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 Melissa Pay Housing Costs? On April 1 of next year, Melissa is purchasing a $240,000 condominium and has accepted the Tenth National Bank's offer of a ten-year $206,400 loan with an interest rate of 10%. She has a gross annual income of $100,000 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 Melissa 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 14% down payment but will also require 4 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 $826 per year, but is distributed 12 times per year. Melissa 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 $2,400 per year. Premiums for these two policies are paid to the respective insurance companies from an escrow account at the bank. Credit report fee: $50 Title search and deed recording fee: $375 Loan origination fee: $1,200 Title insurance policy-Lender: $480 Mortgage payment (principal and interest): $2,723 Appraisal and survey fees: $450 Attorney fees: $1,000 Home, termite, and radon Inspections: $525 Title insurance policy-Homeowner: $530 Messenger and document fees: $235 Property taxes on the condominium: $12,000 per year The property taxes and homeowner's policy should be pro-rated. Amount Paid At Closing Monthly Cost Incurred $ IIIII $ $ Using the given information, what is the loan-to-value (LTV) ratio required by the Tenth National Bank? 14.00% 116.28% 86.00% Melissa's total closing costs are of her mortgage, and her monthly costs are of monthly income. 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 Melissa Pay Housing Costs? On April 1 of next year, Melissa is purchasing a $240,000 condominium and has accepted the Tenth National Bank's offer of a ten-year $206,400 loan with an interest rate of 10%. She has a gross annual income of $100,000 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 Melissa 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 14% down payment but will also require 4 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 $826 per year, but is distributed 12 times per year. Melissa 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 $2,400 per year. Premiums for these two policies are paid to the respective insurance companies from an escrow account at the bank. Credit report fee: $50 Title search and deed recording fee: $375 Loan origination fee: $1,200 Title insurance policy-Lender: $480 Mortgage payment (principal and interest): $2,723 Appraisal and survey fees: $450 Attorney fees: $1,000 Home, termite, and radon Inspections: $525 Title insurance policy-Homeowner: $530 Messenger and document fees: $235 Property taxes on the condominium: $12,000 per year The property taxes and homeowner's policy should be pro-rated. Amount Paid At Closing Monthly Cost Incurred $ IIIII $ $ Using the given information, what is the loan-to-value (LTV) ratio required by the Tenth National Bank? 14.00% 116.28% 86.00% Melissa's total closing costs are of her mortgage, and her monthly costs are of monthly income