Finally, the time has come for Andrea to purchase her first home. After months of searching she has finally found her dream home - a cozy 3-bedroom/2-bathroom Cape Cod. The seller accepted her offer of $150,000, contingent upon Andreas ability to qualify for a mortgage. Taxes for the house run $5,400 per year and the annual cost of insurance is 0.5% of the assessed value of the home. For the sake of simplicity, we assume that the assessed value is equal to Andreas offer: $150,000. In order to purchase the home Andrea must pay a 10% down payment. She is planning on using the money from her investment (Part 1) to pay for the down payment.

1. Show whether or not she will have enough money from her investment to pay the down payment.

Looking further into the mortgage process, Andrea is exploring a 25-year mortgage with an APR of 4.0% or a 30-year mortgage with an APR of 4.5%. Neither mortgage option charges points. Use the Monthly Principal and Interest Payment per $1000 of Mortgage Table found in the Consumer Math block in Lumen to answer this question.

3. What would Andreas monthly payments, including principal, interest, taxes, and insurance be on each mortgage?

4. How much interest would Andrea pay over the life of each mortgage?

Andrea has recently received a 10% raise at work, but still has eight years left on her school loans ($295.87 per month) and two years left on her car loan. She also has a monthly cell phone bill of $70 and a monthly cable bill of $85. The mortgage company she plans to use, Coastal Banking and Loan, requires that Andrea is able to cover the cost of the mortgage, taxes, and insurance with 28% of her adjusted monthly income.

5. Does Andrea qualify for either of the two mortgage options?

6. Based on your work with Andrea and her finances what would you recommend that Andrea do? Should she apply for the 25-year mortgage, apply for the 30-year mortgage, find a cheaper house, continue to rent, or do something else? Justify your reasoning.