chapter 16 quiz

Question 1

if the seller renewed the hazard insurance for one year starting May 15th, and the closing is to be on November 5th:

Answer 1

A seller will be credited 190 days
Since the seller paid for one year starting on 5/15 and he will no longer occupy the property after closing on 11/5,
The seller is responsible for the day if so calculations start the day after. The remainder of the premium will be refunded to him. In this case the remainder is:
25 days nov
31 day dec
31 days in jan
28 days in feb
31 days in march
30 days in april
14 days in may
----------------
190 days

Question 2

if the hazard insurance premium for a 2yr period is $2,178, the approximate daily rate will be:

Answer 2

$2.98

Hazard insurance is calculated yearly for 365 days, since this is a two year amount you need to 1st multiply 365*2 = 730
Next divide the total by the number of days
2,178/730=$2.98

Question 3

if a closing is to take place on September 10th and the seller made the last payment to his lender on September 1st, he will owe these many days of accrued interest?

Answer 3

10
remember that September pays for august and he still accrued 10 days of interest till closing. after that the buyers first payment is Nov 1st for October. the rest of the days for September don’t belong to anyone*

Question 4

the seller’s existing loan balance is $95k with a 10% interest rate. if the payments are due on the 1st of the month and the lender uses a 360 day financial calendar year, how much accrued interest will the seller owe if the closing takes place in September 25th?

Answer 4

$659.72
A: $659.72
====================
Step 1 - Claculate yearly interest
$95000.00*10%=$9500 / year
Step 2 - calculate daily int
$9500/360 (int is 360 days(
= $26.38
Closing is on the 25th of September, therefore the seller will need to pay 25 days interest
Step 3 mult # days by daily int
25* $26.38=$659.72

Question 5

the seller’s hazard insurance has an annual premium of $850 with an anniversary date of November 22. if the closing is to occur on august 23, how much is the insurance proration?

Answer 5

$211.92
august- 31-23=8
Sep. 30
oct. 31
Nov. 22
TOTAL 91 DAYS

annual premium ÷ 365
$850 ÷ 365= 2.3287
2.3287 (daily rate) x 91 (days)= 211.92 that’s the insurance proration (how much is credited to the seller)

Question 6

A closing is to take place on May 15th. the property is rented and tenants pays $1,200 on the first of each month. at closing:

Answer 6

seller will owe the buyer for 16 days rent.

Question 7

the buyer is assuming both the seller’s loan and hazard insurance policy. The insurance proration will appear on the seller’s net as a :

Answer 7

credit to the seller

Question 8

if the rent is due on the first of the month, the closing day is May 11 and the rent is $1,150 per month, how much is the rent proration?

Answer 8

$741.94 to the buyer
MAY: 31-11= 20
1,150 ÷ 31=37.09 (DAILY RENT)
37.09 x 20= 741.935 (round 741.94)

Question 9

which of the following is not likely to appear as a debit on the seller’s closing statement?

Answer 9

transfer of a loan escrow account

• pay-off of the existing loan
• removal of an existing mechanic’s lien
• Prorations for unpaid taxes.

Question 10

at a closing to take place on March 10th, the tax bill for the calendar year will be due on July 1st and has not yet been paid.

Answer 10

seller owes for 69 days.
=====================
1st step figure # of days
Closing is on March 10th therefore:
Jan - 31
Feb - 28
Mar - 10
-------------
total 69 days
Since taxes have NOT been paid but the seller occupied the property the seller owes the taxes and will pay the buyer and the buyer will then pay the entire tax bill when it comes due on 7/1.

Question 11

which of the following statements is true regarding a prepayment penalty on an existing loan?

Answer 11

it appears as a debit to the seller
chap 16-14
Line 4 shows under the Present loan pay off section making it a debit to the seller.

Question 12

if the seller agrees to make a contribution to the buyer’s finance cost, the cost will show on the Net to Seller Estimate as a:

Answer 12

debit to the seller

dictionary*

Question 13

for the purpose of estimating seller’s costs, you can assume the day of closing:

Answer 13

belongs to the seller

**chap 16-2
II MATH STEPS TO FOLLOW WHEN CALCULATING
A. Some general guidelines
Since many calculations must be worked out to the day, it is important to know who is responsible for the day of closing. The seller is charged for the costs of ownership, such as property taxes and hazard insurance The seller also receives credit for rent for the day of closing.

Question 14

if the buyer wants to purchase some personal property from the seller, this would show on the Net to Seller Estimate as a:

Answer 14

Credit to the seller

Question 15

when a seller has agreed to make a purchase money loan to the buyer on the seller’s net worksheet:

Answer 15

this will appear as a debit.

***Since the seller is giving the buyer money.

Question 16

All of the following items are usually prepaid EXCEPT:

Answer 16

interest on a mortgage loan

• a tenant’s rent
• hazard insurance premiums.
• security deposits.

Question 17

the closing date is August 22 and the annual tax is $2,400. if the taxes have been paid, what is the tax proration?

Answer 17

$861.37 credit to the seller

August: 31-22=9
Sep. 30
oct. 31
Nov. 30
Dec. 31
TOTAL: 131

2,400÷365=6.575
6.575 x 131= 861.369
$861.37

Question 18

which of the following statements regarding a seller’s net estimate is true?

Answer 18

it can be and often is an important part of a listing presentation

Question 19

which of the following statements is true?

Answer 19

Hazard insurance is usually paid in advance

hazard insurance: a form of insurance that protects against certain risks, such as from fires or storms.

Question 20

the purchase will assume the seller’s loan that is due on the first of each month. if the closing is to take place March 10th:

Answer 20

seller gives buyer a credit for ten days of interest
(purchaser will pay for the seller’s loan due on the beginning of the month, yet closing is on the 10th, so the seller owes the buyer credit for 10 days that still belong to the seller)

Question 21

the seller’s first mortgage loan balance is $175,000 and has an annual interest rate of 7.25%. there is also a second mortgage of $53,400 at 9%. if the lender uses a 360 day financial calendar year and the closing is on April 16, what is the total accrued interest owed?

Answer 21

$777.49

175,000 x .0725= 35.243 (daily rate)
35.243 x 16( days owed including the closing day)= 563.888

53,400 x .09= 13.35 (DR)
13.35 x 16(days owed including the closing day)= 213.6

563.888 + 213.6= 777.488 -> 777.49 TOTAL ACCRUED INTEREST OWED

Question 22

the seller’s hazard insurance policy is $975 per year with an anniversary date of November 29. if the closing is to be on July 10th, the insurance proration will be:

Answer 22

the seller will be credited for 141 days and a total of $376.64

• seller gets credit after day of closing
• reminder= count only the days b4 the renewal date

Nov. 29---------------July 10th closing-------Nov.28
July 31-10=21
aug. 31
sept.30
oct.31
nov.28
TOTAL 141 DAYS 

$975 ÷ 365 = 2.6712
2.6712 x 141 = $376.64

141 days and total $376.64

Question 23

if the closing is to take place on April 22 and the taxes have not been paid:

Answer 23

seller will be debited 112 days

jan31
feb28
march31
april 22
TOTAL 112

Question 24

If the closing is scheduled to take place on October 1, the seller will owe:

Answer 24

31 days of interest to the lender

chpt 16-5

Question 25

a lender is quoting 6% plus two discount points for a certain type of residential mortgage loan. which of the following is true regarding the discount points?

Answer 25

the discount points are prepaid interest