univ 4530 family resource management

Post ID: 3284876

Overview

1.Tom and Nancy want to buy a house in a particular neighborhood. they have two children ages 1 and 4. The average price home in this neighborhood runs about $350,000. Together their family income is $100,000. They have saved $75,000. The home they want to purchase costs $300,000. Taxes on the home run $3.00 per $100 of assessed value of the home. For new homes the assessed value is equal to 75% of the purchase price. Insurance runs half of one percent of the purchase price of the home. An Adjustable Rate Mortgage (ARM) requires a 10% down payment. Conventional loans require 20% down payment.

Interest for an ARM currently is 4.5 %. The conventional loans are 5.25% today.

Compute the per month cost including interest, taxes and insurance (use above formula to get the taxes and insurance cost) for a ARM.

For the principal and interest payment, use the Zillow mortgage calculator at https://www.zillow.com/mortgage-calculator/Links to an external site.. Pay attention to the loan type which is usually in a drop down box. Use the advanced option on the mortgage calculator to fill in the taxes and insurance amount that you figured out from the formulas above (don't just leave the default amount that the calculator has to start with).

Show your work: (20 points)

What is the required down payment based on the type of loan they are receiving? ____________________________________
What will the cost of insurance be per month? ________________________
What will their taxes be per month?____________________________________
What will their principal and interest be per month?__________________
What is their total monthly payment going to be including everything?________________________

2. If they are currently renting a three-bedroom apartment for $1,750 per month. Just based on cost of renting vs. cost of buying with the above ARM, which would be cheaper and by how much per month? (5 points)

3. Write a brief description of what a home equity loan is, how it works, what the advantages of a home equity loan over a personal loan, and how it can be used as a savings account. (25 points) For reference, see the following resources if you need additional information: