Personal Finance HELPP.

[daze12]

Hi everyone.
I hope im posting this in the right section.
Okay, so im working on Personal Finance section 10.3 Closing Costs.
The question im on stuck on is:

Jeremy Roberts
Mortgage loan of $50,000
What are the total closing costs?

It gives me a table in the book in which to use.
the table:

Credit report: $65.00
Loan origination: 2% of mortgage
Abstract of title: $120.00
Attorney fee: $250.00
Documentation stamp: 0.3% of mortgage
Processing fee: 1.10% of mortgage
Total Closing Costs: $3,194.96


At first i thought you simply add the mortgage and closing costs given, together.
$50,000 + $3,194.96 = $53,194.96

Checked the answer in the back of the book, im way off. The answer being $3,665.

Please help me understand why the answer is $3,665.

 

[tkhunny]

Let's see:

65.00 + 120.00 + 250.00 = 435.00
50000 * (0.0200 + 0.0030 + 0.0110) = 1700.00
1700.00 + 435.00 = 2135.00

Where did you get $3,194.96

 

[daze12]

$3,194.96 is in the table, in the book. Which was just confusing me even more.

So the answer is 2135.00?

 

[tkhunny]

I did not say that, but I did demonstrate how to get that. Such demonstrations certainly help clear up confusion.

In this case, the answer could be $3665, but you have not provided a quesiton that would result directly in that solution. Here are some discussion points:

1) The mortgage is NOT $50,000. $50,000 is the amount to be borrowed that is related to the real estate only. Let's call it hte Base Mortgage.
2) The total mortgage is $50,000 + Fixed Closing Costs + Percentage Closing Costs
3) The Fixed Costs are easy (as demonstrated above)
4) The percentage costs are calculated from the Total Mortgage, not from the Base Mortgage.

If we have Fixed Costs = 435.00, as shown above.
Base Mortgage = 50,000
Percentage Closing Costs = (0.02 + 0.003 + 0.011)*(Total Mortgage)

The Total Mortgage = 50000 + 435.00 + (0.02 + 0.003 + 0.011)*(Total Mortgage)

This leads to a Total Mortgage of $52,210.15 -- Well, we moved up from $2135.00, but only all the way to $2,210.15

I'm still interested in knowing how you managed $3,194.96 -- Was this value GIVEN in the problem statement?

 

[JeffM]

Hi everyone.
I hope im posting this in the right section.
Okay, so im working on Personal Finance section 10.3 Closing Costs.
The question im on stuck on is:

Jeremy Roberts
Mortgage loan of $50,000
What are the total closing costs?

It gives me a table in the book in which to use.
the table:

Credit report: $65.00
Loan origination: 2% of mortgage
Abstract of title: $120.00
Attorney fee: $250.00
Documentation stamp: 0.3% of mortgage
Processing fee: 1.10% of mortgage
Total Closing Costs: $3,194.96


At first i thought you simply add the mortgage and closing costs given, together.
$50,000 + $3,194.96 = $53,194.96

Checked the answer in the back of the book, im way off. The answer being $3,665.

Please help me understand why the answer is $3,665.

First, answers in the back of the book are not always right. Sometimes a mistake is made and not caught during editing.

Second, does your book give a definition of "closing costs"? I ask that because it is difficult to see BASED ON THE INFORMATION SO FAR why the answer is north of $3000, but you came up with such a number as did the book.

Third, are you supposed to take into account initial escrow payments for real estate taxes or insurance?

It would greatly help if you were to give the exact words of the problem.