Real Estate Financing

Types of loans available for real estate:

• Conventional Mortgage: fixed interest rate
•  10, 15, and 30 year loans
• Adjustable Rate Mortgage: interest rate changes to keep up with current market rates
• good for short term loans
• Veteran Affairs Mortgage: no down payment on a loan up to $200,000
• Assumable Mortgage: a loan that stays with the property and transfers to the next buyer
• Balloon Mortgage: fixed rate for 7 years and then a balloon payment of the remaining balance of the loan after the 7th year
• lower interest rates

Sources of capital for real estate:

• Individual Investors: through direct ownership of real estate and provide debt capital to equity investors by holding a mortgage
• Life Insurance Companies: purchase real estate directly and by providing mortgage funds to borrowers
• Pension Funds: invest directly in real estate and underwrite mortgage loans for equity investors
• Real Estate Investment Trusts: sell shares of stock to smaller investors and then use the proceeds to invest directly in real estate
• Here is a website that explains all about REITs.  I really like the idea of REITs and they have much success in their investments.
• Commercial Banks: involved in development and construction financing (short term lending)

Below is a video that gives three different creative ways of financing a new real estate property. One way that he talks about is to make an agreement with the current owner of the property to make monthly payments instead of making payments on a mortgage. I think this is a great and creative way to finance, but it can also be tricky.

Overview of Real Estate Finance

Four different types of Real Estate Finance Jobs:

1. Residential Mortgage Loan Officer- deal with residential mortgage loans
2. Residential and Commercial Development Finance- research local trends and financing for developers and development lenders
3. Corporate Real Estate Management- control the real estate of large corporations for investments and corporate use
4. Investment Analyst- assess, review, and create financial reports on a company's real estate portfolio and investment

Here is a link to a website that explains these Real Estate Finance Jobs in more depth. Careers in Real Estate Finance.  The biggest job in real estate finance is mortgages, whether it be for residential, commercial, or large developments. Mortgage companies either have specialty consumers, for example, strictly commercial mortgage loans, or they have a broad range of loans that they provide. 

There will always be a need for real estate finance, but the rate at which the careers will grow is uncertain.  Real Estate owners will always need financing when it comes to renovations or purchasing new property.  The only thing that I think will decrease the mortgage industry is too much government regulation to where it is too difficult to keep up with the procedures or if we go into a deep depression. 

Local Real Estate Finance Firms:

• Round Point Mortgage
• New American Funding
• TXL Mortgage
• Silver Mortgage
• Cornerstone Mortgage

Foreclosures are a big consideration for real estate finance companies.  When they are reviewing loan applications they need to calculate how big the risk of a foreclosure will be.  The higher the risk the more interest they will make the applicant pay.  When a person that receives the mortgage fails to make the monthly payments the property will soon end in foreclosure.  The lender will put the real estate up for sale at a reduced price.  This reduced price will cover what is left to be paid back on the loan plus interest, taxes, and other fees associated with transfer of title.

Overview of a Real Estate Appraisal

Appraisal
noun

1. the act of estimating or judging the nature of value of something or someone.
2. an estimate of value, as for sale, assessment, or taxation; valuation
3. an estimate or considered opinion of the nature, quality, importance, etc.

Above is the official definition of appraisal. An appraisal can mean different things and there are many different types of appraisals. Real Estate Appraisals are needed when a property needs to be valued. It is a report that looks at all aspects of the property and surrounding areas and gives a dollar amount to the value of a specific property. 

Some different types of Real Estate Appraisals are:

• Residential Appraisal
• Exterior Only Residential Appraisal
• Small Residential Income Property Appraisal
• Individual Condominium Unit Appraisal
• Two to Four Unit Residential Appraisal

There can be bad appraisals if the appraiser makes mistakes and does not take his or her time when evaluating the property.  Being an appraiser takes a lot of experience and time to perfect it and not make mistakes. You could also get an appraiser that is a poser and is not certified and does not follow the rules and regulations when doing the appraisal.

The view on appraisers means different things to different people. I believe that all around the opinion of real estate appraisers is good.  They are chosen to appraise a property and as long as they do their job accurately than they should have a positive view towards them.  I can see that if a customer has a bad experience with one or more appraisers that they will have a bad taste about appraisers. I cannot speak for other types of appraisers, such a personal property appraisers. 

Appraisers will always been needed even though information on the internet about properties will continue to grow.  Property owners will always be making improvements on their real estate, which in turn will eliminate the previous appraisal that was done on the property. Also, since appraisals are regulated that makes them more reliable and accurate when it comes to selling your home and trying to find out a reasonable asking price for your real estate.

Here is a website that has links to many different Real Estate Appraisal Forms, some of which were listed above.

Below is a video about Real Estate Appraisals and how the process is done.

Overview of a Real Estate Appraiser

In order to become a real estate appraiser, you have to take classes, pass a test, and then be approved by the state to become appraiser.  Each state has different requirements on how to become an appraiser at different levels.  In Texas, there are five different levels of appraisers;

• Appraiser Trainee
• Provisional Real Estate Appraiser
• State-Licensed Real Estate Appraiser
• Certified Residential Real Estate Appraiser
• General Certified Real Estate Appraiser

Here is one of the Texas Real Estate Appraisal Licensing Websites, Real Estate Express.com. The page that comes up is the Texas requirements for each level of appraisers listed above.  Each specifies the amount of Classroom Hours, Appraiser Experience, College- Level Requirements, and passing of an Exam.

