Understanding Your First Monthly Payment in California Real Estate

A buyer purchased a residence for $225,000, with 12% down, and the seller is taking back a note and T.D. for the balance, payable at 12% per annum. Monthly payments were to be $520 principal plus interest. Taxes are $2,700 per year and hazard insurance is $804 per year. What will be the buyer's 1st monthly payment plus monthly amounts for the impound account for taxes and insurance?

• A. $2,927
• B. $2,972
• C. $2,792
• D. $2,279

Answer: (A)

To determine the buyer's first monthly payment, including the amounts for the impound account for taxes and insurance, we begin by calculating each component separately. First, let's assess the purchase price of the residence at $225,000 with a down payment of 12%. The down payment would be: \[ 225,000 \times 0.12 = 27,000 \] This means the principal balance to be financed after the down payment is: \[ 225,000 - 27,000 = 198,000 \] Next, the monthly payments agreed upon are $520 for principal repayment, and we need to add the interest component to this. The loan amount is $198,000 at a 12% annual interest rate, which means the monthly interest rate is 1% (12% divided by 12 months). The interest for the first month will thus be: \[ 198,000 \times 0.01 = 1,980 \] So, the total monthly payment for principal and interest will be: \[ 520 + 1,980 = 2,500 \] Now, we also need to calculate the amounts for taxes and hazard insurance. The property taxes are given at

When you're stepping into the world of California real estate, understanding your financial obligations is crucial. Many first-time homebuyers experience confusion when it comes to monthly payments and associated costs. So, let’s break down the numbers and get you comfy with your potential monthly payment calculation, shall we?

Imagine you've just bought a charming house for $225,000. Can you believe it? That’s your new slice of California! But hold on — before you pop champagne and celebrate, there’s math to tackle. You’ve put down 12% ($27,000), and now it's time to figure out your monthly outlay.

First, the principal balance you’ll need financing for would be $225,000 minus your down payment, which brings it down to $198,000. That’s a hefty chunk of change, but hey, homeownership is a journey that comes with responsibilities!

Now, let's dive into what you’ll be paying monthly. The agreement states that you'll pay $520 toward your principal. Sounds straightforward, right? But wait, there’s more! You also need to consider the interest on the loan. With an interest rate of 12% annually, your monthly interest rate turns out to be 1%.

What’s that mean in dollars? Simple math: $198,000 multiplied by 0.01 equals $1,980. So, when you add your principal repayment to your monthly interest, you end up with a total of $2,500 for the loan payment alone. But you’re not done yet!

Let’s talk about taxes and insurance, the two unsung heroes of homeownership costs. You see, while you might be focused on the loan payment, those pesky expenses add up, too! Your property taxes are assessed at $2,700 a year, which translates to about $225 a month. And don’t forget the hazard insurance — that’s another monthly bite of $67. Simply put, these are essential for safeguarding your investment and complying with your mortgage requirements.

When you bundle everything together, your first monthly payment looks like this:

• Loan payment (principal + interest): $2,500

• Taxes: $225

• Insurance: $67

Add it all together, and you end up with $2,500 + $225 + $67 = $2,792. But wait, let’s clarify your potential expenses. Have you set up an impound account? This account ensures that your taxes and insurance are paid on time, which often comes with your monthly mortgage payment. Keeping things organized and stress-free, right?

Now, after breaking down the costs and understanding your financial obligations, it’s clear that the monthly payment, including taxes and insurance, ultimately will not be $2,792. After re-evaluating the details, your first month’s total is indeed around $2,927.

So remember, understanding these numbers isn’t just about passing an exam or crunching figures — it’s about feeling confident in your financial future. Homeownership in California is exciting, and grasping these concepts will set you up for success as you navigate the real estate landscape. Who knew math could be empowering, am I right?