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Book Format: Finance I (0411) New

Course Description

Course Description

This course provides an introduction to the basics of real estate financing, from qualifying the borrower and qualifying the property in the underwriting process, to the various types of financing available, to closing the sale. The course begins with a review of the basic mathematical concepts and calculations that will be necessary to understand the material. We then progress into a discussion of the forces that control the market: supply, demand, and the government. This leads us into the third lesson.

Most real estate is purchased with borrowed money. The methods of real estate finance are many and varied. Lenders run risks in making real estate loans and for this reason they must have a firm grasp of a borrower’s financial qualifications. They consider a borrower’s income, credit, debt, source of funds, and net worth. But no analysis, no matter how thorough, of a borrower’s creditworthiness can be enough to make a loan free of risk.

The fourth lesson of this module is concerned with how the lender qualifies loan applicants; the fifth is concerned with how the lender qualifies the property to be mortgaged. This involves a thorough and accurate property valuation, using the sales comparison or cost approach for residential property and a cap rate or discounted cash flow analysis for investment property. These methods of valuation will be discussed in depth, so that the student will feel confident and familiar with them when he or she meets them in the real world.

The basics of the financing and sale process are discussed in lessons six and seven. The student will learn how title, the abstract ownership rights to the property, is transferred to the buyer with a deed. The earnest money contract will also be discussed: terms of the contract, contingencies, and earnest money deposits. In lesson seven, the focus turns to closing. The student will learn the customary costs involved in a real estate transaction; how certain items are prorated between the buyer and the seller; and the requirements set forth by the Real Estate Settlement and Procedures Act (RESPA).

Lesson eight discusses foreclosure. It considers what happens when a borrower is in default of the mortgage contract and how lenders may help borrowers prevent foreclosure through forbearance, moratoriums, and recasting. Also discussed is how, when these techniques fail, the property is foreclosed, sold at auction, and the creditors repaid.

The module continues with the types of mortgages available. The ninth and tenth lessons discuss the elements of conventional loans-both conforming and nonconforming-adjustable rate, graduated payment, growth equity, and reverse annuity mortgages, to name a few. The advantages and disadvantages of each type of financing are emphasized, so that the student may better understand the decision making process inherent in real estate finance.

Two specific types of financing, FHA – insured and VA – guaranteed loans, are reserved for separate lessons. FHA loans are insured by the government and perceived as less risky by lenders. They are available to all natural and naturalized U.S. citizens, but they carry an uncancelable monthly insurance premium. VA loans are guaranteed in part by the government, but are only available to veterans, active servicemen, and certain national guardspersons and special reservists.

The thirteenth lesson deals with a topic important to real estate investment, IRC Section 1031 exchanges. Buying and selling real estate investments can be a tax – heavy business. By “exchanging” one’s investments under the continuity of investment principle, investors can receive more financing and improve their portfolios.

At the end of each lesson, the student will be asked to complete a quiz that tests the information covered in that lesson in order to move on to the next lesson. The module ends with a real world practice lesson that brings together the concepts and material discussed throughout the entire module.

Learning Objectives

Upon completion of this module, the student will.

