University of Phoenix Material
Buying Major Financial Assets Worksheet
Home Buying
http://www.bankrate.com/calculators/mortgages/rent-or-buy-home.aspx
- Complete the “Buy or Rent” calculator using your own data. In 50-100 words answer the following: What was the recommendation? What were the factors that led to that recommendation? Do you agree or disagree with the recommendation? Why?
The calculator suggested that I reconsider my want to buy a home at this time. This recommendation was given based on the fact that I do not have any down payment or access to money that can be used for it. The calculator suggests that you have a substantial down payment of at least 20% of the total loan amount. I do agree with this because if you tried to get a loan for the entire amount needed, it would increase the amounts of the monthly payments.
- In a minimum of 100 words, explain the main benefits and drawback of renting and of owning a home?
- In owning your own home, you have free rein to do with it what you want, such as painting, yard work, and any changes you want to make, such as additions. Also, the monthly payments go straight to your loan instead of a landlord, you are responsible for any repairs that need to be done. In renting, you are at the mercy of a landlord, for such things as repairs and even wanting to paint walls. You payments will go to the landlord instead of going towards a loan for the property. Some places can have a rent to own process, in which you are responsible for all things just like if you actually owned the property with a loan.
The first step is to evaluate your needs when owning your home, including assessing the amount you can afford to pay. Step two, is to find homes you are interested in, recommended that you use a real estate agent, and select a location, make sure to look into the school systems for that area if you have children. Conduct a home inspection, to determine what the house may need to have fixed or updated. Step three, involves doing the numbers, determine what the sellers are asking for the property and compare that to the actual market value of the home. Step four, apply for loan, determine the monthly payments and check into the different types of mortgages. Look into the rates for these mortgages and determine the best course for you. Step five, you need to pick the closing date, this gives you time to make sure you will have the loan in time. You also need to get any and all paperwork needed for closing, such a tax papers, and home inspection documents.
- Review Exhibit 7-4. In at least 100 words, summarize the steps in the home-buying process.
Enter your calculation and response in this column | |
Step 1. Determine the monthly gross income (annual income divided by 12). | $35,400 |
Step 2. Multiply step 1 by 33% for a PITI (principal, interest, taxes, and insurance) guideline. NOTE: With a down payment of at least 5% lenders use 33% of the gross income as a guide for PITI (principal, interest, taxes, and insurance) | $11,682 |
Step 3. Subtract other debt payments from the result of Step 2 to determine the Affordable Monthly Mortgage Payment. | $11,522 |
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. | $1920.33$320,055 |
Step 5. Divide the affordable mortgage amount by .85 (This is 1 minus the down payment percentage) to determine the Affordable Home Purchase. | $376,535.29 |
Car Buying
- Review Exhibit 7-6. Estimate the affordable monthly mortgage payment, the affordable mortgage amount, and the affordable home purchase price for the following situation.
- 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%
Step one, determine your needs of a car, gas mileage requirements, passenger capacity, etc. Do your homework. Step two, research different makes and models that fit your needs and requirements. Compare the options of used and new cars, and even leasing a car. Step three involves the numbers, look into finance options, the amounts needed for a loan and how much you can afford to spend every month. Step four, look into the costs of maintenance and gas prices needed for the vehicle you chose. This also includes any repairs that you may require, new tires, transmission and engines repairs, as some parts for vehicles are harder and more expensive to get and install.
- Review Exhibit 6-2. In at least 100 words, summarize the steps in the car-buying process.
Instruction: Complete the chart below to calculate the cost of buying a car.
- Using the framework on page 199, prepare a financial comparison of buying and leasing a car with a cash price of $24,000. Show your calculations.
- Down payment (to buy/finance): $4,000
- Monthly loan payment: $560
- 48 month loan and lease
- Value of vehicle at end of loan: $7,200
Steps to Buying a Car taken from “Figure it Out” on page 199 | Enter your calculation and response in this column |
Step 1. Total down payment | $4,000 |
Step 2. Total cost of payments: Multiply the Monthly Loan Payment by the Length of the Loan | $560 x 48= $26,880 |
Step 3. Identify the opportunity cost of the security deposit: Multiply the Security deposit by the Length of the Loan by 3% | $4,000 x 48 x .03= $5760 |
Step 4. Add the result of Step 1, 2 and 3. | $4,000 + $26,880 + $5760=$36,640 |
Step 5. To determine the total cost of buying subtract the Value of the vehicle at the end of the loan from the result of Step 4. | $36,640-$7200=$29,440 |
Instruction: Complete the chart below to calculate the cost of leasing a car.
Steps to Leasing a Car taken from “Figure it Out” on page 199 | Enter your calculation and response in this column |
Step 1. Multiply the Monthly Lease Payment by the Length of the Lease | $440 x 48= $21,120 |
Step 2. Identify the opportunity cost of the security deposit: Multiply the Security deposit by the Length of the Lease by 3% | $1200 x 48 x .03= $1728 |
Step 3. To determine the total cost of leasing add the results of Step 1 and 2 to the End-of-Lease Charges | $21,120+$1728+$600=$23,448 |