Financing, Valuation, and Real Estate Calculations
Loan concepts
Financing questions test loan-to-value, points, amortization, private mortgage insurance, and qualifying ratios. LTV is the loan amount divided by the lesser of purchase price or appraised value. A point is 1% of the loan amount, paid as a cost; origination fees and discount points are not the same as the interest rate. PITI combines principal, interest, taxes, and insurance, and sometimes association dues. FHA, VA, USDA, conventional, and state housing-agency programs differ in down payment, insurance, and eligibility.
Valuation methods
The sales comparison approach is primary for residential property; the cost approach fits newer or special-purpose property; the income approach fits investment property. Gross rent multiplier equals price divided by gross rent; capitalization rate equals net operating income divided by price. An appraisal is not a home inspection and not a broker price opinion.
Calculation traps
Read whether a commission is split before or after referral fees, whether a point is based on loan amount or sale price, and whether a percentage is applied to the full price or the down payment. For prorations, use the method stated in the contract or a 365-day year unless the problem specifies otherwise.
Worked example
A property sells for $240,000 and appraises at $235,000. A 90% LTV lender uses $235,000, so the maximum loan is $211,500. Two points on that loan cost $4,230. If the buyer pays $240,000, the down payment needed is $28,500 ($240,000 − $211,500).