Finances/Home Buying Project OBJECTIVES: Your task is to investigate the process of buying a house. For the purposes of this project we will assume that you are going to graduate this semester, get a job. and begin saving for your first house. You will plan to buy your first house ten years from now. At that time you will use the money you have saved for the down payment and any closing costs, and then take out a loan for the rest of the cost of the house. You will do the research and follow the 5 steps below to complete the project STEP 1: The first step in buying a home is finding a job Remember that we are assuming that you will graduate this semester and plan on getting a job. For degree in your major and go with the assumption that you plan on entering the workforce immediately upon graduation project, choose a job that is realistically obtainable with a The assignment that you hand in should have the following information Give the job title and the source of your information. Include the city and state of the job and provide a job description. This can be in your own words or a cited reference. State the starting salary for the job. Make realistic projections for your salary increases over the next ten years. These adjustments should be based either on the salary for an individual in your job with 10 years of experience or an adjustment based on inflation. Explain your method of determining each year's salary for the ten year period. Be sure to show computations if the increases are given in percent per year raises STEP 2: You will need to approximate how much money you can save towards the down payment and closing: costs in the next ten years. Be realistic Most people can only save 5-10 % of their salary each year Remember you will need to pay taxes. Every individual must pay federal taxes, Social Security taxes, and Medicare taxes. Most people must also pay state taxes (there are some states that do not have state taxes) and some people (generally city dwellers) have local taxes. You will need to find out how much you will be required to pay in taxes (and show all sources and computations) and deduct this amount from your pay. Do the following for each of the ten years you will be saving towards the house: State your yearly and monthly salary for each of the ten years. Find the federal, state, local, Social Security, and Medicare taxes that will be deducted from your pay. Be sure to cite your sources and show your computations. If there is no state or local taxes where you intend to live, say so. Do not just neglect to mention a type of taxes. State your yearly and monthly salary after taxes have been deducted. This is your net pay Now you need to make up a tentative monthly budget. This should include: Rent. State how much you expect to pay for the rent in the place you intend to live. This Finances/Home Buying Project STEP 3: What will you do with the money you are able to save every month? Invest it, of course. There are many ways to invest money but for the sake of this project, you will invest your savings in a savings account that is safe and predictable. Find a savings account to invest your money in. The interest will probably be rather low, but that is OK. The money you are saving will be going into the account on a monthly basis and you will only have the account for the ten years. After the ten years, your savings will go towards the down payment and will pay all closing costs. Be sure to document the interest rate you will be earning and the bank you will be depositing your money. Use the amount of money you are saving each month, the interest rate you found, and your knowledge of annuities to compute how much money you will have after 10 years. Do not forget to include the formulas you use. STEP 4: Now that you know how much money you have for a down payment and closing costs, you need to start researching the home you plan to buy. Generally, the house you can afford should be no more than 3 times your annual salary. Remember this guideline assumes that you will have a 20 % down payment. If you do not have 20 % in savings, this does not mean that you cannot afford a home -it just means that you probably need to go down a little with the price of your house. As a general guideline, after you finish, your monthly housing expenses (mortgage, property taxes, homeowner's insurance and association fees, if applicable) should be no more than 25 % of your monthly gross income. Also, assume a debt to income ratio limit of 36 % for all your mortgage, car loans, student loans, and credit card debts. Use these computations to see if you can afford the home. Now that you have a ballpark figure on how much you can afford, start looking for a house. You may use internet or any other source for this. Make sure you cite your sources of information for this. For this assignment you need to include the following: Restate the amount of money you plan to save over the ten year period. Assuming that this amount is the 20 % down payment, what is the total cost of the house you can buy? Restate your projected salary. Assuming you buy a house that does not cost more than 3 times your annual gross salary, what is the maximum total cost of the house you can afford to buy? If you have saved more than 20 % of the amount of the house you can buy, you may look for a house that costs a bit more. However, remember there will be closing costs and it would be nice to have some money left in your savings account. You will probably want to buy some furniture when you move in! If you have saved less than 20 %, then you will have to look for a cheaper house. Attach a print out of the Multiple Listing Service (MLS) for your new home. Also remember it does not have to be a house, it can be a condominium or a town house. If there are no houses or condominiums listed in your price range, attach the MLS print out for the closest listing you found. It is important to note at this point: you are not being graded on this project according to your ability to buy a home. The point of the project is to research the process of buying a home, not actually buy a