Financing, Valuation, and Real Estate Mathematics
Loan basics
Compare conventional, FHA, VA, and USDA loans; conforming versus nonconforming size; fixed versus adjustable rate (know caps, index, and margin); and the role of private mortgage insurance above 80% loan-to-value. Points are prepaid interest; discount points buy a rate down. Know the components of PITI (principal, interest, taxes, insurance) and that lenders also evaluate the housing expense ratio and total debt-to-income ratio. Origination and settlement disclosures follow federal disclosure timing rules, and New Mexico mortgage loan originators are separately licensed through the state financial institutions regulator.
Valuation
Three approaches: sales comparison (best for residential), cost (best for new or special-purpose property), and income capitalization (best for income property). Appraisals are performed by licensed appraisers under USPAP and must state highest and best use; a CMA or BPO is not an appraisal. Adjustments are made to the comparable, not to the subject.
Math you must be able to do cold
Commission splits, points, loan-to-value, area and acreage (43,560 sq ft per acre), income capitalization (value = net income ÷ cap rate), gross rent multiplier (value = gross rent × multiplier), and prorations.
Worked example
A buyer pays $320,000 with a 90% loan at 6.5% for 30 years. Loan amount = $288,000. The monthly payment factor for 6.5%/30 years is about $6.32 per $1,000 borrowed, so $288 × $6.32 = $1,820 principal and interest. Add estimated taxes of $250, insurance of $110, and PMI of $150 for PITI ≈ $2,330.
Traps
Do not apply an adjustment to the subject property; do not confuse price with value; watch whether a question asks for a monthly or annual figure; and confirm whether "points" are a percentage of the loan amount, not the purchase price.