Challenge Problem:
Bob is closing a real estate transaction on a farm in Yocona, Mississippi, for $385,900. His mortgage holder requires a 25% down payment and he also must pay $60.00 to record the deed, $100 in attormey's fees for document preparation, and $350 for an appraisal report. Bob will also have to pay a 15% loan origination fee. Bob chooses a 35 year mortgage at 7%. (a) How much cash will Bob Need to close on the property? (b) How much will Bob's mortgage be? (c) What is Bob's monthly payment on the property?
To solve this challenge problem, we will need to calculate the following:
(a) The amount of cash Bob needs to close on the property.
(b) The amount of Bob's mortgage.
(c) Bob's monthly payment on the property.
Let's break it down step by step.
(a) To calculate the amount of cash Bob needs to close on the property, we need to consider the down payment, recording fees, attorney's fees, appraisal report fees, and the loan origination fee.
1. Down Payment: The down payment is 25% of the property price, which is $385,900. So the down payment amount is 25% * $385,900.
Calculation: Down payment = 0.25 * $385,900
2. Recording Fees: Bob needs to pay $60.00 to record the deed.
3. Attorney's Fees: Bob needs to pay $100 for the attorney's document preparation.
4. Appraisal Report Fees: Bob needs to pay $350 for the appraisal report.
5. Loan Origination Fee: The loan origination fee is 15% of the mortgage amount.
To calculate the cash Bob needs to close on the property, we need to add all these amounts together:
Cash needed to close = Down payment + Recording fees + Attorney's fees + Appraisal report fees + Loan origination fee
(b) To calculate the amount of Bob's mortgage, we need to subtract the down payment from the property price:
Mortgage = Property price - Down payment
(c) To calculate Bob's monthly payment on the property, we need to use the mortgage amount, the loan term, and the interest rate. We can use a mortgage payment calculator to determine the monthly payment based on these factors.
Let's plug in the given values and calculate the answers:
(a) Calculate the amount of cash Bob needs to close on the property:
Down payment = 0.25 * $385,900
Recording fees = $60
Attorney's fees = $100
Appraisal report fees = $350
Loan origination fee = 15% of the mortgage amount
Cash needed to close = Down payment + Recording fees + Attorney's fees + Appraisal report fees + Loan origination fee
(b) Calculate the amount of Bob's mortgage:
Mortgage = Property price - Down payment
(c) Calculate Bob's monthly payment on the property using a mortgage payment calculator.