Tom Lamont, age 30, and Lin Lamont, age 31, have been married for six years. They got
Question:
Tom Lamont, age 30, and Lin Lamont, age 31, have been married for six years. They got married right after Tom graduated from college. They have come to you for help in planning their financial future. They’re both employed in highly stable positions. Tom works in the marketing department of a large corporation. Lin works for a nonprofit service organization.
Instructions
Use the following income, expense, asset, and liability information to answer Tom and Lin’s questions.
QUESTIONS:
Lin has been investigating the housing market. She found a wonderful new house priced at $205,000. Given their credit score, she is confident that she and Tom can qualify for a 30-year, fixed-rate 5.20% mortgage. If they were to purchase this home, how much of a down payment will they need to have in order to avoid PMI? How much will they need to put down if they use a 5% down payment?
Given their current financial situation, do Lin and Tom have sufficient assets to make either a 5% or 20% down payment? If they don’t have enough, what can they do?
Lin anticipates receiving a gift from her parents to help offset the expense of a down payment. If a homeowner’s insurance policy will cost $1,400 per year and property taxes will be $4,300 per year, what will be their monthly PITI on a loan with a 20% down payment? What will be the monthly PITI with a 5% down payment, assuming private mortgage insurance costs $900 per year?
Do Lin and Tom meet HUD’s housing payments to income ratio? Do they meet HUD’s total fixed payments to income ratio for either the 20% down payment scenario or the 5% down payment scenario?
Based on your estimates, do you agree or disagree with Lin that they should purchase a home, assuming they have at least a 5% down payment, at this time?
Income Tax Fundamentals 2014
ISBN: 9781285424545
32nd edition
Authors: Gerald E. Whittenburg, Martha Altus-Buller, Steven Gill