mortgage - Hawaii Real Estate Courses

MORTGAGE
06
I-year Adjustable Rate Mortgage
Mortgage where the annual rate changes yearly. The rate is usually based on
movements of a published index plus a specified margin, chosen by the lender.
I5-year Mortgage
Mortgage that amortizes over a period of 15 years. Although interest rates may be lower,
monthly payments are generally higher than for a 30-year mortgage. The 15-year
mortgage has the advantage of a significant interest savings when compared with a 30year mortgage.
311, 511, 711 and 1011 ARMS
Adjustable rate mortgages in which rate is fixed for three year, five year, seven year and
10-year periods, respectively, but may adjust annually after that. Also known as Hybrid
ARMS.
30-year Mortgage
Mortgage that amortizes over a period of 30 years. The longer loan period may keep
monthly payments low. Making extra principal payments can help save on interest costs.
7123 and 5125 Mortgages
Mortgages with a one time rate adjustment after seven years and five years respectively.
Adjustable Rate Mortgage (ARM)
A loan whose interest rate, and accordingly monthly payments, fluctuate over the period
of the loan. With this type of mortgage, periodic adjustments based on changes in a
defined index are made to the interest rate. The index used is established at the time of
application. Also sometimes known as a renegotiable rate mortgage, variable rate
mortgage or Canadian rollover mortgage.
Agreement of Sale
A type of owner financing. See Contract Sale or Deed.
Amortization Loan
Loan payment by equal periodic payments calculated to pay off the debt at the end of a
fixed period, including accrued interest on the outstanding balance. Comes from the
French word, "mort", literally to kill the loan owing.
Balloon Mortgage
A loan which is amortized for a longer period than the term of the loan. Usually this refers
to a thirty year amortization and a five or seven year term. At the end of the term of the
loan, the remaining outstanding principal on the loan is due. This final payment is known
as a balloon payment.
BIC Loans
Loans that do not meet the borrower credit requirements of Fannie Mae and Freddie Mac
are called "B", "C" and "D" paper loans vs. " A paper conforming loans. BIC loans are
offered to borrowers that may have recently filed for bankruptcy, foreclosure, or have late
payments on their credit reports. Their purpose is to offer temporary financing to these
applicants until the can qualify for conforming " A financing. The interest rates and
programs vary, based upon many factors of the borrower's financial situation and credit
history. A.k.a. Sub-prime Loans.
Biweekly Payment Mortgage
A plan to reduce the debt every two weeks (instead of the standard monthly payment
schedule). The 26 (or possibly 27) biweekly payments are each equal to one half of the
monthly payment required if the loan were a standard 30-year fixed rate mortgage. The
result for the borrower is a substantial savings in interest. For example, a 30-year loan
could be paid off within 18 to 19 years.
Blanket Mortgage
A mortgage covering at least two pieces of real estate as security for the same mortgage.
Bridge Loan
A second trust that is collateralized by the borrower's present home allowing the
proceeds to be used to close on a new house before the present home is sold. Also
known as "swing loan."
Buydown Mortgage
A temporary buydown is the type of loan with an initially discounted interest rate which
gradually increases to an agreed-upon fixed rate usually within one to three years. To
reduce the monthly payments during the first few years of a mortgage, the borrower
makes an initial lump sum payment to the lender.
COFi
An adjustable-rate mortgage with a rate that adjusts based on a cost-of-funds index,
often the Il t h District Cost of Funds.
Construction Loan
A short term interim loan to pay for the construction of buildings or homes. These are
usually designed to provide periodic disbursements to the builder as he or she
progresses. See Interim Financing.
Contract Sale or Deed:
A contract between purchaser and a seller of real estate to convey title after certain
conditions have been met. It is a form of installment sale. A.k.a. Agreement of Sale.
Conventional Loan
Any mortgage other than FHA, VA or RHS.
Convertible ARM
Some ARMS come with an option to convert them to a fixed-rate mortgage at designated
times (usually during the first five years on the adjustment date). The new rate is
established at the current market rate for fixed-rate mortgages. A type of hybrid ARM.
Deferred Interest Loan
See Negative Amortization Loan.
Page 2 of 7
Energy Efficient Mortgage (EEM)
An FHA program that provides mortgage insurance for the purchase or refinance of a
principal residence that incorporates the cost of energy efficient improvements into the
loan.