house. Finances/Home Buying Project OBJECTIVES: Your task is to investigate the process of buying a house. For the purposes of this project we will assume that you are going to graduate this semester, get a job. and begin saving for your first house. You will plan to buy your first house ten years from now. At that time you will use the money you have saved for the down payment and any closing costs, and then take out a loan for the rest of the cost of the house. You will do the research and follow the 5 steps below to complete the project STEP 1: The first step in buying a home is finding a job Remember that we are assuming that you will graduate this semester and plan on getting a job. For degree in your major and go with the assumption that you plan on entering the workforce immediately upon graduation project, choose a job that is realistically obtainable with a The assignment that you hand in should have the following information Give the job title and the source of your information. Include the city and state of the job and provide a job description. This can be in your own words or a cited reference. State the starting salary for the job. Make realistic projections for your salary increases over the next ten years. These adjustments should be based either on the salary for an individual in your job with 10 years of experience or an adjustment based on inflation. Explain your method of determining each year's salary for the ten year period. Be sure to show computations if the increases are given in percent per year raises STEP 2: You will need to approximate how much money you can save towards the down payment and closing: costs in the next ten years. Be realistic Most people can only save 5-10 % of their salary each year Remember you will need to pay taxes. Every individual must pay federal taxes, Social Security taxes, and Medicare taxes. Most people must also pay state taxes (there are some states that do not have state taxes) and some people (generally city dwellers) have local taxes. You will need to find out how much you will be required to pay in taxes (and show all sources and computations) and deduct this amount from your pay. Do the following for each of the ten years you will be saving towards the house: State your yearly and monthly salary for each of the ten years. Find the federal, state, local, Social Security, and Medicare taxes that will be deducted from your pay. Be sure to cite your sources and show your computations. If there is no state or local taxes where you intend to live, say so. Do not just neglect to mention a type of taxes. State your yearly and monthly salary after taxes have been deducted. This is your net pay Now you need to make up a tentative monthly budget. This should include: Rent. State how much you expect to pay for the rent in the place you intend to live. This Finances/Home Buying Project STEP 3: What will you do with the money you are able to save every month? Invest it, of course. There are many ways to invest money but for the sake of this project, you will invest your savings in a savings account that is safe and predictable. Find a savings account to invest your money in. The interest will probably be rather low, but that is OK. The money you are saving will be going into the account on a monthly basis and you will only have the account for the ten years. After the ten years, your savings will go towards the down payment and will pay all closing costs. Be sure to document the interest rate you will be earning and the bank you will be depositing your money. Use the amount of money you are saving each month, the interest rate you found, and your knowledge of annuities to compute how much money you will have after 10 years. Do not forget to include the formulas you use. STEP 4: Now that you know how much money you have for a down payment and closing costs, you need to start researching the home you plan to buy. Generally, the house you can afford should be no more than 3 times your annual salary. Remember this guideline assumes that you will have a 20 % down payment. If you do not have 20 % in savings, this does not mean that you cannot afford a home -it just means that you probably need to go down a little with the price of your house. As a general guideline, after you finish, your monthly housing expenses (mortgage, property taxes, homeowner's insurance and association fees, if applicable) should be no more than 25 % of your monthly gross income. Also, assume a debt to income ratio limit of 36 % for all your mortgage, car loans, student loans, and credit card debts. Use these computations to see if you can afford the home. Now that you have a ballpark figure on how much you can afford, start looking for a house. You may use internet or any other source for this. Make sure you cite your sources of information for this. For this assignment you need to include the following: Restate the amount of money you plan to save over the ten year period. Assuming that this amount is the 20 % down payment, what is the total cost of the house you can buy? Restate your projected salary. Assuming you buy a house that does not cost more than 3 times your annual gross salary, what is the maximum total cost of the house you can afford to buy? If you have saved more than 20 % of the amount of the house you can buy, you may look for a house that costs a bit more. However, remember there will be closing costs and it would be nice to have some money left in your savings account. You will probably want to buy some furniture when you move in! If you have saved less than 20 %, then you will have to look for a cheaper house. Attach a print out of the Multiple Listing Service (MLS) for your new home. Also remember it does not have to be a house, it can be a condominium or a town house. If there are no houses or condominiums listed in your price range, attach the MLS print out for the closest listing you found. It is important to note at this point: you are not being graded on this project according to your ability to buy a home. The point of the project is to research the process of buying a home, not actually buy a house