the cost approach. The SCA is based upon comparing similar properties and adjusting them for the differences. The cost approach is based upon determination of the cost to replace the subject property with a substitute property. 27. Compare/contract reproduction cost with replacement cost. Reproduction cost is the exact duplicate; while replacement cost allows for current methods and creates the same functionality of the property. 28. What is the Income approach? It is the third approach appraisers used to determine value based upon the present value of future income. It utilizes capitalization rate, GRM or GIM tools. 29. What is the capitalization Rate? Income/Rate=Valuee or Income/Value=Rate or Value X Rate = Income If the income goes into the value 20 times the rate is 5%. Used for commercial and industrial buildings. 30. What is the difference between the Gross Rent Multiplier and the Gross Income Multiplier? GRM is used for 1-4 rental units and GIM is used for 5 or more units 31. What are the differences between nonconforming use, conditional use permit and variance permit?

4 A nonconforming use is generally when zoning changes occur that no longer allow the current use of the property. The property may be grandfathered in and allowed to stay in the same use. Conditional use permit allows nonconforming but related land use. Variance permit allows prohibited land uses to cure a hardship (setbacks due to slope). 32. What is a primary purpose of zoning regulations? Zoning controls land use with an emphasis on density. 33. In what categories does the Fair Housing Act (Administered by HUD) prohibit discrimination? Race, color, religion, sex, disability, familial status and national origin It also monitors advertising in efforts to protect the public. 34. What are the exemptions to the Fair Housing Act? Owner occupied buildings with no more than four units Single family housing sold or rented without a real estate licensee Housing by organization that limits housing to its members Sale of a home when the owner does not own more than three homes and sells only one in a two year period and discriminatory advertising is not used 35. What is the difference between Blockbusting, Steering and Redlining? Blockbusting is the act of encouraging people to sell or rent their homes, because of the entry of a protected class into their area. Steering is the directing of home seekers or renters to a specific area, because of their protected class status. Redlining is the act of refusing to sell insurance or provide a mortgage, because of the geographic area the customer resides within. 36. What is the trigger year for lead base paint? What is the difference between a face to face closing and an escrow closing? A face to face closing is when the buyer and seller meet at specified place to sign closing documents (Colorado). An escrow closing, a third party coordinates the closing activities on behalf of the buyer and the seller. 38. What is the difference between a debit and credit? A debit is the amount to be paid by the buyer or the seller. A credit is an amount payable to the buyer or the seller. 39. What are the differences between and accrued items and prepaid items? Accrued items are expenses to be prorated (such as water bills and interest on an assumed mortgage) that are owed by the seller but will be paid late by the buyer. Credit buyer and debit seller Prepaid items are expenses to be prorated (such as fuel oil in a tank) that have been prepaid by the seller but not fully used up. Credit seller and debit buyer 40. What are the per month and per day proration? Assume a sale is to be closed on September 17. Using a 360-day year, prorate the current real estate taxes of $3,600 for the accrued period of 8 months, 17 days. $300 per month and $10 per day

5 41. What will be credit and the debit entries? $300x8=$2,400 plus 17X$10=$1,700 $2,570 Credit Buyer and $2,570 Debit Seller 42. What is credit/debit entry for the sales price? Credit to Seller Debit to Buyer 43. What is credit/debit entry for loan payoff? Debit Seller Credit Broker (closing company) 44. What is credit/debit entry for earnest money? Debit Broker (closing company) and Credit Buyer 45. What is credit/debit entry for prepaid HOA? Credit Seller and Debit Buyer