Fannie Mae
See Federal Nafional Mortgage Association.
Farmers Home Administration (FmHA)
Provides financing to farmers and other qualified borrowers who are unable to obtain
loans elsewhere.
Federal Home Loan Mortgage Corporation(FHLMC) also called "Freddie Mac"
A government sponsored entity that purchases conventional mortgage from insured
depository institutions and HUD-approved mortgage bankers.
Federal Housing Administration (FHA)
A division of the Department of Housing and Urban Development. Its main activity is the
insuring of residential mortgage loans made by private lenders. FHA also sets standards
for underwriting mortgages.
Federal National Mortgage Association (FNMA) also know as "Fannie Mae"
A government sponsored entity that purchases and sells conventional residential
mortgages as well as those insured by FHA or guaranteed by VA.
FHA Loan
A loan insured by the Federal Housing Administration open to all qualified home
purchasers. While there are limits to the size of FHA loans, they are generous enough to
handle moderately priced homes almost anywhere in the country.
FHA 203(b) Loan
This is the most popular FHA purchaselrefinance program available. The program
requires a 3% down payment for home purchases and allows "rate reductions" for
refinances up to 97% "loan to value."
FHA 203(k) Loan
A single-family home rehabilitation program that enables borrowers to finance both the
purchase or refinance of a house andlor the cost of its rehabilitation through a single
mortgage.
FHLMC
The Federal Home Loan Mortgage Corporation provides a secondary market for savings
and loans by purchasing their conventional loans. Also known as "Freddie Mac."
First Mortgage
The primary lien against a property.
Fixed Rate Mortgage
The mortgage interest rate will remain the same on these mortgages throughout the term
of the mortgage for the original borrower. Fixed-rate mortgages are available for 30, 25,
20, 15, and 10 years. Generally, the shorter the term of the loan, the lower the interest
rate available.
Fully Amortized ARM
An adjustable rate mortgage (ARM) with a monthly payment that is sufficient to amortize
the remaining balance, at the interest accrual rate, over the amortization term.
FNMA
The Federal National Mortgage Association is a secondary mortgage institution. FNMA
buys VA, FHA, and conventional mortgages from primary lenders. Also known as "Fannie
Mae."
Freddie Mac
See Federal Home Loan Mortgage Corporation
Ginnie Mae
See Government National Mortgage Association.
Government National Mortgage Association (GNMA)
Also known as "Ginnie Mae." Provides sources of funds for residential mortgages,
insured or guaranteed by FHA, VA or RHA.
Graduated Payment Mortgage (GPM)
GPMs have payments that start low and gradually increase at predetermined times.
Lower initial payments allow the borrower to qualify for a larger loan amount. The monthly
payments will eventually be higher in order to catch up from the lower payments. The
loan will be negatively amortizing during the early years of the loan, then pay off the
principal at an accelerated pace through the later years.
Growing Equity Mortgage (GEM)
A fixed rate mortgage that provides scheduled payment increases over an established
period of time. The increased amount of the monthly payment is applied directly toward
reducing the remaining balance of the mortgage.
Guarantee Mortgage
A mortgage that is guaranteed by a third party.
HUD Reverse Mortgage
A program for homeowners 62 and older who have paid off their mortgages or have only
small mortgage balances remaining (seasoned mortgages). The program allows
homeowners to borrow against the equity in their homes in a lump sum, on a monthly
basis for a fixed term or for as long as they live in the home, or on an occasional basis as
a line of credit.
Hula Mae Program
Hula Mae is an innovative mortgage loan program created by the Hawaii State
Legislature in 1979 for families of low and moderate income. Through the sale of taxexempt revenue bonds, the Hula Mae Program provides eligible home buyers with
mortgage loans at interest rates below those available on conventional loans.
Page 4 of 7
Hybrid Adjustable Rate Mortgage
See 311, 511, 711 and 1011 ARMS.
Insured Mortgage
A mortgage that is protected by the Federal Housing Administration (FHA) or by private
mortgage insurance (MI).
Interim Financing
A construction loan made during completion of a building or a project. A permanent loan
usually replaces this loan after completion.
Jumbo Loan
A loan which is larger than the limits set by the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be
funded by these two agencies, they usually carry a higher interest rate.
Junior Mortgage
A mortgage, the lien of which is subordinate to that of another mortgage. Second and
third mortgages are both junior mortgages.
