This project is designed for you to have a complete understanding of what is entailed in buying a home. For most people, their home purchase is the largest financial purchase they will make in their lifetime, so understanding how the process works and how much it will cost you, are key elements you need to know. While there is much detail to be provided, you will need all this information when it is your turn to purchase the home of your dreams!

Objectives:

To understand the need for personal budgeting and how to prepare a comprehensive line-item budget and a 50/30/20 budget.

To calculate the financial requirements of a home purchase including determining the amount of monthly payment based on a certain income level, the need for better credit scores and the role of private mortgage insurance for lower down payments.

To create a home purchase package that provides all elements and requirements of a lender for a home purchase.

HOUSING PROJECT ASSUMPTIONS

You are to prepare yourself to purchase a home. This will include understanding your income and expenses, especially debt payments, and your credit score. Keep track of your project, you will be using parts of this project to prepare your Retirement Plan project as well.

ASSUMPTIONS:

1. You are single

2. Your gross income is $85,000 per year.

3. You have outstanding credit card debt of $3500. Your required minimum payment each month is 2% of the balance.

4. You have a car payment of $550 per month.

5. You have a student loan payment of $100 per month.

6. Your current rent payment is $1100 per month.

7. Assume a credit score of 725.

8. Assume you have cash of $20,000 to use for a down payment and closing costs.

9. Assume property taxes of $2100 annually. House insurance of $1200 per year.

10. If you purchase in a neighborhood, you will have to factor in homeowner’s association fees. Assume at least $150 per month, $250 if there are community amenities such as a pool, clubhouse, etc. IF you know the actual amounts are higher, use the higher amount.

11. You will use standard closing costs, including 1% origination fees, unless the lender you choose charges different amounts.

INCOME:

1. You must account for payroll deductions such as federal taxes (you know how to calculate that now), state taxes at 5.35%, Social Security and Medicare taxes. Percentages are in your text. You should have seen them if you have read as assigned. You are not itemizing deductions at this point.

2. Assume your health insurance is $350 month, paid with a payroll deduction.

3. You contribute 10% of your income to a 401K that has a 3% match up to $6,000.

4. You carry $50,000 of term life insurance at work, provided by your employer.

5. You pay dental insurance of $20 a month through payroll deduction.

6. Provide the monthly and annual gross and net salary income.

EXPENSES:

1. You are to research the amounts of estimated expenses. There are sites that will tell you what percentage of your budget should be allocated to housing, transportation, food, etc. You will be expected to save a minimum of 10% of your income for emergencies and other savings needs (vacations, new furniture, home improvements, etc.).

2. For tax expenses, you are filing single and are not itemizing deductions currently.