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Buying Your First Home

Few people have enough money saved to buy a house without getting a mortgage — particularly for their first home. In this project you will select a house that you would like to buy and investigate the total costs involved in owning that home. Please don’t waste paper by copying all these directions and pasting them into your project.

ALL SCREEN SHOT SHOULD BE BIG ENOUGH FOR ME TO READ WITHOUT A MAGINIFYING GLASS.

1. (5 points) Determine the price of house that you can afford on your salary. This should be done based on the career project that we did for Chapter 1. Remind me in this step what career you chose and the ANNUAL salary of this career. Check out this article and another calculator about what you can afford.

Show evidence of the house you can afford on your salary—a print screen must be provided (from calculator site below or another one) and evidence should be presented in paragraph form. Also make a decision to use the full amount of the house or less and why.

Try this calculator.

• Other debt would be credit card payment, car payment, student loan payment--you will have all these except maybe a student loan; listen for directions about this. Estimate how much "other" debt . Estimate $750 if you know for sure you’ll have student loans, estimate $550 if your parents are helping with half and you are possibly working through college, estimate $450 if you know parents are covering the cost of your undergrad.

• Do a quick Google search for “current 30-year mortgage rates” and then look for a 15-year one too. Use this rate for the calculator. NOTE THIS MAY NOT BE THE SAME RATE YOU USE IN STEP #3

2. (10 points) Choose a house that is within your price range according to the research from Part 1 above. This should be in a location where you want to live but more importantly where you plan to work. Show evidence of this work—a print screen is a must and include a picture of your house AND PRICE (not 7 or 8 of them, but two nice ones) and write a paragraph describing your house and your reasons for choosing this house. Evidence should be presented in paragraph form. Also important is make sure the real estate site has a history of the tax that has been paid on the property.

As you search for houses, this is a great calculator to know the full costs – again you will need to estimate mortgage rates (in 2016, about 3.7%) and use either 30 years or 15 years.

You must BUY a house; no renting or living with parents – you can do that in real life, but not for project. Your house must be no LESS THAN $65,000.

Top 10 most-visited real estate-related websites in the U.S. for January 2013*

|Rank |Website |Rank |Website |

|1 |Zillow |6 | |

|2 |Trulia |7 |MSN Real Estate |

|3 | |8 | |

|4 |Yahoo Homes |9 |AOL Real Estate |

|5 |FrontDoor Real |10 |Apartment Guide |

| |Estate | | |

3. (8 points) Everyone will use $10,000 as their down payment. Find a mortgage for the remainder of the cost---AMOUNT OF HOUSE subtract $10,000. (You can use any financial institution but a reputable one, a well-known name would be good– do some research to get the lowest rate with or without points—you decide) What the heck are points?

a. You should have THREE different financial institutions –comparison shop, this is a big decision -- and you should compare THREE 15 year mortgage rates to THREE 30 year mortgage rates for each bank. Present your data in a formatted table like below.

IT IS BEST TO GO THE MAIN WEBSITE FOR EACH FINANCIAL INSTITUTION. DO NOT USE !!!

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b. Calculate the monthly payment for each option (you can use this spreadsheet)

c. Choose a mortgage….AND clearly explain the reasons for your final mortgage choice. Explain why you chose the ONE you did.

d. Address your decision about whether or not to pay points. What the heck are points?

4. (6 points) Read these articles about Closing Costs:    One        Two        Three

a. Report the amount of closing costs and the full amount you’ll need to bring with you to closing. You can use the Closing Cost Calculator at SmartAssets. Answer the questions posed – zip code, amount of house and for down payment, put 15%. After the result is generated change the down payment using the scroll to get it as close to $15,000 as possible. Don’t just accept these closing costs. If you aren’t going to use an atty, then make this zero. LOOK AT THE COST OF EACH and decide if you going to pay that much.

b. In a few sentences, discuss your thoughts on closing costs and what you learned about closing costs. Again you can use a print screen, but an explanation should be done in written format. For example what costs did you find outrageous, odd, etc. The screen that lists the individual costs is below the pie chart – keep scrolling

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5. (15 points) Do a breakdown of the total cost of your monthly mortgage payment — break it down into 1. principle and interest paid to the bank, 2. property tax, 3. homeowner’s insurance and 4. private mortgage insurance (PMI). I WANT TO SEE A FULL TOTAL FOR ALL. To calculate your property tax, you’ll need to research the mill rate for your town or city. Show evidence supporting your estimate for each portion of your monthly payment. Zillow does this when you use their calculator – the blue ring BUT I don’t trust the tax #s. Follow the directions below to do REAL scenarios of tax costs.

• Principle and Interest – House payment WITHOUT tax, insurance and PMI included. Use mortgage spreadsheet

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• Real Estate Tax – How do taxes work??? The tax history will be located most of the time at the real estate site where you found the house. If you are living in Michigan – use this site MI Treasury.

• Home Insurance – this will vary depending on the structure of your house and all kinds of different details. If you cannot find one w/o having to give personal info., use this formula:  Use market value divided by 1,000 x 3.50.  This will give you the approximate amount for the year.  Divide that number 12 to get a monthly amount

• Private Mortgage Insurance – if you put less than 20% as a down payment, you MUST pay PMI until you have paid 20%. Multiply your mortgage loan by your specific PMI rate according to the lender's chart—if you don’t want to find it at the financial institution you chose for your mortgage, then use .0050. For example: 450,000 x 0.0050 = $3,375. You would owe $3,375 a year for the PMI. Take your loan amount and multiple it by .005. Divide this total by 12 to get your monthly PMI. For example: $3,375 / 12 = $281.25 per month

• After getting all these numbers, add them to the mortgage spreadsheet – see next page

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6. (4 points) USE the amortization table (do NOT print this entire chart) that is at the bottom of the mortgage excel spreadsheet. The chart breaks downs your monthly mortgage payments between interest and principal and balance for the duration of the mortgage. In table format, list:

a. first payment split between principle and interest.

b. payment when interest becomes LESS than principle. Usually about half way. If you chose a 15 year mortgage you will not have this. YOURS MAY NOT BE #171!!!

c. last payment split between principle and interest.

Example:

|Payment Number |Payment Am't |Interest |Principal |Balance |

|1. (first) |499.59 |365.00 |134.59 |99,865.41 |

|171. (interest is less than |499.59 |249.55 |250.03 |68,121.02 |

|principle) | | | | |

|360. (last) |492.32 |1.79 |490.53 |0.00 |

d. Find out the total amount you’d pay in principle and interest over the life of the loan (15 or 30 years) (can you the excel spreadsheet. Use June of the current year as the beginning payment. Report the Mortgage Repayment Summary.

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7. (5 points) Evaluate your financial decision to obtain a mortgage to make this purchase. Was it worth the interest you had to pay? WHY? In the above example, how might a person buy a house for $205,000 house but over 30 years end up paying $503,147.60 for it? How do you think one recoups that cost?

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Bof A

DFCU

Shore to Shore

Bof A

DFCU

Shore to Shore

NOTE:

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