Lease-Purchase Mortgage Loan
An alternative financing option that allows low and moderate income home buyers to
lease a home with an option to buy. Each month's rent payment consists of principal,
interest, taxes and insurance (PITI) payments on the first mortgage plus an extra amount
that accumulates in a savings account for a down payment.
Loan
A sum of borrowed money (principal) that is generally repaid with interest.
Mortgage
A legal document that pledges a property to the lender as security for payment of a debt.
The owner retains possession and use of the property and, upon the payment of the
debt, the mortgage becomes void.
Negative Amortization Loan
Occurs when the monthly payments are not large enough to pay all of the interest due on
the loan. This unpaid interest is added to the unpaid principal balance of the loan. The
danger of negative amortization is that the home buyer ends up owing more than the
original amount of the loan. Also known as a Deferred Interest Loan.
Negotiable Rate Mortgage
See Adjustable Rate Mortgage.
Open-end Mortgage
A mortgage or deed of trust written so as to secure and permit advancing of funds in
addition to the amount originally loaned.
Option Adjustable Rate Mortgage
After the first payment, the borrower has four payment options to choose from each
month. The lender sends a monthly statement offering a minimum payment (I), interestonly payment (2), 30-year amortized payment (3) or 15-year amortized payment (4).
Owner Financing
A property purchase transaction in which the party selling the property provides all or part
of the financing. See Purchase Money Mortgage or Contract for Deed.
Participation Loan
See Shared Appreciation Mortgage.
Permanent Loan
A long-term mortgage, usually ten years or more.
Pledged Account Mortgage (PAM):
Money is placed in a pledged savings account and this fund plus earned interest is
gradually used to reduce mortgage payments.
Purchase Money Mortgage (PMM)
A mortgage given by the purchaser to the seller simultaneously with the purchase of real
estate to secure the unpaid balance of the purchase price. A type of owner financing.
Refinance Loan
Obtaining a new mortgage loan on a property already owned. Often to replace existing
loans on the property.
Renegotiable Rate Mortgage
A loan secured by a long-term mortgage of up to 30 years, which provides for
renegotiation at equal stated intervals of the interest rate for a maximum variation of 5
percent over the life of the mortgage. See adjustable rate mortgage.
Reverse Annuity Mortgage (RAM)
A form of mortgage in which the lender makes periodic payments to the borrower using
the borrower's equity in the home as collateral for and repayment of the loan. See HUD
Reverse Mortgage.
Rural Housing Service (RHS)
The Rural Housing Service of the U.S. Department of Agriculture guarantees loans for
rural residents with minimal closing costs and no down payment.
Seasoned Mortgage
A mortgage that payments have been made on. The longer the seasoning and payment
history of the mortgage, the greater the likelihood it will be paid in the future.
Second Mortgage
A mortgage made subsequent to another mortgage and subordinate to the first one. See
Junior Mortgage.
Shared Appreciation Mortgage (SAM)
A mortgage in which a borrower receives a below market interest rate in return for which
the lender (or another investor such as a family member or other partner) receives a
portion of the future appreciation in the value of the property. May also apply to mortgage
where the borrower shares the monthly principal and interest payments with another
party in exchange for part of the appreciation. A.k.a. Shared Equity Mortgage,
participation loan.
Shared Equity Mortgage
See Shared Appreciation Mortgage.
Page 6 of 7
Step Rate Mortgage
A mortgage that allows for the interest rate to increase according to a specified schedule
(i.e., seven years), resulting in increased payments as well. At the end of the specified
period, the rate and payments will remain constant for the remainder of the loan.
Sub-prime Loan
See BIC Loans.
Takeout Loan
A permanent mortgage loan which a lender agrees to make to a borrower upon
completion of improvements on the borrower's land. The proceeds of the loan are used
principally to pay off the construction loan.
Two Step Mortgage
Two-Step mortgages have a fixed rate for a certain time, most often 5 or 7 years, and
then interest rate changes to a current market rate. After that adjustment the mortgage
maintains the new fixed rate for the remaining 23 or 25 years. A type of hybrid ARM. Also
called "Super Seven" or "Premier" mortgage.
VA Loan
A long term, low-or-no down payment loan guaranteed by the Department of Veterans
Affairs. Restricted to individuals qualified by military service or other entitlements.
Variable Rate Mortgage (VRM)
See Adjustable Rate Mortgage.
