Question
Lucinda Lacy purchased a house today for $109,000 by making a down payment of $12,000 and paying closing costs of: Loan origination fee 1% of
Lucinda Lacy purchased a house today for $109,000 by making a down payment of $12,000 and paying closing costs of:
Loan origination fee 1% of purchase price
Appraisal fee $300
Survey fee 250
Attorney fee 350
Processing fee 400
Escrow fee 250
Other misc. costs 890
Lucinda has a home loan of 3.5% APR, compounded monthly for 15 years. Her taxes and insurance are $352 per month. Lucinda has an estimate for a $12,000 firm, fixed price contract to remodel the house and this expense will be equally distributed over the period of her ownership. After remodeling, she estimates that she could sell the house for $141,000. Her selling expenses would be 7% sales commission plus $1,100.
1. Determine manually (hand-written not excel), by trial and error, Lucindas rate of return, if she owns the house for 6 months. Show the manual calculations, including the ball-park method with appropriate cash flow diagrams.
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