Suppose you have been in the market for a home and have saved up some money...
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Suppose you have been in the market for a home and have saved up some money for a down payment. You have identified a house you would like to buy, which you can buy for $400,000. The location of the house (zip code/neighborhood), is up to you. You will use your savings, which amount to $100,000, for the down payment as well as any costs related to the loan, such as origination fees, discount points, and third-party fees. Therefore, your down payment could be 20% of the purchase price or slightly higher. You will finance the rest of the purchase with a mortgage. Because you have some flexibility in terms of the down payment, the loan amount could be anywhere from $300,000 (75% loan-to-value ratio, or LTV) to $380,000 (95% LTV). Among other things, you will decide on the loan amount. Because the loan amount is so large, even a small difference in interest rates can make a big difference in your monthly payments. Therefore, it pays to do spend some time to compare mortgage interest rates and fees. Going with the first loan offered to you or limiting your options to local lenders could turn out to be costly mistakes. This part of the assignment is all about mortgage shopping and choosing the right purchase mortgage. 8. Look up currently available mortgage products for home purchase on https://www.bankrate.com/mortgages/mortgage-rates, https://www.nerdwallet.com/mortgages/mortgage-rates, or both. Use the assumptions about the purchase price and zip code from above. For the credit score, please use your own (approximate) credit score. Assume you will make a down payment of $80,000, which means you will borrow $320,0000. Find the best available purchase mortgage rates for: Two 30-year FRMs, Two 15-year FRMs, and One ARM. Note: if no ARM options are available on either website, please leave that part blank. Date: You may use the following table to summarize your findings. Please note that you are not actually giving out any personal information. You are simply checking the current rates available for your area. Zip code: 30-year FRM 1 Lender Rate Points/ fees APR Monthly pmt. Price: $400,000 30-yr FRM 2 Down payment: $80,000 15-yr FRM 1 Credit score: 15-yr FRM 2 ARM 1 9. Now assume that your savings amount to only $30,000. You will make a down payment of $20,000, which means you will borrow $380,0000. Find the best available purchase mortgage rates for: Date: Lender Rate Points/ fees APR Two 30-year FRMS, Two 15-year FRMs, You may use the following table to summarize your findings. Since LTV is higher than 80%, lenders will now require private mortgage insurance (PMI). Thus, the table has an additional line for PMI. Note: If PMI payment is not available on the website(s), assume that the annual PMI premium will be 0.68% of the loan amount. Zip code: 30-year FRM 1 Monthly pmt. PMI One ARM. Note: if no ARM options are available on either website, please leave that part blank. Price: $400,000 30-yr FRM 2 Down payment: $20,000 15-yr FRM 1 Credit score: 15-yr FRM 2 ARM 1 10. Assume your gross household income is $90,000. Further suppose you can spend up to 40% of your gross income on housing expenses. Housing expenses include: the mortgage payment, private mortgage insurance (if applicable), property tax, property insurance, homeowners' association (HOA) fees, and maintenance. For the purposes of this assignment, assume that housing expenses excluding the mortgage payment and mortgage insurance add up to $8,400 per year, or $700 per month. Given these assumptions, which of the mortgage options from the previous two questions are affordable to you? 11. If more than one mortgage is affordable, choose the best option from your point of view. Note that "the right" answer may not be the same for everyone. For example, you may qualify for a $380,000 loan and a $320,000 loan, both for 30 years. The monthly payments for the latter would likely be lower, but you may still choose to borrow the higher amount for reasons specific to you. Summarize the relevant information for the chosen option: loan amount, interest rate, fees/points, APR, monthly mortgage payment, and the monthly private mortgage insurance payment (if applicable). In addition, calculate the total monthly housing expenses and the total interest in dollars you will pay over the life of the loan. Suppose you have been in the market for a home and have saved up some money for a down payment. You have identified a house you would like to buy, which you can buy for $400,000. The location of the house (zip code/neighborhood), is up to you. You will use your savings, which amount to $100,000, for the down payment as well as any costs related to the loan, such as origination fees, discount points, and third-party fees. Therefore, your down payment could be 20% of the purchase price or slightly higher. You will finance the rest of the purchase with a mortgage. Because you have some flexibility in terms of the down payment, the loan amount could be anywhere from $300,000 (75% loan-to-value ratio, or LTV) to $380,000 (95% LTV). Among other things, you will decide on the loan amount. Because the loan amount is so large, even a small difference in interest rates can make a big difference in your monthly payments. Therefore, it pays to do spend some time to compare mortgage interest rates and fees. Going with the first loan offered to you or limiting your options to local lenders could turn out to be costly mistakes. This part of the assignment is all about mortgage shopping and choosing the right purchase mortgage. 8. Look up currently available mortgage products for home purchase on https://www.bankrate.com/mortgages/mortgage-rates, https://www.nerdwallet.com/mortgages/mortgage-rates, or both. Use the assumptions about the purchase price and zip code from above. For the credit score, please use your own (approximate) credit score. Assume you will make a down payment of $80,000, which means you will borrow $320,0000. Find the best available purchase mortgage rates for: Two 30-year FRMs, Two 15-year FRMs, and One ARM. Note: if no ARM options are available on either website, please leave that part blank. Date: You may use the following table to summarize your findings. Please note that you are not actually giving out any personal information. You are simply checking the current rates available for your area. Zip code: 30-year FRM 1 Lender Rate Points/ fees APR Monthly pmt. Price: $400,000 30-yr FRM 2 Down payment: $80,000 15-yr FRM 1 Credit score: 15-yr FRM 2 ARM 1 9. Now assume that your savings amount to only $30,000. You will make a down payment of $20,000, which means you will borrow $380,0000. Find the best available purchase mortgage rates for: Date: Lender Rate Points/ fees APR Two 30-year FRMS, Two 15-year FRMs, You may use the following table to summarize your findings. Since LTV is higher than 80%, lenders will now require private mortgage insurance (PMI). Thus, the table has an additional line for PMI. Note: If PMI payment is not available on the website(s), assume that the annual PMI premium will be 0.68% of the loan amount. Zip code: 30-year FRM 1 Monthly pmt. PMI One ARM. Note: if no ARM options are available on either website, please leave that part blank. Price: $400,000 30-yr FRM 2 Down payment: $20,000 15-yr FRM 1 Credit score: 15-yr FRM 2 ARM 1 10. Assume your gross household income is $90,000. Further suppose you can spend up to 40% of your gross income on housing expenses. Housing expenses include: the mortgage payment, private mortgage insurance (if applicable), property tax, property insurance, homeowners' association (HOA) fees, and maintenance. For the purposes of this assignment, assume that housing expenses excluding the mortgage payment and mortgage insurance add up to $8,400 per year, or $700 per month. Given these assumptions, which of the mortgage options from the previous two questions are affordable to you? 11. If more than one mortgage is affordable, choose the best option from your point of view. Note that "the right" answer may not be the same for everyone. For example, you may qualify for a $380,000 loan and a $320,000 loan, both for 30 years. The monthly payments for the latter would likely be lower, but you may still choose to borrow the higher amount for reasons specific to you. Summarize the relevant information for the chosen option: loan amount, interest rate, fees/points, APR, monthly mortgage payment, and the monthly private mortgage insurance payment (if applicable). In addition, calculate the total monthly housing expenses and the total interest in dollars you will pay over the life of the loan.
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