8.4A Purchasing a Home Worksheet

Front

What is prepaid interest in the context of purchasing a home?

Back

Prepaid interest is the interest that a borrower pays in advance for the period between the closing date and the end of the month. It is calculated based on the loan amount and the interest rate.

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How do you calculate the amount of prepaid interest?

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To calculate prepaid interest, use the formula: (Loan Amount x Interest Rate x Number of Days until Month End) / 360.

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What is the significance of the down payment when purchasing a home?

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The down payment is the initial amount paid upfront when purchasing a home, which reduces the loan amount and can affect mortgage terms and monthly payments.

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What is the typical range of closing costs when buying a home?

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Closing costs typically range from 2% to 5% of the home's purchase price, including fees for services like appraisal, title insurance, and attorney fees.

Front

What factors can influence the closing costs of a home purchase?

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Factors include the home's purchase price, location, type of loan, and specific lender fees.

Front

What does a mortgage interest rate represent?

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A mortgage interest rate is the cost of borrowing money expressed as a percentage of the loan amount, which determines the monthly payment amount.

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How is the loan amount determined after a down payment?

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The loan amount is determined by subtracting the down payment from the purchase price of the home.

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What is the formula to find the loan amount after a down payment?

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Loan Amount = Purchase Price - Down Payment.

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What is the purpose of a mortgage?

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A mortgage is a loan specifically used to purchase real estate, where the property serves as collateral for the loan.

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What is the difference between fixed-rate and adjustable-rate mortgages?

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A fixed-rate mortgage has a constant interest rate throughout the loan term, while an adjustable-rate mortgage has an interest rate that may change periodically based on market conditions.