Real Estate Money Math Exercise

For middle and high school students AND adults:

1. Either online at www.Realtor.com or in the real estate section of a newspaper, ask the students to choose a house that they’d like to live in and write down the price.

2. Calculate a down payment by multiplying the purchase price by the down payment percentage.  20% down does not require PMI (Private Mortgage Insurance), so I suggest keeping things simple for now by using a 20% down payment.

3. Subtract the down payment from the purchase price to figure out the mortgage amount that would be needed to buy that home (excluding closing costs).
Purchase Price - Down Payment = Mortgage Amount

4. Use an online mortgage calculator to enter the interest rate, mortgage amount, and 360 payments for a 30 year mortgage term.  http://www.moneylessonsforlife.com/financial-calculators.html

5. Estimate the real estate property taxes at 2 or 2.5% of the purchase price and then divide that amount by 12 to calculate the monthly taxes.

6. Roughly estimate the homeowner’s insurance at 1% of the purchase price (assuming it’s not a very old home or too close to the ocean) and divide that amount by 12 to calculate the monthly insurance cost.

7.  Add the monthly mortgage payment, monthly real estate taxes, and monthly insurance amounts to arrive at the monthly cost of owning the home.  Explain that this doesn’t include maintenance, repairs and monthly utility bills.  For a bigger impact, ask them to multiply the monthly ownership cost by 12 to determine the yearly cost.

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