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CHAPTER EIGHT

This chapter delves into the critical processes of underwriting and financing residential properties. Underwriting evaluates a borrower's loan request, focusing on profitability and risk through methods like the payment-to-income and loan-to-value ratios. Affordability ratios, including PITI/gross income and total obligations to income, provide insights into borrower capability. The underwriting process considers income sources, assets, credit history, and debt obligations. Additionally, it covers closing costs, which are essential one-time expenses when buying a property or securing a loan.

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CHAPTER EIGHT

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  1. CHAPTER EIGHT UNDERWRITING AND FINANCING RESIDENTIAL PROPERTIES

  2. Underwriting Default Risk Underwriting • Is the process of evaluating a borrower’s loan request in terms of potential profitability and risk. Two methods are used namely: • Payment-to-income ratio (MPs on the loan amount plus other housing expenses divided by borrower’s income) • Loan-to-value ratio (amount of loan requested divided by property’s value).

  3. Affordability Ratios • Payment to income • PITI/ gross income equals or is less than 28% • Total obligations to income • PITI plus other obligations/ gross income equals or is less than 36% • Percentages vary with kind of loan program

  4. The Underwriting Process- Income Retirement annuity Social security Public assistance Borrower assets Credit history Estimated housing expense Other obligations and debt • Employment • Working spouse • Rentals • Child support • Commissions • Self employment • Bonuses • Dividends or interest

  5. Closing Costs- Financing Costs are one-time costs associated with buying a property or obtaining a loanCosts incurred include as below: Next slide

  6. Closing Costs- Financing • Loan application • Credit report fee • Loan origination • Attorney fees • Appraisal fees Fees for survey Loan documentation fees Discount points Prepaid interest

  7. Closing Costs- other • Property taxes, proration and escrow accounts • Mortgage insurance (default) • Hazard insurance • Title insurance • Pest inspection • Real estate commissions • Statutory costs

  8. Chapter Ends here!!

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