Second trust deeds are sometimes referred to as “gap loans” carried back by sellers, who in effect help finance a portion of the selling price. The amount financed represents a part of the seller’s equity.
Second trust deeds are sometimes referred to as “gap loans” carried back by sellers, who in effect help finance a portion of the selling price. The amount financed represents a part of the seller’s equity.
Under the federal Truth-in-Lending Law, most commercial lenders must disclose the total cost of real estate financing.
All financial calculators have five special keys that deal with the time value of money (TVM).
The computation of loan payments, interest rates, principal and interest allocations, discount yields, remaining balances, balloon payments. . .
Interest is the charge or price, expressed as dollars, paid for the use of money.
Often property owners are assessed for public construction projects that are proposed to improve the general health and welfare of the community.
As noted earlier, some construction lenders, as a prerequisite to making a construction loan, insist that the borrower have a firm take-out commitment from an approved permanent lender.
Before committing themselves to financing a construction project, construction lenders consider several factors.
Construction financing is the provision of funds to pay for labor and materials that go into the construction of a new or existing property.
The cost of money is always related to the anticipated risk to the lender providing the financing.
It has been said that a loan that is not good for the lender is not good for the borrower.
Borrowers default on repayment of loans for a variety of reasons, some because of events beyond their control. Medical expenses, disability, death, and financial reversals such as loss of a job or business probably head the list.
Figure 11.1a is an example of the front page of a typical deed of trust, while Figure 11.1b is a list of major items in the complete document, which can run many pages, and contains several provisions designed to reduce the chance of default and foreclosure.
Enforceable due-on-transfer (sale) clauses are included in most promissory notes in an effort to prevent the takeover of existing loans by another new owner without the lender’s prior permission.
Loan payments are usually due on the first of each month. After the loan is closed, the borrower is notified as to how to make payments.
Once a loan has been approved, the next phase is called closing. Loan closings are usually handled by independent third parties, such as title and escrow companies.
The loan approval process varies depending upon the lender. Conventional loans made by banks and thrift institutions are approved by authorized individuals or by a loan committee.
Loan processing starts with the loan application. Most lenders use the FNMA/FHLMC standard application formshown as Figure 10.1.
By now, you have learned that qualifying a borrower is not a precise mechanical function. A lender does not decide to say yes or no by looking at any one factor.
It was stated earlier that there are two major considerations in qualifying. One is the ability or capacity of the borrower to pay, which has been discussed.