Real Estate Math

Question 1

Landlords base rents on what criteria?

Answer 1

• Rental market
• Type of property
• Geographic location.

Question 2

What formula would you use to calculate profit (or loss) ?

Answer 2

Selling price minus Original cost

Question 3

What formula would you use to calculate % of Profit ?

Answer 3

Profit divided by Original Cost

Question 4

What formula would you use to calculate Profit Margin ?

*Profit margin is the percentage of selling price that turned into profit.

Answer 4

Profit divided by Selling Price

Question 5

What formula would you use to calculate Simple Interest ?

Answer 5

Simple Interest = Principal (initial balance) x Interest Rate x Time (years)

Question 6

David and his wife are getting a $175,000 loan at 8 percent and will pay 4 discount points. What will the effective interest rate be?

Answer 6

8.5%

Question 7

Points are paid at closing and are equal to what?

Answer 7

1% of the loan amount

Question 8

Which of the following methods do lenders use to compute the interest on the total amount of the loan for the entire loan term?

Answer 8

Add-on rate

Question 8

If a lender charges two origination points on a $75,000 loan, how much would that cost the buyer?

Answer 8

$1,500

Question 9

John is getting a $95,000 loan at 7.25 percent and will pay 4 discount points. What will the effective interest rate be?

Answer 9

4 points x 1/8 percent = 4/8 = .50 percent

7.25 + .50 = 7.75 percent

Question 10

What is the purpose of Discount Points?

Answer 10

They are designed to offset any losses the lender might suffer when selling the loan to the secondary mortgage market.

Question 11

What is the total simple interest due on the following loan amount, $12,500 at 5.5% for one year?

Answer 11

$12,500 x .055 x 1 = 687.50

Question 12

What is the ratio between borrowed funds and the market value of the property being financed?

Answer 12

Loan-to-value

Question 13

What ratio is calculated based on all of the monthly obligations the borrower has outstanding?

Answer 13

Debt Ratio

Question 14

Which of the following procedures are used to compute the area of an irregular parcel or room?

Answer 14

divide the shape into regular rectangles, squares, or triangles; compute the area for each figure; then add the areas together to get the total area for the parcel.

Question 15

How many square feet in an acre?

Answer 15

43,560

Question 16

When closing on rental property, to do the monthly proration, rents are always paid when?

Answer 16

In advance

Question 17

How is total commission calculated ?

Answer 17

By multiplying the sales prices by the rate of commission

Question 18

How is commission rate calculated ?

Answer 18

By dividing the commission by the price

Question 19

What are Points ?

Answer 19

One-time service charged by the lender to the borrower for making the loan.

Question 20

What are the two types of Points ?

Answer 20

• Origination points
• Discount points

Question 21

What are Origination points ?

Answer 21

The points charged by lenders as a means to recover some of the loan origination costs.

*In many cases, a loan officer’s compensation is based on the origination points.

Question 22

What are Discount points ?

Answer 22

a means of raising the effective interest rate of the loan.

Question 23

What does a loan-to-value ratio (LTV) do?

Answer 23

expresses the relationship between a property’s purchase price and its loan amount.

Question 24

Profit margin

Answer 24

The percentage of the selling price that turns into profit.

Question 25

Interest

Answer 25

• For a buyer: it is the amount paid in return for the use of money.
• For a lender: it is the money earned or received from a loan investment.

Question 26

Simple interest

Answer 26

Money that is paid only for the amount of principal the borrower still owes.

Question 27

Add-on interest

Answer 27

Interest calculated as a percentage of the original loan (principal) rather than on the balance due before each payment.

Question 28

Compound interest

Answer 28

The interest computed on the principal amount plus accrued interest.

Question 29

Loan to value ratio (LTV)

Answer 29

The relationship between a property’s purchase price and its loan amount.

Question 30

Income ratio

Answer 30

Ratio of monthly mortgage payment as portion of monthly income

*Establishes the borrower’s capacity to pay the loan by limiting the percent of gross income they spend on housing costs.

Question 31

Debt to income ratio

Answer 31

Ratio of the monthly debt payments as a portion of monthly income

*Used to determine the borrower’s capacity to repay the money they borrow.

Question 32

Front foot

Answer 32

The measure of a property’s frontage on the road or highway or across the front of the property.

Question 33

Proration

Answer 33

Process by which expenses prepaid or paid in arrears are divided between the parties at closing