Assignment: Homes: Renting and Buying Worksheet

1. Complete the "Buy or Rent Your Next Home" exercise on the Bankrate website. See website in the attached file.

Respond to each of the following in a minimum of 50 words:

• What was the recommendation?

• What were the factors that led to that recommendation?

• Do you agree or disagree with the recommendation?Why?

2. Consider how economic conditions affect your decision to buy or rent (for example interest rates, unemployment rate, and inflation).

Explain in a minimum of 100 words the main benefits and drawbacks of renting versus owning a home.

3. Review Exhibit 7-4 in Ch. 7, page 225 of Focus on Personal Finance.

Summarize in at least 100 words the steps in the home-buying process.

4. Review Exhibit 7-6 in Ch. 7, page 230 of Focus on Personal Finance.

Estimate the affordable monthly mortgage payment, the affordable mortgage amount, and the affordable home purchase price for the following situation. Show your calculations in the table below.

• Monthly gross income: $2,950

• Other Debt, monthly payment: $160

• Down payment to be made: 15% of purchase price

• Monthly property tax and insurance: $210

• 30-year mortgage at 6%

5. If you were buying a home valued at $215,000, what is the minimum down payment you would need in order to avoid paying private mortgage insurance (PMI)?PMI is requested to protect the lender from potential default loss when there is insufficient equity in a home.

6. Debt payments-to-income ratios will likely be considered as you apply for a mortgage. The Focus on Personal Finance text suggests keeping this ratio below 20%. A mortgage lender will have their own ratio for all debt payments, including mortgage-to-income ratio, before they will consider approval. Using this information, answer the questions and show your calculations in the table below:

• Net monthly income: $4,000

• Expected full mortgage payment (PITI): $1,000

• Student loan payment: $250

• Car payment: $300

What is this person's debt payments-to-income ratio?

What is this person's debt payments-to-income ratio when the full mortgage payment is included?

If the mortgage lender required total payment to income ratio below 40%, would this person meet that standard?

If the mortgage lender required total payment to income ratio below 45%, what is the maximum monthly payments this person could have to meet the standard?

Step 1.Start with the monthly gross income.

Step 2. Multiply Step 1 by .33 (which is the decimal form of 33%) for a PITI (principal, interest, taxes, and insurance) guideline.

Step 3. Subtract "Other Debt" payments from the result of Step 2 to determine the Affordable Monthly Mortgage Payment.

Step 4. Divide the result of Step 3 by 6.00 (this is the mortgage payment factor from Exhibit 7-7 based on a 30-year loan at 6%) and then multiply this by $1,000. This is the Affordable Mortgage Amount.

Note: Does this amount seem reasonable for this scenario? If not, double-check your calculations.

Step 5. Divide the affordable mortgage amount by .85 (This is 1 minus the down payment percentage) to determine the Affordable Home Purchase.

Note: Does this amount seem reasonable for this scenario? If not, double-check your calculations.

Information related to above question is enclosed below:

Attachment:- PurposeofAssignment4.rar