Wraparound Mortgage
A mortgage which secures a debt which includes the balance due on an existing senior
mortgage and an additional amount advanced by the wraparound mortgage. The
wraparound mortgagee thereafter makes the amortizing payments on the senior
mortgage.
Zero Down Payment Mortgage
See BIC Loans.
This handout is a basic explanation of certain loan types andprogams with may or may
not be available through lenderas in Hawaii. The information prnovided should only be
used to familiarize individuals with some mortgage terms and concepts. These documents
should not replace the advice and counsel of a banker or mortgage professional.
Dower Scl~oolof Real Estate Windward
Study Guide to Hawaii Based Loan Programs
ERS Employee Retirement System and Hula Mae Loans
These two programs are loans for Hawaii Residents. They are market rate loans but offer
advantages tliat allow a person to qualify easier than other programs.
ERS :
Must be single family, condo, townhouse or zero lot line home
For Members, Employees and Retirees of the Hawaii Govt System
Income must be at least 3.5X the Mortgage Payment
Must sign affidavit that you will remain owner occupant
Assumable to Qualified Individuals
If leasehold land, the lease must run 10 years longer than the loan
Hula Mae Loans
Must be 18 years of age
Must be Hawaii Resident, US Resident
Must not have owned a home for at least 3 years preceeding
Owner Occupant
Must be first time home buyer
There is a profit recapture tax if you sell prior to 9 years at a profit
If leasehold land, must be a lease for at least 35 years and at least 10 years must
be fixed
USURY
Usury is illegal interest. In Hawaii the usury rate is 12%. There are
exemptions to the Usury Law.
Exemptions include loans from sellers to buyers ( seller financing ); first
and second mortgage loans
and agreements of sale.
REVERSE MORTGAGES
Allows an older person to have income based on and derived from the
equity in their home
FORECLOSURES
Property tax liens are paid first in priority, except in a foreclosure the
expenses due to the foreclosure ( i.e. legal fees and foreclosure costs ) are
paid before property taxes.
A.
Settlement Statement
OfdB Ap3rova 1bo 2CO2-0265
(ex? 'es 1 1 30 2005)
U.S. D e p a r t m e n t o f H o u s i n g
a n d Urban Development
8. Type of Loan
6 File Number:
I.
FHA
2.
FmHA
4.
VA
5.
Conv. Ins.
3.
7. Loan Number:
8. Mortgage Insurance Case Number:
Conv. Unins.
C. Note: This form is furnished to give you a statement of actual settlement costs. Amounts paid to and by the settlement agent are shown. Items marked
"(p.o.c.)" were paid outside the closing; they are shown here for informational purposes and are not included in the totals.
D. Name &Address01Borrower:
F. Name &Addressof Lender:
E. Name &Address of Seller:
I
I
H. Settlement Agent:
G. Property Location:
Piace of Settlement:
I. Settlement Date:
J. Summary of Borrower's Transaction
K. Summary of Seller's Transaction
100. Gross Amount Due From Borrower
400. Gross Amount Due To Seller
401. Contract sales price
402. Personal property
101. Contract sales price
102. Personal property
103. Settlement charges to borrower (line 1400)
1, nA,.
-
403.
And
, - ,.
I
105.
Adjustments for items paid b y seller i n advance
106. Cityitown taxes
to
107. County taxes
to
108. Assessments
to
I
405.
Adjustments for items paid b y seller i n advance
406. Cityhown taxes
to
407. County taxes
408. Assessments
to
to
109.
irn
409.
din
120. Gross Amount Due From Borrower
200. Amounts Paid B y Or In Behalf Of Borrower
420. Gross Amount Due To Seller
201. Deposit or earnest money
500. Reductions In Amount Due To Seller
501. Excess deposit (see instructions)
202. Principal amount of new ioan(s)
502. Settlement charges to seller (line 1400)
203. Existing loan($ taken subject to
204.
503. Existing ioan(s) taken subject to
504. Payoff of first mortgage loan
505. Payoff of second mortgage loan
205.
Adjustments for items unpaid b y seller
Adjustments for items unpaid b y seller
210. Cityitown taxes
21 1. County taxes
to
to
510. Cityitown taxes
511. County taxes
212. Assessments
to
213.
7lA
1512. Assessments
From
303. Cash
.
to
1513.
