The Situation: Tim and Kim Hartke with their two kids are moving in three months from Sioux City, Iowa to the Twin Cities. Tim has been relocated to a job in downtown Saint Paul. He has negotiated with his new contract that all of his moving expenses will be paid by the company. Tim and Kim believe they will have approximately $28,000 from the sale of their home in Iowa. They are hoping to find a house to buy in the Twin Cities. Your job: You will create a report about two homes currently on the market that fit their needs. Your report will have a number of sections as detailed below. Your report must be typed including the formulas using 12 point font, with one inch margins.
Their financial considerations: Tim’s (new) yearly gross income: $75,000 Kim’s yearly gross income: $22,000 Combined monthly college loan payments: $220 (will be paid off in 10 years) Monthly car payment: $375 (will be paid off in 16 months) Credit card 1: $170 per month (will be paid off in 5 months) Credit card 2: no outstanding balance (they pay the current balance each month) Amount in savings account: $9,525 (they’d like to keep at least a $2000 cushion for unexpected costs)
Musts for Tim and Kim: Things that would like to have: -3 bedrooms & one full bathroom -A fourth bedroom or a place for Kim’s office -A 3 car garage -A main floor family room -An eat-in kitchen -A formal dining room -A decent back yard for the kids to play in -An attached garage
YOUR REPORT: Cover Page: • Name of the people you are preparing the report for • City to which they are relocating • Name of the company preparing the report (be creative) • Your name • Date the report was prepared
Section 1: • Determine the maximum amount the couple has for a down payment. Use this to calculate the cost of a potential house if the down payment is 20% down or 10% down. Show your calculations in the report • What price range you decided would be affordable and why? o Make sure you take into account the financial situation as noted above. Use the web site www.moneyunder30.com/how-much-house-can-you-afford to find the price range. o Use at least two different rules to determine the affordability and explain the calculations you did to determine a price range for their home.
Section 2: For each of the two houses • Describe the house and explain how the house fits their “MUSTS” and, if possible, their “WOULD BE NICE.” As you write about each house, refer to the house as “the home on ____________ street” and mention that you have included the listing sheet in the appendix • Print a copy of the complete listing sheet the home including the picture – highlight the price of the home, the complete address, the MLS number, and the property tax amount. Attach these two listing sheets to the back of the report as an appendix.
• Estimate the ANNUAL cost for homeowner’s insurance for each home. Do not just make up this amount. Call an insurance agency or get an online estimate for the insurance cost. Most of the information they ask you can answer by carefully reading the listing sheet for the home, but they may ask you questions like how far away is the nearest fire hydrant or fire station. Make a reasonable attempt to find accurate information, but if it is difficult to find information that is not on the listing sheet, you can make up a reasonable answer in order to obtain a quote. Cite your source. If you use a website, include the web address and a printout of your insurance quote in the report and if you call an agency, include the name of the agency, the phone number and the name of the agent you worked with in your report. You may include this citation information in a labeled appendix of the report, but you should include the cost of the home owners insurance in the description for each house.
Section 3: Mortgage cost • You will include a short section summarizing your findings about mortgage costs in the report, but the majority of this section will be calculations in an Excel document which you will email to me as an appendix, since it will be difficult to print. • Complete a web search and find realistic current terms for a 15-year fixed rate mortgage and a 30-year fixed rate mortgage. Be sure to cite the source of this information in your report and be sure to include any conditions of the loan, such as loan origination fees or points. Print out the terms of each mortgage and include them as an appendix. • For each house you will calculate the costs for 4 different loans: 1) a 15-year loan with a 20% down payment 2) a 15-year loan with a 10% down payment 3) a 30-year loan with a 20% down payment and 4) a 30-year loan with a 10% down payment. Create an Excel document with a sheet for each loan, so you should have 8 spreadsheets (2 houses x 4 loans situations per house). Label each spreadsheet with the address of the house and the terms of the loan. • On each spreadsheet include labeled cells with the purchase price of the house, the down payment, the mortgage amount, and any fees associated with the loan (these are typically paid with the down payment at the origination of the mortgage) . On the Excel spreadsheet calculate the monthly mortgage payment (using the payment formula on the formula sheet provided in class). Now on each spreadsheet create an amortizations table, like the one in our online textbook (available in MyMathLab). You should include columns showing the payment number, the interest payment, the principal payment, and the balance of the loan. There should be a row for each payment (180 rows for a 15-year mortgage and 3. Copy and paste formulas to complete the interior of the table and manually complete the principal payment in the last line. Your final balance should be 0. Add a total heading after the last row and use the =SUM command to find the total of all of the interest payments and the total of all of the principal payments. The total of the principal payments should equal the mortgage amount. • Now at the bottom of each spreadsheet calculate and label the following amounts: o The monthly mortgage payment (from above) o Calculate the MONTHLY cost of homeowner’s insurance from your quote for annual homeowner’s insurance o Calculate the MONTHLY property taxes from the amount on your listing sheet o Find your TOTAL MONTHLY payment for this home with this loan • Finally calculate and label the total cost of this home over the term of this loan: include the total of all the years of monthly payments (i.e. multiply the total monthly payment x the total number of payments), the down payment, and any fees associated with the origination of the loan. Note: this really is most of the fixed cost of owning a home. [Note: we are ignoring the cost of Private Mortgage Insurance, which is required if your down payment is less than 20% of the purchase price, but this cost varies greatly from lender to lender and is based on the lenders perceived risk in giving you a loan.] • Now include a summary in the body of your report comparing the cost and benefits of the four loans on each of the houses.
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