Jason and Julie live in a small bungalow style home that has 900 square feet with a
Question:
Jason and Julie live in a small bungalow style home that has 900 square feet with a one car garage and a 500 square foot basement. Their current home has two bedrooms living room, kitchen and bath on the main floor with a bath and laundry in the basement. They purchased their home 6 years ago for $80,000 and took out a 25-year 80% loan to value mortgage at 5.5%. Julie just informed Jason that she is expecting their second child in seven months. With the new addition Jason and Julie would like to find a bigger home. They would like a three-to-four-bedroom home with two baths on the main floor, a finished basement with a bath, laundry, extra bedroom and a two-car garage. The homes they have found that meet their room requirements and have 1100 to 1400 square feet on the main floor and finished basement. Over the past 6 years homes sales have increased on average 8% per year and interest rates have gone down from 5.5 % to 4%.
Questions
What is your estimated value of their current home today using the information in the grid above? Support your decision
Does the value you found in the sales grid match the estimated increase in home sales of 8% per year compounded annually? Explain why or why not.
How much did they put down on their current loan?
Assuming taxes of $2500 and insurance of $800 per year what would their current payment be?
What is the MOST they should list their home for? Is your recommendation at or above the estimated market value you determined in #2 above? Explain in some detail.
They have contacted a real estate broker to list their home for sale. The broker charges 6% of the selling price. What is the net amount they might have after paying the broker’s commission and payoff their existing loan? (Assuming the home sells for the asking price)
If the net amount they should receive represents the funds available for a down payment on a new home, what is the maximum they could put down on a new home?
If these funds represent a 20% down payment, what is the maximum home they can afford in total dollars?
Which of the homes listed in the sales grid would you recommend for Jason and Julie? Why, explain in a narrative statement of approximately 750 words.
Do they have funds available to buy any of the homes listed in the grid? Does your recommendation require them to put all of their funds down? Explain.
What would their payment be on the new home?
Real Estate Finance and Investments
ISBN: 978-0073377339
14th edition
Authors: William Brueggeman, Jeffrey Fisher