House Purchase Project 1. Assume 0 (that would be zero) closing costs for this case. These will just magically appear when needed. 2. You will not need to calculate any INCOME taxes. Assume there are no INCOME tax implications for this case. 3. You still must include the property taxes and insurance for the determination of PITI. 4. You cannot do anything that will incur tax penalties! 5. You are to submit your answers in Excel and show your work and calculations.: Income, Assets, and Debts Gavin and Gin Smith are a married couple working in Centerville making $62,000 and $63,000 per year respectively. They rent a house in Centerville and have 2 cars that they are paying off. Current monthly debt obligations Car 1 has a loan with a monthly payment of $460, Car 2 has a loan with a monthly payment of $550 They have $65,000 in student loans with a 5% interest rate that they will pay off over the next 12 years. They just renegotiated this with the Education Department(you need to determine the monthly payment) Current Retirement Assets $48,000 in their 401ks $12,000 in Gavin's IRA $12,000 in Gin's IRA $10,000 in Gavin's Contributory Roth IRA ($5000 is the contribution) $10,000 in Gin's Contributory Roth IRA (S5000 is the contribution) They would like to purchase their "dream house. They are looking for a $350,000 house and ideally would like to put 20% down. However, they might put less down if they can find their dream house before they have all of the 20%. Property taxes are 1.4% of the house value. In this case, the assessed value is equal to the purchase price of $350,000 should they buy a house. Homeowners' insurance for a $350,000 house in Centerville would be about $100 per month. Deliverables 1. What is their current debt payment ratio (monthly debt payments/monthly gross income)? 2. Based on the 40% rule, how much can the Smiths pay for PITI (assuming no need for mortgage insurance)? 3. If they bought the house, how would you calculate the Maximum amount of PI they can pay? Please calculate this amount. 4. Based on current interest rates (you must look up current rates for someone with very good credit), how much can the Smiths borrow if they put a 20% down payment toward the purchase? . (Remember, no mortgage insurance if 20% down.) With your answer, please include a link to any website that is your source for interest rates. 5. If the Smiths have bad credit (FICO between 580 and 600), how high will their mortgage rate be? 6. How much could the Smiths borrow using the higher rate from question 5? For questions 6-12, assume a rate for a very good borrower: 7. Supposing the Smiths want to buy right now. If they use their maximum amount from their retirement accounts for the down payment for the house, what percentage would they be able to put down on a $350,000 house? (Remember that you can tap some of these accounts and you will have to pay income tax, but if you take too much out, you will have to pay penalty. I am asking how much can be taken out without incurring penalty.) 8. Is the answer to question 7 higher or lower than 20% of the purchase price? 9. If it is lower, mortgage insurance is needed. Calculate the mortgage insurance needed on a $350,000 house purchase if the Smiths use the down payment calculated in Question 7 using the following guidelines: If the down payment is less than 10%, calculate the mortgage insurance based on 1% of the initial loan balance. If it is between 10% and 20%, calculate the mortgage insurance by multiplying the initial loan balance by .5%. This is the yearly amount for Mortgage Insurance. Divide this by 12 and this amount now becomes another monthly payment just like a car loan payment. 10. If they borrowed from their 401(k), how much would the monthly payment be using the interest rate of 1.5% and a term of 5 years? This also would be a long term monthly payment just like a car loan. 11. How much could they borrow if they used the maximum amount of retirement account money for a down payment? (You must subtract all monthly obligations from 40% of the gross income to find out what they can afford to pay.) You must subtract the monthly obligations calculated in questions 9 and 10 since they would be monthly payments. Assume good credit. 12. Could they borrow enough money to buy the house with good credit? 13. If they had bad credit, would they be able to borrow enough to buy the house with a down payment that you calculated in question 7? 14. Finally, what is the biggest take away for you when looking at all of the things you did in this case? House Purchase Project 1. Assume 0 (that would be zero) closing costs for this case. These will just magically appear when needed. 2. You will not need to calculate any INCOME taxes. Assume there are no INCOME tax implications for this case. 3. You still must include the property taxes and insurance for the determination of PITI. 4. You cannot do anything that will incur tax penalties! 5. You are to submit your answers in Excel and show your work and calculations.: Income, Assets, and Debts Gavin and Gin Smith are a married couple working in Centerville making $62,000 and $63,000 per year respectively. They rent a house in Centerville and have 2 cars that they are paying off. Current monthly debt obligations Car 1 has a loan with a monthly payment of $460, Car 2 has a loan with a monthly payment of $550 They have $65,000 in student loans with a 5% interest rate that they will pay off over the next 12 years. They just renegotiated this with the Education Department(you need to determine the monthly payment) Current Retirement Assets $48,000 in their 401ks $12,000 in Gavin's IRA $12,000 in Gin's IRA $10,000 in Gavin's Contributory Roth IRA ($5000 is the contribution) $10,000 in Gin's Contributory Roth IRA (S5000 is the contribution) They would like to purchase their "dream house. They are looking for a $350,000 house and ideally would like to put 20% down. However, they might put less down if they can find their dream house before they have all of the 20%. Property taxes are 1.4% of the house value. In this case, the assessed value is equal to the purchase price of $350,000 should they buy a house. Homeowners' insurance for a $350,000 house in Centerville would be about $100 per month. Deliverables 1. What is their current debt payment ratio (monthly debt payments/monthly gross income)? 2. Based on the 40% rule, how much can the Smiths pay for PITI (assuming no need for mortgage insurance)? 3. If they bought the house, how would you calculate the Maximum amount of PI they can pay? Please calculate this amount. 4. Based on current interest rates (you must look up current rates for someone with very good credit), how much can the Smiths borrow if they put a 20% down payment toward the purchase? . (Remember, no mortgage insurance if 20% down.) With your answer, please include a link to any website that is your source for interest rates. 5. If the Smiths have bad credit (FICO between 580 and 600), how high will their mortgage rate be? 6. How much could the Smiths borrow using the higher rate from question 5? For questions 6-12, assume a rate for a very good borrower: 7. Supposing the Smiths want to buy right now. If they use their maximum amount from their retirement accounts for the down payment for the house, what percentage would they be able to put down on a $350,000 house? (Remember that you can tap some of these accounts and you will have to pay income tax, but if you take too much out, you will have to pay penalty. I am asking how much can be taken out without incurring penalty.) 8. Is the answer to question 7 higher or lower than 20% of the purchase price? 9. If it is lower, mortgage insurance is needed. Calculate the mortgage insurance needed on a $350,000 house purchase if the Smiths use the down payment calculated in Question 7 using the following guidelines: If the down payment is less than 10%, calculate the mortgage insurance based on 1% of the initial loan balance. If it is between 10% and 20%, calculate the mortgage insurance by multiplying the initial loan balance by .5%. This is the yearly amount for Mortgage Insurance. Divide this by 12 and this amount now becomes another monthly payment just like a car loan payment. 10. If they borrowed from their 401(k), how much would the monthly payment be using the interest rate of 1.5% and a term of 5 years? This also would be a long term monthly payment just like a car loan. 11. How much could they borrow if they used the maximum amount of retirement account money for a down payment? (You must subtract all monthly obligations from 40% of the gross income to find out what they can afford to pay.) You must subtract the monthly obligations calculated in questions 9 and 10 since they would be monthly payments. Assume good credit. 12. Could they borrow enough money to buy the house with good credit? 13. If they had bad credit, would they be able to borrow enough to buy the house with a down payment that you calculated in question 7? 14. Finally, what is the biggest take away for you when looking at all of the things you did in this case