SELLER S NET & BUYER S COST

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1 SELLER S NET & BUYER S COST Closing Day The day of closing is the responsibility of the seller with the exception of prepaid interest on a new loan and a new insurance policy. Taxes nsurance nterest New Loan Seller Buyer Buyer Loan Assumption Seller Seller* Seller Note: *f the buyer gets a new policy, the buyer owes for his policy and the seller will keep his policy in effect through the day of closing. Required Assumptions Certain assumptions are made in our material and by the Georgia Real Estate Commission in order to achieve universal conformity and consistency. Actual practices in different geographical areas may differ somewhat. These assumptions are as follows: 1. Taxes are due and payable July 1st. f the closing is July 1st or later, you are to assume that the tax bill has been paid unless you are told otherwise. 2. Mortgage payments are due the 1st of the month unless you are told otherwise. 3. Prorations are based on a 365-day year except interest, which is prorated on a 360- day year basis. 4. Loans are made in $100 increments unless you are told otherwise. 5. When making calculations, set your calculator for the maximum digit read-out and do not clear your calculator when performing multiple functions. Barney Fletcher Schools 1 SalesProrations

2 Prorations Tax Proration Formula: Tax bill divided by 365 = 1 day s tax times # days of proration. Note: f closing is before July 1, the seller owes the buyer. f closing is July 1 or after, the seller is entitled to a refund by the buyer. n determining the number of days in the prorated period, you will count from January 1 up to and including the day of closing for closings occurring before July 1. For closings July 1 or later, you will count from the day after closing through December 31st. Closing Date Seller Owes Seller Refund # of days March 15 X 74 August 4 October 17 February 23 July 29 Closing Date # of Days Total Tax Tax Proration October $ December 12 $652 April 15 $1,248 June 22 $795 Barney Fletcher Schools 2 SalesProrations

3 nsurance Proration Formula: Annual Premium divided by 365 = 1 day s premium times # days in prorated period (to be refunded) Note: nsurance is paid in advance. Therefore, the seller will receive a refund from the buyer for the unused portion of the premium if the buyer assumes his policy. f the buyer is obtaining a new loan and/or is not assuming the policy, the seller will cancel the policy and receive a short-rate refund from his carrier. We will not reflect refunds from carriers on Worksheets or Settlement forms. Coverage Begins Closing Date # of Days Refunded November 7 March March 18 July 14 July 7 January 10 September 23 August 30 Coverage Begins Closing Date Annual Premium # of Days Refund Amt. of Proration April 3 October 22 $ January 4 September 17 $380 December 21 July 26 $310 October 18 January 17 $447 Barney Fletcher Schools 3 SalesProrations

4 Accrued nterest Proration (existing loans only) Formula: Loan Balance times nterest Rate = 1 year s interest divided by 360 = 1 day s interest times # of actual days from date of last payment through closing date Note: Because interest is paid in arrears each month, when a payment is made on the 1st of the month, it includes the interest for all of the days of the previous month, but none of the days of the current month. Therefore, when a closing occurs, there will always be interest due on existing loans covering the period from the date of the last payment through the closing date. The proration will be paid from the seller to the lender if it is a loan payoff and from the seller to the buyer if it is an assumption. Payment Due Date Closing Date #Days of Accrued nterest October 1 October March 15 April 3 February 20 March 7 June 17 July 1 Loan Balance nterest Rate Due Date Closing Date # Days Accrued nterest $87,400 11% June 1 June $62, % Jan. 11 Feb. 2 $103, % Aug. 15 Sept. 3 $98, % Dec. 20 Dec. 21 Barney Fletcher Schools 4 SalesProrations

5 Pre-Paid nterest; nterest Adjustment Proration and nterim nterest (new loans only) Formula: Loan amount times nterest Rate = 1 year s interest divided by 360 = 1 day s interest times # of actual days from day of closing (including closing day) to the last day of that month. Note: The formula for nterest Adjustment & nterest Accrual is the same with the exception of the prorated period. When a new loan is initiated, the first payment is not due the 1st of the very next month. t is due the 1st of the month after. The exception, of course, is when the closing is on the first of a month; then the payment is due the first of the very next month. Example: Closing June 1 = 1st payment July 1 Closing June 2 = 1st payment August 1 n the example above, the August 1 payment includes the interest for all the days in July. The interest owed for the period from June 2 through June 30, however, will never be paid with a regular amortized payment. That interest must be paid in advance, at closing, and is known as an interest adjustment (or nterim nterest). Closing Date Date of 1 st Payment # of Days of Adjustment February 17 4/1 12 July 4 March 1 September 29 Loan Amount nterest Rate Closing Date Date of 1 st Payment # Days Adjust. Amount of nt. Adjust. $69,000 13% Mar. 17 5/ $104, % Aug. 28 $88, % Feb. 20 $70, % July 8 Barney Fletcher Schools 5 SalesProrations

6 Transfer and ntangibles Taxes Transfer Tax The Transfer Tax is a state tax which is customarily paid for by the buyer, but is negotiable. The taxable amount is based on the Sales Price of the property less any assumed loans. The tax itself is $.10/$100 or part of $100 applied to the taxable amount. Note: The tax rate is in $.10 increments. Therefore, the tax must always end in 0 and could never be an odd amount such as $ ntangibles Tax The ntangibles Tax is a state tax on notes secured by real estate when term is longer than three years. The taxable amount is the amount of the new mortgage. The tax is $1.50/$500 of mortgage amount or fraction thereof. t is the responsibility of the borrower, but may be paid by anyone on his behalf. n Georgia the ntangibles tax is collected by the county when the Security Deed is recorded. Note: The ntangibles Tax is at a rate of $1.50/$500 of mortgage amount. Therefore, the tax must always end in either $.50 or an even $1.00. Sales Price New Loan* Loan Assumption Tax. Amt. Tran. Tax Trans. Tax Tax. Amt. nt. Tax nt. Tax $182,000 80% $ 63,800 $50,410 $ 83,500 90% $ 96,000 $71,360 * New Loan or Loan Assumption (but not both); a loan assumption with a PMM 2 nd is possible. Barney Fletcher Schools 6 SalesProrations

