The house at 314 Baker Street, in Los Angeles County, sells on January 28 for $575,000. The

offer that the seller accepts is accompanied by a $10,000 good faith deposit. The purchase

agreement calls for the buyer to make a 10% down payment and obtain an 80%, 30-year

conventional loan with an annual interest rate not to exceed 6%.

The seller agrees to accept a five-year straight note secured by a deed of trust for the balance of the purchase price; the interest rate on this seller second will be 8%. The seller will also pay up to $4,000 toward any discount points charged by the buyers lender. The closing is to take place on March 14.

The buyer obtains the necessary loan commitment from Clearwater Bank. The appraised value

of the property is $580,000. The terms of the commitment include an 80% loan for 30 years

at 6% annual interest, a 1% origination fee, and two discount points. (Remember that the

seller has agreed to pay for a portion of the discount points.)

The appraisal fee is $400, the credit report costs $45, and the bank is charging a $200 document preparation fee. Prepaid interest on the buyers loan will also have to be paid at closing, to cover interest accruing from the closing date through the end of the month.

At closing, Clearwater Bank will require a reserve account deposit of $742.20, which is enough

to cover three months worth of property taxes and homeowners insurance. The first payment

on the Clearwater loan will be due on May 1.

The buyer is purchasing a three-year homeowners insurance policy for $990, with the first

years premium ($330) to be prepaid at closing; that will be handled through escrow. This years

property taxes are $2,640. The seller has paid the first installment, but not the second.

Liens against the property that the seller will pay off at closing include a first deed of trust that

will have a balance of $398,571.47 after the March 1 payment is made, and a home equity

loan that will have a balance of $13,425.35 after the March 1 payment is made.

The first lienholder instructs the escrow officer to collect prorated interest, if any, equal to $48.21 per day. The home equity lender advises the escrow officer that $3.14 in interest per day will be due on the home improvement loan. Interest on both loans will be charged up to and including the day of closing. The balance in the sellers reserve account for the first loan, $251.50, will be refunded at closing.

The 6% brokerage commission is to be shared 50/50 between the listing broker and the

selling broker; the documentary transfer tax is 55 cents per $500 of value; the premium for

the owners title insurance policy is $1,080; the premium for the lenders title policy is $365;

the pest inspection fee is $230, and the buyer has agreed to pay that; and the escrow fee, to

be divided evenly between the parties, is $600. The buyers recording costs will be $35; the

sellers recording costs will be $19.

Hint: first calculate how the purchase price of $575,000 will be paid. There is a 1^st mortgage, a 2^nd mortgage and a down payment, of which the good faith deposit is a portion.

Settlement Statement 00 8 9 Buyer Seller 10 Debits Credits Debits Credits 11 Purchase Price 12 Deposit 13 Buyer's new bank loan 14 Origination fee 15 Discount points 16 Appraisal 17 Credit report 18 Document preparation fee 19 Prepaid Interest on new loan 20 Reserve account for new loan 21 Homeowner's ins. premium (1st year) 22 Seller Financing 23 Payoff seller's first loan 24 Prorated interest for seller's first loan 25 Reserve account for seller's first loan 26 Payoff of seller's home equity loan 27 Prorated interest for seller's equity loan Settlement Statement 00 8 9 Buyer Seller 10 Debits Credits Debits Credits 11 Purchase Price 12 Deposit 13 Buyer's new bank loan 14 Origination fee 15 Discount points 16 Appraisal 17 Credit report 18 Document preparation fee 19 Prepaid Interest on new loan 20 Reserve account for new loan 21 Homeowner's ins. premium (1st year) 22 Seller Financing 23 Payoff seller's first loan 24 Prorated interest for seller's first loan 25 Reserve account for seller's first loan 26 Payoff of seller's home equity loan 27 Prorated interest for seller's equity loan