Situation Your Job John and Emma Olson with their two kids are moving in three months from Madison, Wisconsin to the Twin Cities. John has been relocated to a job in downtown St. Paul. He has negotiated with his new contract that the company will pay all of his moving expenses. John and Emma have $48,000 from the sale of their home in Madison. They are hoping to find a house to buy in the twin cities area. You will need to take the Olson's through the house buying process. You will start by determining what they can afford, then move to finding two homes they could buy and end by figuring the total cost of the homes. The project is broken up into 4 parts. You will turn in part 1, it will be graded, you will then use the graded part 1 to complete part 2. This process will continue through each step of the project. Your answers should be typed and be written as if you are explaining your process to the Olson's - this means you should use full sentences and proper grammar. John's (New) Yearly Gross Income: $80,000 + Emma's Yearly Gross Income: $24,000 + Combined Monthly College Loan Payments: $360 (will be payed off in 10 years) + Monthly Car Payments: $400 (will be payed off in 16 months) + Credit Card 1: $180 per month (will be paid off in 5 months) Credit Card 2: No outstanding balance (they pay the current balance each month) # Amount in Savings Account: $11,525 (they would like to keep at least $2,000 cushion for unexpected costs) + Predicted proceeds from the sale of their home in Madison: $48,000 Olson's Financial Considerations Home 'Must Haves Home 'Would Like' to Haves General Useful Information + 3 bedrooms + 2 car garage + 2 bathrooms + Decent back-yard for the kids to play in + Attached garage + 4th bedroom or place for Emma's Office + Main Floor Family Room Banks generally require at least a 5% down payment in order for them to give someone a loan. + Private Mortgage Insurance (PMI) is an insurance that you are required to pay until you 'own' 20% or more of your house. The bad news is that if have 20% of the price of the home to put down, this will add to your monthly bills. The good news is that once you get to the 20% mark, you will no longer have to pay the monthly PMI. + Affordability Rule: Your monthly mortgage payments should be no more than 28% of your monthly gross income and no more than 36% of your gross monthly income should be used for debt (payments for cars, student loans, credit cards, etc). Hint: Find these two values and take the smaller number. you don't A. Determine the maximum amount the couple has for a down payment. Explain your answer. B. Use the amount you found in part A to find the price of a house they could afford if that amount is a 10% down payment C. Use the amount you found in part A to find the price of a house they could afford if that amount is a 20% down payment D. Use the 28%-36% rule (in the list of useful information on project) to determine what their maximum monthly mortgage payment should be
