Understanding Accrued Interest Proration for FHA Loans

    When you're prepping for the Georgia Multiple Listing Service (MLS) exam, understanding the concept of accrued interest proration is crucial. Don’t you just love when numbers come together to tell a story? Well, in real estate, this financial tale often revolves around loan calculations, particularly when it involves FHA loans. Let's break down how it all works, step by step, so you're well-equipped to tackle any questions that come your way on exam day.

    Let's kick things off with a basic scenario: a seller has an FHA loan of $125,000 and a whopping 6% interest rate, with closing set for May 15. Sound familiar? If so, you're already on the right track! But if you're scratching your head, no worries—by the end of this, you'll be a pro.

    First things first, how do we get to that magic number for accrued interest? Here’s the deal: interest accrues daily, and we need to calculate how much interest piles up leading to the closing date. To find out the daily interest, we use our trusty formula:

    **Daily Interest = (Loan Amount × Interest Rate) / 365** 

    Using our numbers, we plug them in:

    **Daily Interest = ($125,000 × 0.06) / 365 = $7.67**

    So, each day the seller’s loan sits there, it accrues $7.67 in interest. Now, let’s paint a clearer picture. Since the loan will be paid off on May 15, the seller has to cover interest for the days leading up to this—that's a full 14 days in May (from the 1st to the 14th). 

    You know what? It’s kind of like paying rent—you're obligated to settle up until the very last day you’re occupying a place. Just like that, the seller pays the interest until the transaction closes. So, how much total interest accumulates over those two weeks? 

    To determine that, we crank out this simple equation:

    **Accrued Interest = Daily Interest × Number of Days**

    **Accrued Interest = $7.67 × 14 = $107.38**

    Voila! This amount is what the buyer owes the seller for interest accrued on the loan right up until the day before closing. But wait—before we get too comfortable, let's adjust our perspective slightly.

    Here’s the interesting twist: though the seller essentially pays this interest, it’s recorded as a debit on their side and credited to the buyer. Got that? Make sure to remember—it’s not just numbers on paper; it’s about who pays what and when! 

    Now, you might wonder why this matters. Well, knowing how to prorate interest can significantly help you understand overall end-of-month accounting and ensure the smooth transference of obligations from sellers to buyers. 

    So, let's recap a bit. By breaking it down, we learned that the accrued interest for this seller’s FHA loan is indeed $107.38 for the 14 days leading to May 15. But remember, this transaction affects both sides—it’s a debit for the seller and a credit for the buyer. They pay, you record, and it all balances out in the end!

    If you ever find yourself puzzled by real estate numbers again, return to these foundational principles of proration and daily interest. They won't steer you wrong. And hey, isn’t it nice to have one less worry on your mind while prepping for the Georgia MLS exam? You’ve got this!