A Future Home Buyer's Must-Do Project
In this project, you will investigate the process of buying a house. For the purposes of this project, we will assume that you are going to graduate at the end of this semester, get a job, and begin saving for your first house. You will plan to buy your house five years after graduation. At that time, you will use the money you've saved as a down payment and take out a loan for the rest of the cost of the house.
As part of the project, you should address each of the following:
(a) Your projected salary for the first five years after you graduate. Describe what kind of a job you expect to have and what starting monthly salary is realistic for that type of job. Project the salary over five years, including raises and cost-of-living increases. (Support all your salary assumptions with data and cite your sources.)
(b) Your savings and investments over the five-year period. For the purposes of this project, assume that 10% of the monthly salary you projected in Step 1 will be invested in a deferred annuity. Research the types of deferred annuities available to you and describe the terms, fees, and APR. Use the amount of money you will be able to save each month, the interest rate you have found, and your knowledge of annuities to compute how much money you will have after five years. Don't forget to deduct any state and federal taxes you will be paying on your income from the annuities. Estimate your taxes on income from the annuities at 20% federal and 7% state. (If you expect to have a job in a no-income-tax state, disregard the 7% state tax.)
(c) How much you can afford to spend on a home and what your monthly mortgage expenses will be. To determine how much you can afford to spend on a home, use your estimate of how much you have saved for a down payment and assume. that your down payment is 15% of the cost of the home. Research the types of home loans currently available to someone with your credit rating and income (assume the in¬come projected at the end of the five-year period). Describe the terms of a loan you might be able to take out, including the interest rate, type and length of loan, and loan origination fees. Once you found a loan, project your monthly mortgage payments (be sure to include property taxes and insurance). Once again, cite all the sources for your data and show all the formulas you are using for your calculations.