7 Loan Amounts & Downpayments Conventional Any loan of 80% Loan-To-Value-Ratio (LTVR) or less is considered an 80% loan. A loan in excess of 80% LTVR up to and including 90% is considered a 90% loan. A loan in excess of 90% up to and including 95% is considered a 95% loan. All conventional loans are lowered to the next lower $100 increment. Example: f the sales price was $92,200 and the buyers were applying for a 90% loan, the calculation be $92,200 x.9 = $82,980. This would be reduced to the next lower $100 increment (not rounded off to $83,000). The loan amount would be $82,900. FHA An FHA loan amount is figured by utilizing specific formulas. However, these formulas are subject to change from time to time. Although it is important for an active licensee to keep abreast of these changes, your final examination will contain no question requiring a computation of an FHA down payment. Your instructor will either expose you to the currently correct method of figuring down payments or will tell you where you may obtain such information when you become licensed. Note: An FHA downpayment may also be found by subtracting the loan amount from the sales price. For purposes of this course (unless you are told to do otherwise), when figuring down payments round down to the next whole $100 increment. Barney Fletcher Schools 7 SalesProrations

8 Reserve Account (AKA Escrow Account) Tax Reserve RESPA provides that a lender may require a borrower to reserve an amount of taxes equal to the actual amount of accrued taxes on the date of the first payment plus two additional months. Do not use the closing date... use the date of the first payment. n calculating the combined accrued taxes and the two additional months due, use the following monthly table: J F M A M J J A S O N D * Or 3* *15 months if the closing is any time during the month of June other than June 1st and 3 months if the closing is July 1. Amount of Taxes Closing Date 1 st Payment Date # Months of Reserve Amount of Tax Reserve $1,470 Aug / $850 June 17 $1,627 March 1 $1,125 Dec. 12 Barney Fletcher Schools 8 SalesProrations

9 Private Mortgage nsurance (Premium/Reserve/Monthly) Mortgage insurance is required on conventional loans of more than 80%, and usually not required on loans of 80% or less. f the loan is a 90% or 95% loan, the mortgage insurance premium may be paid in its entirety at closing or a portion of the premium may be paid at closing and the rest spread over a part of the loan and paid with the regular P & Payment. The premium amounts and down payments are different for 90% and 95% loans: 90% LTVR: Total Premium is 2% of Loan Amount f spread, pay 25% of total premium at closing and.0025 of the loan amount per year, payable monthly 95% LTVR: Total Premium is 2.5% of Loan Amount f spread, pay 40% of the total premium at closing &.0025 of the loan amount per year, payable monthly LTVR Loan Amount 95% $70,000 95% $54,200 90% $85,000 90% $92,100 All At Closing S P R E A D Due at Closing Monthly nsurance Reserve The Study Guide indicates that 15 months of Hazard nsurance should be collected at closing. Since 12 months of this is the prepaid policy for 1 year, the other 3 months will be the requirement for the Reserve Account. On the Worksheet, the 12 months will be recorded in the Prepaid section and the 3 months in the Reserve Account section. Barney Fletcher Schools 9 SalesProrations

10 Seller s Estimated Net and Purchaser s Estimated Costs Narratives & Worksheets Strickland-Bowser-Swezey You are a licensed salesperson with Jim Dandy Real Estate Company and you service the listing on Miss Lulabelle Strickland s house at 75 Apple Orchard Lane. Miss Lulabelle is a retired school teacher who is moving to Minneapolis to be near her sister. The house is listed at $73,500 and the commission rate is 6% of the selling price. When you listed the property. you discovered the following: Miss Lulabelle owns the property free and clear of any mortgage lien or assessment of special nature. Her property taxes are $1,064 per year Her homeowner s nsurance policy has an annual premium of $280. You receive two offers on her property the same day. Both call for a closing date of June 30. One offer is from Carroll Bowser. His offer is as follows: t is for the listed price and calls for the securing of a new 100% VA loan at 8% for 30 years. The monthly payment factor for this loan is Closing costs, including intangibles tax are estimated at 3% of the loan amount and discount points are 5. The offer calls for the seller to pay both costs. The purchaser has tendered a $500 earnest money deposit and will pay his own prepaid items, a hazard insurance premium of $295 and a VA funding fee of 2%. The purchaser also offers to buy Miss Lulabelle s riding lawn mower for $250 cash at closing. A VA termite letter will cost $35 which the buyer will pay. Georgia Transfer tax will be paid by the buyer. The other offer is from Jack Swezey and is as follows: The price is to be $72,000 with the purchaser obtaining a 95% conventional loan at 8.5% interest for 30 years. The purchaser has paid 1,500 in earnest money. The monthly payment factor is There are no discount points and the purchaser will pay his own closing costs (3.5% of the loan amount) and intangibles tax. The prepaid items include a hazard insurance policy with an annual premium of $310. The offer does call, however, for Miss Lulabelle to pay the full mortgage insurance premium at closing. The seller wants to know what each offer will net her at closing before she makes a decision and, of course, each buyer wants to know what his offer will cost in terms of cash & payments. Barney Fletcher Schools 10 SalesProrations

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