On a daily basis, real estate appraisers might do the following depending on their specialty:

• Visit their current real estate property that is going to be appraised
• Evaluate the properties unique features and the features of the area around the property, the condition of the property, and any renovations that may have been made in the past
• Estimate the property's value based on earlier information gathered
• Write up reports of the estimated property value

Right now it is believe that there are just enough and maybe too many appraisers in the United States.  I make this conclusion because the growth rate for appraisers in 2010 is 7%, according to the Bureau Labor of Statistics, which is a slower growth than the average career.  It may not be growing at a faster rate because there are already enough appraisers for the demand of real estate appraisals or because they believe that the demand for appraisals will not be growing in the future.  This conclusion could be proven wrong if there is an increase in the demand for real estate which will ultimately affect appraisers.

Real Estate Appraisers are paid differently based on what type of appraiser they are and who they are working for.  Some firms pay appraisers salary, some pay strictly commission, and some have a base pay plus commission.  If you are an independent appraiser and work for yourself, you get paid on how much you are charging for each individual appraisal.

Appraisal Firms in the United States:

• National
• Metro-West Appraisal Co, LLC
• United States Appraisals
• Nationwide Appraisal Management
• Local
• Lowery Property Advisors, LLC
• Pinnacle Appraisal Group, LLC
• Paramount Property Analysts
• Brazos Valley Appraisals

These firms and many more firms are listed on the Real Estate Appraiser Directory Website. This website has plenty of information about different types of appraisal firms.  It has blogs, forums, testimonials, appraiser listings, and much more for someone looking for a career in an appraisal firm or for a property owner looking to have their real estate appraised.

This is a video of a Real Estate Appraiser that is a stand up comedian.  He brings humor into the appraiser's day to day life.

Public Restrictions on Ownership

Limitations that the government creates on the ownership of real estate are public restrictions. Four powers that the government has over real property are:

~Eminent Domain: The government can acquire property for public use as long as the owner receives just compensation. This is a video about citizens fighting against eminent domain.

~Police Power: Governments have the power of regulation, which gives them the ability to protect the public health, safety, morals, and general welfare. An example is that the land next to a residential area cannot be used for industrial uses.

~Escheat: In the event that the landowner dies without leaving either a will or living relatives, the state government becomes the new owner of the property.

~Taxation: Property tax, or ad valorem tax, is levied as a percentage of value of the property. The value is not based on market value but based on its assessed value. Taxation causes a lot of controversy around the nation.  Here is an article about Texas property taxes. I agree with this article because even though Texas has higher property taxes, we also do not have personal income taxes. This subject will always controversy attached to it.

Not just taxation is a controversial issue, all of these powers are controversial around the country. Zoning, which is the dividing of a community's land into districts in which certain uses of land are allowed, is also a big controversial issue in each city. 

This is a zoning map of College Station

Real Estate owners need to pay attention to their property taxes and make sure they pay them.  They need to educate themselves about eminent domain and the other two government powers because they could affect them in the future.

Private Restriction on Ownership

Private restrictions on ownership, known collectively as encumbrances, are binding on anyone who gains interest in the property.  Following are examples of private encumbrances:

~Covenants, Conditions, and Restrictions (CCRs): limit the way the property owner can use the property. An example is Deed Restrictions created by the developer of the neighborhood saying that you can have no more than two dogs living on the property.

~Liens: claim on the property as security for a debt or for a fulfillment of monetary charge or obligation. An example of a voluntary lien is a mortgage.

~Easements: right given to one party by a landowner to use the land for a specified use. An example is giving an oil company the right to drive across your land for them to get to their pump on the property. Here is a great article talking about conservation easements in Texas. A lot of Texas land owners may have to deal with this situation and it is good to be informed about easements before they come to play.

~Profit a Prendre: nonpossessory interest in property that permits the holder to remove part of the soil or produce of the land. An example is the holder being able to remove certain wild animals off of the land.

~Adverse Possession: allows individuals to acquire title to land they do not own because they have openly possessed it for a statutory period of time (usually 7 to 20 years). An example is someone moving in to an abandoned house and claiming it as their own after at least 7 years. Here are the main Texas rules and limitations for adverse possession.

~Encroachments: unauthorized invasion or intrusion of a fixture, a building, or other improvement onto another person's property. An example is your neighbor building a fence that crosses onto your property.


Every real estate owner needs to pay close attention to each of these restrictions or else they can lose part or all of their title on the property that they own.

Property Rights and Legal Descriptions

Property Rights can be split up in multiple ways.  Four ways to split up property rights are, surface of the land, mineral rights, water rights, and air rights.  All four of these have different, specific rights and are mostly self explanatory. During our daily lives we mostly use our rights to the surface of the land because that is where houses are built.  In Texas, air rights are the least important, and mineral rights can be extremely important depending on where you live in Texas and if you have any oil or gas on your land.  When purchasing land you need to be very careful on what you are actually buying and what rights are coming with the property.  


Now, what is a legal description? It is the specification of the exact boundaries of the land being purchased.  An exact legal description is required to be in the documents when transferring title of the property.  There are three common used ways to obtain legal descriptions of land:

~Rectangular survey system: Based on principle meridians that run north and south and base lines that run east and west.

This is how a rectangular survey is split up.

~Metes-and-bounds: Distances and directions of the boundaries that enclose a piece of land.

~Recorded Plats: Engineers' drawings of parcels of real estate.

This is a recorded plat from The Barracks Townhomes, where I live.  This plat also has the metes-and-bounds underneath the actual plat.