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Monday, August 4, 2008

Daily Observations - Maturity of the Loan, Appraisal

Another change which benefits the buyer is that of the maturity of the loan. Originally, if the loan had a component of working capital as well as real estate. The maturity was a blended rate. The new requirement states that the maturity of the loan can be equivalent to the term of the predominant percentage financed; the entire loan will now have that longer term.

For example, if 20% of the new loan is for working capital, which is generally a seven year maturity the balance of the 80% is for the acquisition of real estate, the loan term and amortization would be for 25 years.
The appraisal - for any property is now mandated that it must be requested by and prepared for the lender-the costs may be passed onto the borrower.

If new construction or substantial renovation of an existing building, the appraisal must estimate the market value upon completion.
Once completed, the lender must obtain certification from the appraiser that the construction was completed according to plans.

If the collateral is existing building, not requiring construction.
The appraiser should estimate the market value on an as is basis and if any other valuation method is used they must explain why. For other fixed assets, if the valuation exceeds the depreciated value an independent appraisal is required to support that high value

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