Personal Financial Planning

Assignment Case Study: Home Ownership

The case study represents $10\%(10$ marks$)$ of your total marks. Complete the case study in the space below the case study information.

The case study is to develop your skills and abilities to select and purchase a home, calculate the closing cost, monthly costs, mortgage and mortgage repayment amounts.

Objectives: After completing the case study activity, you will be able to:

$$ Explain the different types of housing available.

$$ List the cost associated with purchasing a home.

$$ Calculate the approved maximum mortgage amount and the maximum mortgage repayment amounts given by the financial institution.

Instruction:

$1.$ Read the following case study.

$2.$ Research the different type of housing, the associated cost in purchasing a home, the approved mortgage and payment amounts given by the financial institution.

$3.$ Calculate the answers for the Case Study questions listed below.

Introduction

With a raise from her employer, Sophia Monet, $31,$ is looking for a new home. She has come to you for help.

Financially, she is secure$,$ but she is risk averse. Her salary is $$130,000$ a year, but she does not know how much she should spend on purchasing a home. Her current housing expenditures include rent for her apartment of $$2,300$ per month and tenant$$s insurance premiums totaling $$800$ per year.

Although she has been paying her rent on a monthly basis, Sophia would prefer the accelerated biweekly payment frequency for her mortgage payments. Her month bills include a $$550$ lease payment for her $2018$ BMW i$2$ and a $$200$ loan payment.

Sophia research has shown that property taxes and home insurance premiums for the average home in the city in which she lives, are about $$5,000$ and $$1,200$ per year. She is unsure of the maintenance and heating costs, but estimates them at $$2,500$ and $$3,000$ per year. Sophia thinks that a high$-$end condominium might best suit her lifestyle. The condominium fees associated with the property would be about $$500$ per month.

Sophia wants to own her home, since as the real estate values increase, the value of her home will increase. Local property values have been increasing at $5\%$ per year over the past seven years.

One concern about buying a home is the immediate cost of down payment and closing costs. These closing costs are about $$5,000.$ She wants to make a $20\%$ down payment. Sophia$$s bank will use a maximum TDS ratio of $40\%$ to qualify her for a mortgage. In addition, the posted $5-$year mortgage rate is $5\mathrm{.}35\%,$ compounded semi$-$annually.

Case Study Questions:

$1.$ List and describe four types of housing the Sophia should consider.

$2.$ Determine the maximum mortgage payment that Sophia would be qualified to pay.

$3.$ What would be the accelerated biweekly payment on her mortgage?

$4.$ At an amortization period of $25$ years, what is the maximum mortgage amount that Sophia would be qualified to receive?

$5.$ If Sophia makes a $20\%$ down payment, what is the maximum value of the home that she would be qualified to purchase?

$6.$ Including maintenance, closing costs, and her required down payment, how much money does Sofia need to set aside?