Tom and Nancy want to buy a house in a particular neighborhood. they have two children ages 1 and 4. The average price home in this neighborhood runs about $350,000. Together their family income is $100,000. They have saved $75,000. The home they want to purchase costs $300,000. Taxes on the home run $3.00 per $100 of assessed value of the home. For new homes the assessed value is equal to 75% of the purchase price. Insurance runs half of one percent of the purchase price of the home. An Adjustable Rate Mortgage (ARM) requires a 10% down payment. Conventional loans require 20% down payment.

Interest for an ARM currently is 4.5 %. The conventional loans are 5.25% today.

Compute the per month cost including interest, taxes and insurance (use above formula to get the taxes and insurance cost) for a ARM.

For the principal and interest payment, use the Zillow mortgage calculator at Pay attention to the loan type which is usually in a drop down box. Use the advanced option on the mortgage calculator to fill in the taxes and insurance amount that you figured out from the formulas above (don't just leave the default amount that the calculator has to start with).

Show your work completely for each answer. Please be legible. Please use the Zillow calculator for this.

1. What will their down payment be? ____________________________________
2. What will the cost of insurance be per month? ________________________
3. What will their taxes be per month?____________________________________
4. What will their principal and interest be per month?__________________
5. What is their total monthly payment going to be including everything?________________________

2. If they are currently renting a three-bedroom apartment for $1,750 per month. Just based on cost of renting vs. cost of buying with the above ARM, which would be cheaper and by how much per month?