Housing Budget Assignment

Housing Budget Assignment

Housing Budget Assignment

Case Study—David and Jennifer Lee                                   

Show your work for full credits (see case study example)

Use “Cashflow statement_Lee” on Canvas for this assignment

Part 1 (10 points):

David and Jennifer Lee want to buy a $800,000 house in 8 years. They plan to put 15% down and apply for 30-year fixed mortgage to finance the rest.  They need to save for down payment in 8 years.  They have already saved $2,000 so far. Assume expected rate of return on their savings is 5% (Treasury notes and corporate bonds). Expected inflation rate is 3%. Use calculators on www.dinkytown.net. Print out the page with your input and highlight your answer.

Calculate:

1. How much they need to set aside every month to save enough for down payment in 8 years. (Use home buyer savings calculator)
2. If he saves $800 each month, how long it takes to save enough for down payments? (Use savings goal calculator)

Part 2:

Eight years later, David and Jennifer Lee have already saved enough, and they are ready to buy their first home now. They want to find the house they can afford.

1. Calculate maximum monthly housing expenses and maximum debt they can carry based on 42% back-end ratio. (5 points)

• Calculate maximum monthly housing expenses based on 28% front-end ratio. (2 points)

• Assume they will apply for 30-year fixed mortgage with 7.5% interest. Assume property tax is 1% of house price and Homeowners insurance is 0.3% of house price. Assume they have already saved $210,000 for home purchase. Assume loan origination fee is 0.8% of loan amount and other closing cost is $5,000. Figure out house purchase price and expenses breakdown. Use Mortgage Qualifier calculator on www.dinkytown.net. Print out your input page and highlight the loan amount they are qualified for and the house price they can afford. (5 points)

• Go to Redfin or Zillow website to look for a house they can afford in California (print out the house information including property address, square footage, lot size, listing price). The house cannot be mobile home without land ownership. (5 points)

• Use information given in #3 to calculate the following home purchase costs. Show steps of calculation for full credits. (18 points)

1. Down payment (assume 20%)
   1. Mortgage(loan) amount
   1. Total closing costs (loan origination fee + other closing cost)
   1. Total monthly housing expenses – monthly payment (principal + interest), property tax, homeowner’s insurance, HOA (if any). Use mortgage calculator on www.dinkytown.net to find out monthly payment (PI) and print out the page with inputs.
   1. Housing expenses ratio
   1. Debt to income ratio