161~
I
302. Less amounts paid byifor borrower (line 220)
to
to
I
601. Gross amount due to seller (line 420)
) 602. Less reductions in amt. due seller (line 520)
(
603. Cash
To Borrower
Section 5 of the Real Estate Settlement Procedures Act (RESPA) requires
the following:
HUD must develop a Special information Booklet to help
persons borrowing money to finance the purchase of residential real estate
to better understand the nature and costs of real estate settlement services;
Each lender must provide the booklet to all applicants from whom it
receives or for whom it prepares a written application to borrow money to
finance the purchase of residential real estate: .Lenders must prepare and
distribute with the Booklet a Good Faith Estimate of the settlement costs
that the borrower is likely to incur in connection with the settlement. These
disclosures are manadatory.
To
(
)
From Seller
Section 4(a) of RESPA mandates that HUD develop and prescribe this
standard form to be used at the time of loan settlement to provide full
disclosure of all charges imposed upon the borrower and seller. These are
third party disclosures that are designed to provide the borrower with
pertinent information during the settlement process in order to be a better
shopper.
The Public Reporting Burden for this collection of information is estimated
to average one hour per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data
needed, and completing and reviewing the collection of information.
This agency may not collect this information, and you are not required to
complete this form, unless it displays a currently valid OM6 control number.
The information requested does not lend itself to confidentiality.
Previous editions are obsolete
Page 1 of 2
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ref Handbook 4305.2
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Closing Costs
osing Costs
Closing costs are ancillary and in support of the purchase and sale of a real estate
property. The costs are more or less standardized and have become more or less normal
and ordinary. Some will be fixed costs and others are related to the cost of the property.
We want to focus on closing costs from three points of view
RESPA
Debits and Credits
DROA Standard Allocation of Costs
RESPA ( Real Estate Settlement and Procedures Act ) is law. Accounting procedures for
and notification of such costs is regulated by RESPA. RESPA does not directly inform
buyers, sellers, and or escrow what costs will be but rather requires escrow to inform the
parties of estimated costs.
The HUD 1 is the common Settlement Statement used by Escrow to account for debits
( charges to ) and credits ( benefits received ) in a real estate transaction.
A debit is a charge. A credit is a reduction in costs or a benefit given. It is logical that a
commission paid by the Seller is a debit to the seller's account. A commission is one of
several one sided entry's, where most entries are two sided meaning there are offsetting
debits and credits ( i.e. a debit to the seller and credit to the buyer or vice versa ).
There are standard charges on the DROA ( Paragraph C-1 1). These are customary charges:
Buyer
Seller
Standard title insurance
40%
60%
Escrow Fees
50%
50%
Cost of Drafting Mortgage 100%
Obtaining Buyer Consents 100%
Buyer's Notary Fees
100%
Condo Transfer Fees
100%
FHA or VA Discount Pts
100%
FHS or VA Closing Fees
100%
Conveyance Fees
100%
Obtaining Sellers Consents
100%
Seller's Notary Fees
100%
Cost of Staking or Survey
100%
Conveyance tax
100%
Conveyance Tax is charged on the basis of (a) sale price and (b) classification of owner:
Home Owner
Non Homeowner
Sale Price under $600,000
$1.00/$1,000
$1.50/$1,000
Sale Price between $600,000 and $1 Million
$2.00/$1,000
$2.50/$1,000
Sale Price over $1 Million
$3.00/$1,000
$3.50/$1,000
CHAPTER '1 2
REAL ESTATE CLOSINGS
$99
Section 3
STATEiHENT FORMAT
Several formats may be used for the settlement statement, The format In the example in t h ~ schapter (see Figure 12.2) uses the HUD Uniform Settlement Staterrtent
(Form HUD-1). Also, because local customs deterinme whlch party is to be charged
certaln closlng expenses, some of the charges on the settlement statement 111 the
example may be treated differently in varlous areas of the country.
The Uniform Settlement Statement is divided into several sections. Sections A
through I contaii~adinil~istrativeinformation regarding the transaction. Sections J,
K,and L contain the transaction's financial information.
1
Borrower's (B~syer's)Transastion Entries (Section d)
B1 Borrower's debits-These are listed In lines 100 through 112 and are totaled on
l ~ n e120.
Cii Burrower's credlts-These are listed in lines 201 through 219 and are totaled on
llne 220.