  • Be able to perform all the necessary mathematical calculations for real estate finance
  • Understand how the forces of supply and demand in the real estate market affect and re affected by the primary lending market
  • Know how the government influences real estate finance through agencies like the Federal Reserve and the Department of Housing and Urban Development
  • Be familiar with Real Estate Investment Trusts (REITs)
  • Understand the basic concepts of real estate finance
  • Know the principal instruments of financing-the promissory note, the mortgage, and the deed of trust-and how they are used
  • Understand how interest rates affect the real estate market
  • Know who lends money to the purchasers of real estate
  • Be familiar with the operations of the secondary market for loans
  • Know how to calculate a fully amortized, fixed – rate loan’s monthly payments
  • Be familiar with the tax deductions and credits associated with real estate ownership
  • Know the use of and legal requirements placed on escrow accounts
  • Know the difference between lien theory and title theory states
  • Know what a discount point is; when it is offered; and when it should be bought
  • Be familiar with what an underwriter looks for in approving a loan
  • Be familiar with the elements of a credit report and how FICO® scores affect a consumer’s borrowing ability
  • Be familiar with the provisions of the federal legislation that affects real estate lending: the Fair Credit Reporting Act, the Equal Credit Opportunity Act, and the Truth in Lending Act
  • Know the use and the method of calculation of a lender’s qualifying income ratios
  • Be familiar with the classification of types of debts
  • Be familiar with the steps in the appraisal process
  • Be familiar with the principal methods of property valuation
  • Know how to use the sales comparison approach and the cost approach to value real property
  • Be able to use the most common approach to valuing income – producing property, the cap rate analysis
  • Know the elements of a pro forma projection and its uses in discounted cash flow analyses
  • Know how to use spreadsheet and investment software to calculate net present values and internal rates of return
  • Understand the role of mortgage brokers and loan officers in the financing process
  • Know the difference between constructive and actual notice and the buyer’s obligations under the principle of caveat emptor
  • Be familiar with the lender’s requirements for qualifying the title and how a title insurance company verifies that a mortgagee will have the first lien through a title search.
  • Know the purpose and content of an earnest money contract and the earnest money deposit
  • Know what a deed is and the types of interest it can convey
  • Be familiar with the exceptions and reservations that can be placed on a title
  • Be familiar with the RESPA requirements for closing procedures and disclosures at closing
  • Know the basic organization of face – to – face and escrow closings: who presides over them and how transactions are conducted
  • Know the principles of proration: calendar years and banker’s years, prepaid items, accrued items, and how to divide them by calculating a daily rate
  • Know the current Fannie Mae and Freddie Mac loan limits
  • Understand private mortgage insurance: when it is required; when it is advisable; and when it is cancelable
  • Be familiar with Fannie Mae’s Desktop Underwriter and Freddie Mac’s Loan Prospector electronic underwriting programs
  • Know the requirements for a borrower’s financial qualifications in a conforming loan
  • Be familiar with the different types of mortgages, such as ARMs, GEMs, GPMs, and Balloon Mortgages
  • Understand the use and purpose of temporary and permanent buydowns
  • Be familiar with the most important FHA programs, especially Section 203(b)
  • Know the various underwriting requirements for FHA – insured loans, such as down payment and closing cost requirements
  • Understand the FHA’s mortgage insurance premium (MIP) and how it is different from PMI
  • Be familiar with the key elements of the VA loan guarantee program
  • Know who is eligible for the VA program and the documents required to prove one’s eligibility
  • Know the current amount of a veteran’s maximum entitlement and how to calculate remaining entitlement
  • Understand the purpose of IRC Section 1031
  • Know the definition of like kind and what property qualifies for a like kind exchange
  • Be able to calculate an investor’s adjusted basis in a property
  • Understand the difference between realized and recognized gain and how it is important to the tax laws
  • Know what boot is and how it is calculated
  • Be familiar with the delayed (Starker) exchange format-the 45/180 – day time limits and the rules for replacement property identification
  • Know how an investor can leverage saved capital from tax deferred exchanges
  • Understand the role of the Qualified Intermediary (QI) in the delayed exchange as a safe harbor
  • Be familiar with the reverse exchange format-the exchange accommodation titleholder (EAT), title parking, and allowable arrangements between the exchanger and the EAT
  • Know the tax benefits of installment sales

Regulatory Requirement

Our staff works diligently to provide you with an analysis of current mandates and legislation that affects you the licensee. All information pertaining to the Mandatory Continuing Education requirements can be found on the State Requirements page. You can find the link to this page on the upper Navigation bar on the Course Catalog.

Course Completion

Any applicable completion certificates or affidavits can be printed after completing the course and final exam.


Quizzes – There is a quiz at the end of each lesson to test comprehension of the subject matter.

Final Exam – Passing Grade 70%. You can take the final three times.

About The Subject Matter Expert

This course is created and brought to you by 360Training, a leading provider of accredited e – learning courses to working professionals through today’s leading schools, associations and corporations. 360Training’s high quality e – learning courses assist thousands of working professionals each month in a wide range of disciplines to succeed in today’s marketplace, renew licenses, acquire certification or prepare for a new profession.


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