1. Write a short description of the four types of housing generally available for Seyed.
2. List several sources of information applicable to any real estate purchase that might be helpful to Seyed in making a decision. Should he consider prequalifying?
3. Use the lending guidelines to determine the maximum dollar amount that he could spend per month on his home payment (PITI).
4. Calculate Seyed's monthly PITI payment. To calculate principal and interest (PI), assume he has purchased a home for $140,000 and has a $112,000, 30-year, 4.75 percent fixed-rate mortgage. To calculate the local real estate taxes (T), use the real estate tax rate as given in the case, assuming the property has an assessed value of $128,000. Also include Seyed's projected homeowner's insurance (I) cost as given in the case.
5. Complete Worksheet 10 to determine if Seyed should buy or continue renting. To purchase the house considered in Question 4, Seyed would pay $6,000 in closing costs, including $2,500 in discount points. Consider 1- and 7-year time horizons.
6. Seyed is now considering a house that is selling for $180,000. Estimate the dollar amount Seyed should be prepared to pay on the day of closing. Assume an interest rate of 5.25 percent, closing costs of 5 percent of the sale price, and a 20 percent down payment.
7. Assuming the house in Question 6 is appraised for $180,000 and the information in the case concerning the taxes and insurance holds true, can Seyed afford the home if he finances it for 15 years? 20 years? 30 years? Why or why not? Use Worksheet 11 to guide your answer.
8. Will Seyed need private mortgage insurance? Will he need a gift letter?
9. Given his risk tolerance, what type of mortgage would you recommend to Seyed? Should he consider an interest-only mortgage?
With a raise from his investment firm, Seyed Abdallah, 31, is inspired to look for a new home. Buying a home will allow Seyed, who is single and in the 25 percent marginal tax bracket, to itemize taxes. He has come to you for help.
Financially, he is fairly secure, but he is also very risk averse. His salary is $63,000 a year, but he does not know how much he should spend on housing. His current housing expenditures include rent of $900 per month and renter's insurance premiums totaling $150 per year. His monthly bills include a $450-per-month lease payment for his 2014 Acura TL and a $150-per-month student loan payment. He also paid a security deposit of 2 months' rent from which he could be earning 8 percent after taxes.