3. The benefits and costs of home ownership - Part 2 How Should the Costs of Purchasing and Owning a Home Be Categorized? You can categorize the costs associated with home ownership according to whether they are paid at closing, or monthly throughout the life of the mortgage loan, or even after the home is paid off. Consider the following situation, and then complete the form that follows by entering the necessary data, classifying the costs according to whether they represent up-front, monthly costs, or both. Finally, answer the associated questions that follow. Note: Round all dollar amounts to the nearest whole dollar, and if no payment is necessary, record a zero (0) in the space. In case of deduction, enter the dollar amount without minus sign. When Should Juanita Pay Housing Costs? On April 1 of next year, Juanita is purchasing a $180,000 condominium and has accepted the Tenth National Bank's offer of a ten-year $151,200 loan with an interest rate of 8%. She has a gross annual income of $120,000 and is concerned about how much her one-time up-front costs and recurring monthly costs will be. She's received the following data and form, but she's not certain when she is to pay each cost-at closing, monthly, or both. Your task is to help Juanita by completing the form and classifying the costs. Hint: Remember that the purchase is expected to close on the first of April. This means the following: . Although a year's worth of a cost, such as the condominium's property taxes, may be owed by the home buyer, a portion of the total cost will be paid by the seller. A portion of a cost, such as the homeowner's insurance premium, may be deposited into an escrow account so that the accumulated funds will be available to pay the entire annual premium when it is due next year. For its mortgage, the bank will permit a 16% down payment but will also require 3 points. Mortgage insurance is required if the loan- to-value (LTV) ratio is less than 20%. A private mortgage insurance (PMI) policy, if necessary, is expected to cost $605 per year, but is distributed 12 times per year. Juanita has purchased a home warranty policy, which carries an annual premium of $480 and is paid 12 times per year, and a homeowner's insurance policy, which costs $1,800 per year. Premiums for these two policies are paid to the respective insurance companies from an escrow account at the bank. Credit report fee: $85 Title search and deed recording fee: $360 Loan origination fee: $900 Title insurance policy-Lender: $375 Mortgage payment (principal and interest): $1,838