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Dutchess_III's avatar

Will you help me with this "homework" question, please?

Asked by Dutchess_III (42444points) February 2nd, 2016

“A buyer purchased a property for $79,650. The buyer obtained a first mortgage for 83% of the purchase price with a 6% down payment. The owner finaanced the balance of the purchase price. What would be the amount for the second mortgage financed by the seller?”

A) $8,235.81
B) 8,761.50 ***********
C) 13,540.50
D) 17,345.98

Per the teacher, B is the right answer but I can’t seem to get to that no matter how I slice it.

I’m not going to go through all the contortions I’ve been going through because my brain is fried and I have to stop for today. I really do.

PS, it’s not really “Homework” per se. She won’t be grading it. She just wants us to figure out how she got there.

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9 Answers

zenvelo's avatar

The down payment is 6% of the purchase price. 6% * 79650 = 4,779
The first mortgage is 83% of the purchase price. 83% * 79650 = 66,109.50

Deduct those two amounts from the purchase price of 79,650 leaves a balance to be financed by the second mortgage of $8,761.50

Tropical_Willie's avatar

11% of $79650 is $8,761.50 which is the remainder of the original amount,

100 – 83 – 6 = 11

JLeslie's avatar

$79,650 X .11 = $8761.50

.11=11% I just never use the % key on the calculator.

You can figure what 83% is in dollars, and 6%, and subtract both from the total purchase price, but it’s much more work. However, doing it both ways would be a good double check for a test question to make sure you did it correctly.

My guess is if you are having trouble you might not be using the total purchase price to calculate both the 83% and the 6% if you are using that method, but rather subtracting one number and then doing the percent calculation from the lower new amount. Just a guess.

LostInParadise's avatar

83% of the cost is covered by the first mortgage and the buyer put up 6% of the cost, so 83% + 6% is covered, leaving 100% – (83% + 6%) = 11% remaining for the second mortgage. 11% of $79650 is .11 x $79650 = $8761.50.

Having done that, I think there is another interpretation, which may be what has you confused. You may think that the 6% is a down payment on the 83%, which would leave 100% – 83% remaining for the second mortgage.

CWOTUS's avatar

You could do this in your head – and if you’re going to be in real estate you will need to learn to.

As others have explained, after the 6% down payment and the 83% mortgage, 11% is still remaining for the purchaser to make up.

10% of the 79,650 is one-tenth of the total, or 7965, and 1% is one-tenth of that amount, or 796.50. Add them together to get the balance of the second mortgage.

Dutchess_III's avatar

I’ll get there @CWOTUS. Just give me time. Thanks :)

Thanks you guys. Yes, you are all so correct. I was hung up on “if the bank financed 83%, then that leaves the seller to finance 17%.” I knew the 6% down payment went somewhere, but I couldn’t figure that angle out. Then one of my fellow student said “Just add the 6% to the 83%...” and there it was.
I am SO freaking tired. So tired. I leave the house at 7:30 am. and don’t get home till 6:30. It’s an hour’s drive each way. Then I study, then I go to bed and get up and do it all over again.

Thanks very much.

Dutchess_III's avatar

Here’s another. I keep wanting to get hung up on the number of years the loan is for, but they don’t give that so apparently it isn’t needed. Here it is (test tomorrow, BTW.)

A seller sells real estate to a buyer with the seller financing 50% of the $380,000 sales price. The interest rate paid by the buyer is 11% with the buyer also paying an extra $19,000 toward the principal at the end of each year. What is the total amount of money received by the seller from the buyer for the first year?

CWOTUS's avatar

The term of the loan is absolutely vital. There is literally no way to calculate the buyer’s payment total without that information. (The example seems ridiculous on its face, since the buyer seems to be paying an “additional” 10% of the original second mortgage balance to the seller … each year? Preposterous.)

You don’t have to get “hung up on” the term of the loan, but it’s essential information. Payments on a 99-year mortgage (which may not be available in the USA, but are available elsewhere) are going to be substantially lower than payments on a 5-year note.

This example, as presented, is invalid, insoluble and void.

Dutchess_III's avatar

Thanks. Glad it wasn’t just me.

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