Homework #8

What Are You Doing:

You will be calculating your mortgage payments and comparing those payments to your discretionary income.

Why Are You Doing It:

The ability to calculate your debt load is critical to maintaining a healthy financial life. Considering that mortgage debt is generally the largest debt that most people have, it will be the biggest impact on your budget.

How Are You Going To Do It:

You will be calculating a PITI based on the home you would like to own. You will then be calculating the maximum loan value your budget can handle.

  1. Figure out a purchase price
  2. You need to find a home that you could reasonably afford to purchase based on your projected income and find the asking price for that. (Print house)
  1. Figure out a down payment
  2. The down payment is the money that you will put toward the purchase of the home with the mortgage loan covering the rest. You need to assume a down payment that is reasonable to your profession. You would need to save the money for the down payment out of your spending cash. You shouldn’t need to save for more than 5 years for a down payment. (Most first time loans will require 5-10% depending on your income)
  1. Research current mortgage rates. Assume that you will be using a 30yr fixed mortgage loan. (go to a bank or a credit union online and look at the mortgage rates depending on an ARM or a fixed-rate mortgage) (Print the info)
  1. Calculate your PITI
  2. Calculate your loan value and use that as your principle amount. Calculate your PITI using a rate you found online, a 2.5% property tax rate, a 0.33% home owner’s insurance rate and a PMI based on down payment.
  1. Review your budget
  2. Analyze your budget from Homework #4 and see if you can really afford to own the home you picked out.
  1. Questions
  2. Can I afford the house I picked out?
  3. If no, what factors could change that would make the home more affordable?
  4. If yes, what factors could change that would lower my monthly payment or cause me not to be able to afford the home
  5. If I can afford more home (a higher PITI), should I buy it? Why or why not?
  6. Why would PMI decrease with a large down payment?

What You Have To Turn It:

  1. A complete list of all your calculations by section
  2. This should be well organized and clear. Basically, it will show all of your work and calculations.
  3. This should be handwritten but must be neat and legible.
  4. This should list all the parts of the PITI
  5. A typedresponse to the questions in #6 above. (Complete sentences reflecting thorough consideration)