Chapter 6: Sections 1- 2

Own a home or car

Section 1: Borrowing to Buy a Home

Key Terms:

Down payment - the percentage of the total cost of the house paid at the time of purchase, to the lender.


Mortgage Loan - a loan taken from with a bank or another lender that the balance of the purchase price (after the down payment) is usually borrowed through.


Principal - money that is borrow


Closing costs - are fees and expenses paid to complete the transfer of ownership of a home.


What to do:


To calculate the amount of the loan you need, subtract the down payment from the purchase price

Mortgage loan = purchase price - down payment


To calculate the amount of money you need to buy a home, add the down payment and closing costs.

Cash Needed to Buy a Home = Down Payment + Closing Costs

Examples

Jake Mcklane is buying a home for $74,000. She will make a 20% down payment and estimates closing costs as:

Legal Fees = $950

Title Insurance = $140

Property Insurance = $250

Inspection = $175

Loan Processing Fee = $84

Recording Fee = $740

What amount of money will she need to borrow for her mortgage?

What amount of cash will she need when she buys the house?

SOLUTION:

Multiply the purchase price by the down payment percent.

0.2 x $74,000 = $14,800