B Final entrzes-The borrower's total credits (line 302) are subtracted from the borrower's total charges (lme 301) to determine the cash due from (or to) the borrower at closing (line 303).
I
/
Seller's Transaction Entries (Section K)
Ui Seller's credits-These are l~stedin lines 400 through 412 and are totaled on line
420.
B Seller's debits-These are listed in lines 501 through 519 and are totaled on line
520.
Final entries-The seller's total debits (lme 602) are subtracted irorn the seller's
total credits (line 601) to determine the cash due to (or from) the seller at closing
(line 603).
S~iliem:rlCharg~!; for Biilh !it Bcirar;r [BayriJ and S ~ l k {SEC~~DFI
r
L)
T h ~ sectlon
s
lists all of the settlement charges in the transaction. The buyer's settlement charges are 111 the left column and the seller's in the r ~ g h tcolumn and are
totaled on l~ile1400.
REAR, ESTATE SETULEMEFiT EXAMPLE
t
Following
IS ~nfortnat~on
pertalnlng to a typ~calreal estate closlng and ~nstructions
on how to complete the clos~ngstatement The clostng settlement statement iil Figure 12 2 has been prepared uslng t h ~ srnfo~mat~on.
Entries on the settlement statement are explained, ~ncludingall proration calculations.
20Q
UNIT IV TRANSFERRING REAL ESTATE
Bob and Betty Smart listed their house at 123 Easy Street with SellQuick Realty.
The listing agreement included payment of a corninission based on 6 percent for the
first $50,000 and 5 percent on the remainder of the act~talselling price. Andy and
Anne Thrift signed a contract with the Smarts to buy the property for $150,000.
The terms of the contract specified that the Thrifts would make an earnest money/
down payment of $50,000, and the rest ($100,000) would be financed by a conventional loan from a lender. Because the loan-to-value ratio will not exceed 80 percent, the Thrifts will not have to purchase mortgage insurance. The closing date is
set for August 15 at ABC Title Company, which charges a $200 closing fee.
The rate on the Thrifts' new mortgage is 9 percent, and the monthly payments are
due on the last day of the month (in arrears), Because the Thrifts' loan is paid in
arrears, interest for the remainder of August will be due at closing and the first full
monthly payment (for the month of September) will be due on October 1. The
Thrifts' also will pay the $10 fee to record the lender's mortgage lien. In obtaining
the new loan the Thrifts will be charged an appraisal fee of $250 from Accurate
Appraisal Corp. and $50 from Information Credit Corp. These two charges will be
noted as POC (paid outside closing) on the Settlement Statement because they
were paid to the lender at the time of the loan application. To obtain the loan the
Thrifts also paid a loan originatioll fee of $250 and two discount points. The Smarts
have an existing mortgage on the house from First National Bank with a balance of
$48,000 as of August I. Their loan rate is 10 percent, and the monthly payments for
interest and principal are $550.
The real estate taxes are paid in arrears and have not been paid for this year. The
taxes for the year are estimated to be $2,400. The Thrifts' lender requires them to
deposit 9/12 of the anticipated real estate taxes into a reserve account. The Thrifts
must pay a one-year hazard insurance premium of $320 to the FailSafe Insurai~ce
Company and, in addition, their lender requires that a reserve to cover three
months of the pl-emium be deposited. The Smarts provided evidence of title using a
title insurance binder that cost them $20. The Smarts paid the owner's title ins~urance policy of $460 and the Thrifts the lender's title insurance policy of $150. The
Smarts will pay a $70 fee to record documents that clear their title and the transfer
tax, which is based on 1 percent of the selling price. The Smarts also will pay $60 for
a termite inspection and legal fees of $380. The Thl-ifts will pay the survey fee of
$120, a $50 fee to record their new title, and a $350 legal fee.
According to the contract, all proratioils are to be made using 30 days in the month.
A n explanation of the closing statement entries on Figure 12.2 follows.
D Purciuzse pice-The
purchase price of $150,000 is listed under the bo~rrower's
transactions on line 101 and the seller's tra~-isactionson line 401.
ei Ea~nestmoneyldown payment-The selling price less the ainount of the purchase
price not financed is listed under amounts paid by the borrower on line 201.
$150,000 - $100,000 loan = $50,000
ei Seller's mortgage entry-The
seller owes the lender the balance of the existing loan
plus interest that has accrued from t'he first of the month to the day of closing.
