A buyer is paying a reduced $500 in closing costs on a home with a sale price of $95,000 in the state of Bath, Maine. If the buyer obtains an FHA loan, what would be the monthly payment if the loan is at 9 percent for 10 years? (State your answer to the nearest dollar, i.e. 95).
To calculate the monthly payment for an FHA loan, we need to consider several factors: the loan amount, the interest rate, and the loan term. Let's break down the calculation step-by-step:
1. Calculate the loan amount: The loan amount is equal to the sale price minus the reduced closing costs.
Loan Amount = Sale Price - Closing Costs
Loan Amount = $95,000 - $500
Loan Amount = $94,500
2. Determine the monthly interest rate: Divide the annual interest rate by 12 to get the monthly interest rate.
Monthly Interest Rate = Annual Interest Rate / 12
Monthly Interest Rate = 9% / 12
Monthly Interest Rate = 0.09 / 12
Monthly Interest Rate = 0.0075
3. Calculate the number of monthly payments: Multiply the number of years by 12 to get the total number of monthly payments.
Number of Monthly Payments = Loan Term in Years × 12
Number of Monthly Payments = 10 years × 12
Number of Monthly Payments = 120
4. Calculate the monthly payment using the loan amount, monthly interest rate, and number of monthly payments. The formula to calculate the monthly payment on an FHA loan is:
Monthly Payment = [Loan Amount × Monthly Interest Rate] / [1 - (1 + Monthly Interest Rate)^(-Number of Monthly Payments)]
Monthly Payment = [$94,500 × 0.0075] / [1 - (1 + 0.0075)^(-120)]
Now, let's simplify the calculation:
Monthly Payment = $541.88
Therefore, the monthly payment for an FHA loan with a loan amount of $94,500, an interest rate of 9% for 10 years (120 months), and reduced closing costs of $500 would be approximately $542.