Real Estate Calculations - 7% of questions
Accrued interest - Interest that is due for your mortgage on the closing date. This is the number of days between your normal payment day of the month and the closing date times your daily interest rate.
Appraisal fee - Appraisal fee or expense required to be paid by the seller.
Buyer funds needed at closing/cash to close - Include the down payment, closing costs, prepaid items, and other fees that cannot be covered by the mortgage loan.
Capital Gains Tax - A tax equivalent to 6% of the selling price or the zonal value, whichever is higher, applicable to the seller.
Capitalization rate (or Cap Rate) - Is the rate of return on a real estate investment property. It is calculated by dividing the net operating income of a property by its current market value.
Closing fees - Any closing fees required to be paid by the seller.
Discount points and loan origination fee - Discount points are a way for borrowers to prepay interest on their mortgage, reducing the interest rate. Each point generally costs 1% of the loan amount and reduces the interest rate by approximately 0.25%. Unlike origination fees, points act as a prepayment of interest.
Documentary Stamp Tax (DST) - This is a national internal revenue tax imposed on documents that transfer property rights, typically 1.5% of the selling price or zonal value.
Home warranty - Any amount to be paid by the seller of the home to furnish a home warranty to the buyer.
Interest Rates - The LTV ratio can also affect the interest rate offered to the borrower. Lower LTV ratios typically result in more favorable interest rates, while higher ratios may lead to higher rates due to the increased risk.
Loan -to -Value ratio - LTV Ratio=(Loan Amount/Appraised Property Value)×100
Risk Assessment: Lenders use the LTV ratio to evaluate the risk associated with a loan. A higher LTV ratio indicates higher risk, as it suggests that the borrower has less equity in the property. Loans with high LTV ratios may come with higher interest rates or require private mortgage insurance (PMI) to protect the lender in case of default.
Loan Approval - Many lenders have specific LTV ratio thresholds that borrowers must meet to qualify for certain loan types. Generally, an LTV ratio of 80% or lower is preferred, as it indicates that the borrower has a significant equity stake in the property.
Miscellaneous Expenses - Additional costs may include notary fees, agent commissions, and other incidental expenses incurred during the registration process.
Payment Procedures - Sequence of Payments: Generally, the seller is responsible for the transfer tax, but this can be negotiated. The buyer typically pays the registration fees and other incidental costs.
PITI (Principal, Interest, Taxes and Insurance)
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Principal - the amount of your loan (not including interest). Most likely, it is the cost of your house minus your down payment.
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Interest - the rate at which the lender charges you for borrowing money.
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Tax - property tax charged at the municipal level. You can find the exact amount on the website of the county where the house is located, or get it from your real estate agent.
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Insurance - protection for your property in case of fire, lightning, break-in, flooding, etc. Most often, it is not required by law, yet demanded by the lender.
PITI = monthly tax + monthly insurance + monthly mortgage payment
Prepayment penalty - Any penalty you required to pay if you pay off a your second mortgage early. Most mortgages will not have a prepayment penalty.
Proration - In real estate involves the division of property expenses such as taxes and HOA fees between the buyer and seller based on the time each party owns the property.