Yearly interest = $48,000 x .10 = $4,800
Daily interest = $4,800 + 360 days = $13.33
CHAPTER 12 REAL ESTATE CLOSINGS
Interest (August 1-15) = $13.33 x 15 days = $199.95
Payoff balance = $48,000 + $199.95 = $48,199.95
The loan payoff amount of $48,199.95 is put on line 504,
B Buyer's mortgage entries-The
interest on the new loan is paid at the end of the
month (in arrears). This is an accrued expense that inust be prorated from the day
of closing through the end of the month:
Yearly interest = $100,000 x .09 = $9,000
Daily interest = $9,000 t 360 = $25
interest (August 16-30) = $25.00 x 15 days = $375
The $375 in interest is paid by the borrower (buyer) to the lender at closing and
is included on line 901. The borrower's loan of $100,000 (which will be paid by
the lender on the borrower's behalf) is included on line 202.
Loan fees-To .obtain the new loan, the Thrifts were required to pay several
expenses. These included an appraisal fee ($250) on line 803 and a credit report
fee ($50) on line 804. Because these were paid outside closing, they are not
included in the borrower's or seller's columns. The Thrifts also paid a loan origination fee ($250) on line 801 and two discount points ($100,000 x .02 = $2,000) on
line 802 to the lender.
611 Real estate tax entries-The taxes for this year have not been paid. This is ail
accrued expense that inust be prorated from the beginning of the yeai- through the
closing date. Because the buyers will have to pay the tax bill, the prorated amount
is incl~~ded
on lines 2 11 and 5 11 (items unpaid by the seller).
Monthly rate = $2,400 + 12 = $200
Daily rate = $200 + 30 = $6.667
Prorated tax = 7 months x $200 ($1,400) + 15 days x $6,667 ($100.01)
$1,500.01
=
The lender requires a reserve to cover the real estate tax expense that has been
incurred from the start of the year through the first mortgage payrnent. Because
the first payment is due on October 1, a reserve of nine months will be required
at closing and is included on line 1004.
$2,400 (yearly tax) t 12 = $200 (per month) x 9
=
$1,800.
Property insurance-The first year's premium must be paid at closing and is
included on line 903. The lender requires a reserve of three months toward the
next year's premium, which is included on line 1001.
$320 (1year premium) s 12 = $26.67 (per month) x 3 = $80.01
Broker's cummission-Infoi~nation regarding the commission to be paid by the
seller is included on lines 700 tl~rough703.
(.06 x $50,000 = $3,000) + (.05 x $100,000 = $5,000) =
$3,000 + $5,000 = $8,000
Q
Transfer tax-The transfer tax usually is paid by the seller. The transfer tax rate is
set by local government. In this problem it is 1 percent of the selling price and is
included on l ~ n e1203.
$150,000 x .O1 = $1,500
Q
Title insurance-In this problem the Smarts paid the owner's title insura~~ce
policy
of $460 and the Thrifts the lender's title il~surancepolicy of $150. These are
included on line 1I08 and the coverage amounts on lines 1109 and 1110. The
Smarts also paid a title insurance binder ($20), included on line 1104.
UNIT lV TRANSFERRING REAL ESTATE
B Recordkngfee-The
seller pays recording fees to clear the title, and the buyer pays
fees to record the new title. The recording fees included in the problem are $70
for releases to clear title (seller) and fees of $50 and $10 to record the deed and
e included on line 1201.
mortgage (buyer). ~ h e s are
€I Legal fees-Legal fees are allocated to the party who hired the lawyer. In this problem both parties used the services of a lawyer and the fees are included on line
1107.
€ISurvey-Often the survey is ordered as a requirement of the buyer's lender. This
expense ($120) is included on line 1301.
Bi Termite inspection-The seller is usually responsible for i~~spections
(and expenses
to correct defects). This expense ($60) is included on line 1302.
€2 Final en~es-The difference bemeen the gross amount due from the borrower
(line 120) and the amount paid for the borrower (line 220) is the amount of cash
due froin the borrower at closing (line 303). The difference between the gross
amount due to the seller (line 420) and the reduction for the seller (line 520) is
the amount of cash due to the seller at closing (line 603).
THERE ARE NO REVEIEW QUESTIONS FOR TH$SSECTBON.
