Analyze purchase of home with various types of financing

Assigned Person	Loans Offered
	Type	Term	Rate	Amortization	Points	Origination Fees	Index	Margin
1	Fixed	15	3.000%	Monthly	1.735%	$995	0	0.00%
2	Fixed	30	3.875%	Monthly	2.000%	$0	0	0.00%
3	ARM 3/1
4	ARM 5/1	30	3.125%	Monthly	1.750%	$1,295	1 yr Treasury	2.75%
5	ARM 7/1	30	3.625%	Monthly	2.000%	$1,584	1 yr Treasury	2.75%
	All Loans	Conventional	LTV	80.0%

ARM Loans

Payment Changes Annually after fixed period

Minimum payment due will be an amount that will not

exceed 7.5% more of less that the last minimum monthly

payment due before the rate change

Interest Rate Limit: 9.95%

Interest Rate Changes Annually with payment change

Negative Amortization None

Index Beginning on the first interest rate change, interest will be computed based on the index. The index is the twelve (12)

month average of the monthly average annual yield of the 1

year LIBOR rate. The most recent index available and the

twelve months preceding will be used in the calculation

Calculation of Interest Rate Changes

The new annual interest rate will be the sum of the margin

and average annual index computed for each adjustment

period, rounded to the nearest 0.125%

Underwriting Criteria

		Low	High
Debt to Income Ratio (PITI)		37.0%	42.0%
Add'l Long Term Debt to Income			45.0%

2

Security for the Loan:

Single Family Residence Annual Holding Costs 1402 Riverside Dr.

Fullerton, CA 92831 Real Estate Taxes: $9,978.80 Insurance: $1,500.00

Living Area: 1,389 square feet Utilities: $1,800.00 Year Built: 1954 Maintenance: $1,800.00 Room Count: 5/3/2

Purchase Price: $890,000

Assumptions:

Holding Period: 10 years

Projected Price Appreciation over holding Period (per year):

Low High

3.0% 5.0%

Potential Costs of Sale: 7.0%

Inflation Holding Costs:

Real Estate Taxes: 2.0%

Insurance: 1.75%

Utilities: 1.75%

Maintenance: 1.75%

Compute and Describe for each loan:

1. Payment over term of the loan

2. Nominal Interest Rate

3. Effective Interest Rate held to term

4. Effective Interest Rate held through holding period

5. Loan balance at end of holding period

6. Annual holding costs

7. Equity Return of Sale

8. Internal Rate of Return on Equity before taxes

9. Gross Income Needed to Qualify for Loan

Conclusion:

Describe which loan(s) the borrower should take and state reasoning for that decision.