1. Real Estate Loan Underwriting
Chapter 10
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2. Underwriting
• Estimating the value of the property being
pledged as collateral to guarantee repayment
and determining the ability of a borrower to
repay the loan
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3. Definition of Value
• Value in use
• Value in exchange
• Market value
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4. Appraisal
• Estimate of property’s value at a specific point
in time
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5. The Appraisal Process
• Drive-by appraising
• Defining the appraisal problem
• Determining the purpose for the appraisal
• Examining the neighborhood and property being appraised
• Collecting the pertinent data
• Applying approaches to estimate value
• Reconciling values estimated
• Preparing the report
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6. Appraisal Approaches
• Direct sales comparison approach
• Cost approach
– Depreciation
• Income capitalization approach
• Gross rent multiplier (GRM)
• Reconciliation of data and opinion of value
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7. Qualifying the Borrower
• Loan application
• Financial statement
– Assets
– Liabilities
– Net worth
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8. Qualifying the Borrower, cont.
• Data verification
– Deposits
– Employment
– Credit report
– Credit evaluation
– Credit scoring
– Loan qualifying income ratios
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