1. 10.1 Mortgage Loans First make a down payment. ◦ Generally between 10 and 40 percent of the selling price. ◦ Most 1 st -time homeowners put down 5%. ◦ Programs and other fees occur when putting down less than 20%. Remaining portion of the selling price is financed with a mortgage loan. ◦ Bank, savings and loan association, credit union or mortgage company. Lenders have the right to seize and sell the property if you fail to make the payments. Usually repaid with interest in equal monthly payments. Calculations: ◦ Mortgage Loan Amount = Selling Price – Down Payment Jane and Brian consider buying a new home for $140,000. A 15% down payment is required. What is the amount of the mortgage loan needed to finance the purchase?

2. 10.2 Monthly Payment and Total Interest Interest: Amount paid to the lender for using their money. Varies from lender to lender. Use the annual interest rate, amount of a loan, length of the loan to find the monthly payment, the total amount paid and the total interest charged. Use the table on Pg. 799 Calculations: ◦ Monthly Payment = (Amount of Mortgage ÷ $1,000) x Monthly Payment for a $,1000 loan ◦ Amount Paid = Monthly Payment x Number of Payments ◦ Total Interest Charged = Amount Paid – Amount of Mortgage Carol and Adam have applied for an $80,000 mortgage loan at an annual interest rate of 8 percent. The loan is for a period of 30 years and will be paid in equal monthly payments that include interest. What is the total amount of interest charged? Monthly Payment: Total Paid: Total Interest:

3. 10.3 Closing Costs At the signing of the documents transferring ownership to you, the lender charges closing costs. ◦ May include fees for lawyers, credit checks and title searches, surveys, taxes and the preparation of the documents. ◦ May be a flat fee regardless of the amount of the loan. ◦ May be a percent of the amount of the loan. ◦ May be an itemized list of fees. Calculations: ◦ Closing Costs = Sum of Bank Fees (Use Closing Cost Table on Pg. 349.) The Greens are granted a mortgage loan at an annual interest rate of 8% for 25 years by State Bank. The home has a selling price of $95,500. They need a 15% down payment. State Bank will allow them to finance the closing costs as part of the mortgage. What are the total closing costs? What is the actual amount financed with the mortgage? Find the down payment.95,500(.15) Find the amount of the mortgage.95,500 – Find the closing costs. Credit Report 65 65 Loan Origination 81175(.02) Title120 120 Attorney Fee250 250 Documentation81175(.003) Processing81175(.011) Find the actual amount financed.81175 +

4. 10.4 The Monthly Payment Each payment includes an amount for payment to interest and an amount for payment to principal. Amount of interest is calculated using the simple interest formula: I = prt. Amount of principal decreases with each payment. Calculations: ◦ Payment to Principal = Monthly Payment – Interest ◦ New Principal = Previous Balance – Payment to Principal The Finns obtained a 30-year, $80,000 mortgage loan. The interest rate is 8%. Their monthly payment is $587.20. For the first payment, what is the interest? What is the payment to principal? What is the new principal? Find the interest.80000(.08)(1/12) Find the payment to principal.587.20 – Find the new principal.80000 – The amount of principal that you owe decreases with each payment that you make. The 327 th payment is given below. For the 328 th payment, what is the interest? What is the payment to the principal? What is the new principal? Interest: Pmnt Principal: New Principal: 327587.20117.25469.9517,117.15

5. 10.5 Real Estate Taxes When you own a home you pay the city or county real estate taxes. ◦ Money is used to operate and maintain roads, parks, schools, government offices, etc. The amount of taxes you pay depends on: ◦ Assessed value – the dollar value assigned to a property by a tax assessor for taxation purposes. ◦ Tax rate Assessed value is found by multiplying the market value of the property by the rate of assessment. (Rate of assessment is a percent.) Market value is the price at which a home can be bought or sold. Tax rate is sometime expressed in mills per dollar of assessed value of a property. ◦ A mill is $0.001. ◦ A tax rate of 80 mills is a tax rate of $80 per $1,000of assessed value. It is often easier to express mills as dollars dividing by 1,000. Calculations: ◦ Assessed Value = Market Value x Rate of Assessment ◦ Real Estate Tax = Tax Rate x Assessed Value ◦ Mill = $0.001 or $1.00 ÷ 1,000

6. 10.6 Homeowners Insurance Homeowners Insurance: protection from losses such as fire, theft, and personal liability. ◦ Loss-of-use coverage: Covers expenses of living away from home while reparations are being completed when your home is damaged and unlivable. ◦ Personal liability and medical coverage: Protects against financial losses if a neighbor/other for example falls on your property and breaks a leg. ◦ To receive full payment for any loss up to the amount of the policy, you must insure your home for at least 80% of its replacement value. This is the amount required to reconstruct your home if it’s destroyed. ◦ Companies use the amount of coverage on your home to calculate the amount of coverage you receive on your garage, personal property, and for loss of use. Calculations: ◦ Amount of Coverage = Amt of Coverage on Home x Percent Coverage Percent Covered Garage and other structures10% Loss of use20% Personal property50%

7. 10.7 Homeowners Insurance Premium Location, location, location: Are you living in a crime- ridden area? On a mountain vista? Homeowners policy premium – the amount you pay for coverage. What affects the cost? ◦ Location ◦ Type of house – brick masonry veneer or wood frame. Fire protection class – A number assigned to homes that reflects how fire resistant the house is and how close you are to a water source. Use the table on Pg. 359 to complete problems.

8. 10.8 Other Housing Costs In addition to your monthly mortgage payment, real estate taxes, and insurance payment, you’ll have expenses for utilities, maintenance, and home improvements. Utility costs: may include/not limited to electricity, gas, water, telephone, cell phone, cable, Internet, repairs, and heating fuel. Federal Housing Administration (FHA) recommends that your total monthly housing cost be less than 35% of your monthly net income.