## Friday, December 8, 2017

### If This Math Question Were on Your North Carolina Real Estate Exam, Could You Solve it?

Real Estate math is more than ten per cent of the North Carolina real estate exam.  The pass rate for the exam was  57% last month.  It costs \$164 to take the North Carolina real estate exam for the second time.

Why do real estate license applicants show up at the exam site knowing that there are math problems that they do not know how to do?  Here is an easy math problem.  If you took the exam three times at \$164 per opportunity, how much money did you waste?

Here is today's problem.  Mr Buyer and his wife earn \$48000 per year in gross income.  If they buy a house for \$210,000 and put 20% down payment, How much is their housing expense ratio if the mortgage factor is 6.67 per 1000. Real estate taxes on their house is \$1200 per year.  Insurance is \$600 per year.   If you are not sure what housing expense ratio is, you have a vocabulary problem.  If you are not sure what mortgage factor is, you have a vocabulary problem.  To help you understand house expense ratio here is a video. https://www.youtube.com/watch?v=Wy1Y7zDO3M4

STOP READING AND DO THE PROBLEM.

First let's figure out how much are the monthly PITI mortgage payments?   Multiply \$210,000 x .20 to compute the down payment.  \$210,000 x .20 = \$42,000.  That is the down payment.  Let's subtract \$42,000 (down payment)  from \$210,000 (price)   .  The mortgage amount is \$168,000.

To determine the monthly mortgage payment, we look on page 449 in our textbook at the mortgage constant payment chart to find that our mortgage constant factor.  This is the amount of money required to amortize the debt over the term of the loan.  For our purpose here, the factor is given in the test question.  Our constant factor is given PER \$1000.

 Here is math question similar to the North Carolina real estate exam
Let's divide the mortgage amount, \$168,000 by \$1000 because the factor is per 1000.  That gives us 168.  Let's multiply 168 times \$6.67 .  Our monthly mortgage payment is \$1120.56 .  This is the P&I payment, principal and interest.  Let's divide the real estate taxes by 12.  The taxes are \$100 per month.  Let's divide the insurance by 12.  The insurance is \$50 per month.  Our PITI payment is \$1120.56 (P&I pmt) + \$100 (taxes) + \$50 (insurance) =  \$1270.56 PITI

To determine the housing expense ratio, we divide \$1270.56 by \$4000, Mr. Buyer's income  to get 31%   .  The news is bad.  Mr. Buyer is not going to qualify under Fannie Mae guidelines.  Twenty eight per cent is the maximum housing expense ratio allowed by Fannie Mae.  He needs to put more money down or buy a cheaper house.  B.  is the correct answer.

A.  28%
B. 31%
C. 25%
D. 33%

If you are soon going to take your real estate exam, please learn how to do the math.  There is no math on the North Carolina real estate exam that I do not have posted on You Tube.  It is free.  It is as easy as learning can be.  You do not have to embarrass yourself by asking a question.  You just hit rewind.  If I go too fast, hit pause.  Invite a couple of classmates over to watch with you.

Please do not underestimate the North Carolina real estate exam.  I can think of a dozen better ways to spend \$164.  Here is a link to some of my videos.