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 is a newly constructed dwelling that 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 homes assessed value.

The down payment for a 30-year conventional loan will be 20%. Down payment for a 5-year ARM will be 10%.

SHOW ALL CALCULATIONS AND PROBLEM-SOLVING STEPS

1. Calculate the monthly costs for taxes and insurance costs based on values provided in the above Scenario. (20 points)

a. What will the cost of insurance be per month? b. What will their taxes be per month?

2. If the couple were to get the Adjustable Rate Mortgage (ARM) loan at 3.5% annually, what would their monthly costs be? For the loan payment, use a mortgage calculator in the modules content area or search Google for mortgage calculators. Keep in mind that ARM loans are interest only. Remember to CITE YOUR SOURCE. (20 points)

a. What will their down payment be? b. What will their mortgage payment be per month? c. What will total monthly costs be (including calculated taxes and insurance costs)?

3. If the couple were to get the Conventional loan at 4.0%, what would their costs be? For the loan payment, use a mortgage calculator in the modules content area or search Google for mortgage calculators. Remember to CITE YOUR SOURCE. (20 points)

a. What will their down payment be? b. What will their mortgage payment be per month? c. What will total monthly costs be (including calculated taxes and insurance costs)?

4. Assume they are currently renting a three-bedroom apartment for $1,750 per month.

Based on just the cost of renting vs. cost of buying by financing with the above ARM, which would be cheaper and by how much per month? (10 points)