CHAPTER 12 REAL ESTATE CLOSINGS
U.5 Oopsrlmefil al H a u s ~ n g
and Urbsn Dovslopmnnt
I.
FHA 2.
4.
VA
5.
--
-
8. T y p of L a R
O M 0 lio 2502.0265 IExll 17.31 ZGI
FmHA 3. O c o n v . Unins.
@
7 L03n
F""U""'
951559PT
ilconv. ins,
NumDe!
8 Mon8380 lnbvlmcs Cuso NumDer
123456
6.&Is: This form Is furnished to give you a stalement o l aCIual selllement costs. Amounts pald to and by the setllemenl agenl are
D. N
shown. Items marked "(p.0.c.l" were pald outside tha closing: they are shown here for lnformalional purposes and are no1
Include0 In the totsla.
E. N m s d Addioos 01 Svilal
Name and Address oi Londot
7
m ad liWrave of M o w 8 1
Andy & Anne T h r i f t
33 E. Main S t .
Anytown
Bob & B e t t y Smart
125 Easy S t .
Anytoiin
I
1 s t N a t i o n a l Bank of
Anytown
868 Commercial .Ave.
Anytown
IH. ~alllomonl~ g o r l
ABC T i t l e Company
0. Ropxfy Lccallon
123 Easy S t r e e t
Anytown
PlmP of SDllldmonl
SDlllemanl Dolo
I
ABC T i t l e Company
Anytown
J. Bumniary 06 Brwmwer'a Tren@oction
100. Omre Amount Bum From h r r o u ~
101.Contract sales price
0
2
103. Sstllement charges to borrower (line 1400)
1150, 000. 00
1
to
to
to
8/15/
-
303. Cneh
From
-_
n To Borrower
, , . , ,,_",, . , - , ,
*.-.
Prev~ousE d ~ l l o nI s Obsolete
C r a a L a i e n b F o m g kc
F m No 2381
AdJustmantslor Items unpnld by sstlor
I
1
1,500.01
.,
..,,ilYI,
-
"
510.Cityltown taxes
511 Caunty taxes 1 / 1 1
512. Assessments
10
lo
lo
8/15/
1520. Total Radue8ien &mount Due Sollor
-
-
I
I
1
1.500. 0 1
1
60,189.96
BOO. Cash At SMtlomonl TolFrom S s l l ~ r
1155,705.01
1
--
I
I
1151, 500 .01'
220. Tolal Psld BylFor Borrower
300. Cash At Settlement fro mi?^ Borrowor
301 Gross Amount due from borrower (line 120)
/150,000.00
Wdjuatmsnss lor Homs paid by sailor In odsanco
408. Cityllown tares
to
407.County taxes
10
408. Assessments
lo
I
1
I
Bdjustments for llama unpsld by seller
K. Summary of Sellw'n Transaction
400. Grono Amount BUD TO Seller
1401. Contract sales price
. Personal property
5 , 705. 0 1 1403
Adlustrnsntn lor Itamn paid by aoller In edvenco
106. Cllyltown taxes
to
107. County taxes
to
108.Assessments
to
210. ~ i t y ~ t o wtaxes
n
211.County tares 1/11
212.A s s e ~ s m @ n t ~
8/15/
4.'205. 00
.
, ,
l a 1 Gross amount due l o seller (line 320)
842. Less reductions In am1 due seller (line 520)
1803. Cash
d,.-Y
,
To
n
From Seller
/ 1 5 0 , 0 0 0 .00
1I ( 60 3 8 9 . 9 6 )
1
89, 510.04
'
..
I
i
i
l
7
H b D 1 13 861
RESPA. HB 4305 2
NU.+ T o F ; cln u
i u Cw
hl ~
Gm
w
e L~
n
Mm
m
cm
hw
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rm
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9 91?
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203
204
UNIT IV TRANSFERRING REAL ESTATE
Borioivers
maHYD,
s211iBment
Sanlerneni Pgeni
,.
Sellers
Ynich have prepa,d
.true md accurate account oithjs transaclion. I havs caused or 1 1 cause the iundslo
be
disbursed in accordance wlih this statement.
Dale
jo the United states on lhi.5 or zny o~hersimilar a m . penallies w o n convic~ioncan i i ' u d s a 'in@
false
o
,ninl,g~v
F~~delais see. Tills 18U.S. Code Section 1Wi and Section 1010.
wsRraBuai is a clime
imprjsonmen~
P
7