4. Although a down-payment (initial margin) of 20% is typical for a home purchase, homebuyers of modest means can qualify for a loan insured by the Federal Housing Administration (FHA) with a down payment as little as 3%. The political intent is to broaden home ownership among low-tomoderate income households.

a. Suppose a household uses such a loan to buy a $200,000 home. What leverage ratio does a 3% downpayment represent?

b. Suppose that the houses price falls 10% to $180,000 over a one-year period (note that aggregate U.S. housing prices had declined more than 30% from their pre-2008 peak by the end of 2010, see below). What would have been the return of investment (ROI) of this household, assuming that the household took out a mortgage with a 4% interest rate?

Make rent a thing of the past. With a down payment as low as 36 for modest-income buyers Bank of America makes affording a new home easier than ever. To get started call 1-800-S41-8603 Ost your local financial Center Bankol America.com ForscHome Bank of America LINE BETTER CORRECTE 215-268-0073 I Intersection SPCS20 272.34 As Of 07/31/21 Resale Index S&P CoreLogic Case-Shiller 20-City Composite Home Price NSA Index SPCS20 Index Economic Indices Description Series S&P CoreLogic Case-Shiller 20-City Composite Home Price NSA Index O (NSA, Index) Country/Region United States Source S&P/Case-Shiller - 1) Description 2) Release Details 3) Related Indicators 4) Related News Track Annotate a Zoom Latest 272.34 Survey 224.73 250 200 - 150 100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021