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 Michael Pay Housing Costs?

On April $1$ of next year, Michael is purchasing a $$240,000$ house and has accepted the Tenth National Bank's offer of a ten$-$year $$194,400$ loan with an

interest rate of $5\%.$ He has a gross annual income of $$80,000$ and is concerned about how much his one$-$time up$-$front costs and recurring monthly

costs will be$.$

He's received the following data and form, but he's not certain when he is to pay each cost$-$at closing, monthly, or both. Your task is to help Michael

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 house'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 $19\%$ down payment but will also require $2$ 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 $$778$ per year, but is distributed $12$ times per year.

Michael 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$)$: $$2,066$

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 house: $$12,000$ per year

The property taxes and homeowner's policy should be pro$-$rated.

Using the given information, what is the loan$-$to$-$value $($LTV$)$ ratio required by the Tenth National Bank?

$19\mathrm{.}00\%$

$123\mathrm{.}46\%$

$81\mathrm{.}00\%$