Use the Excel Workbook provided with this assignment to complete your analysis.

use of Excel to complete analysis with formulas in your Excel workbook.

Which loan would you recommend and why? What is the highest possible payment on the ARM (Loan D) when the interest rate adjusts at the end of 5 years? Loan C ? This option for the Homebuyers is to put down 10%. They could use their remaining savings to pay off their student loans. If they pay off their student loans, they will no longer have the monthly payment on their student loans. For this option, assume that they pay off their student loans and will qualify without the payment on their student loans. This will reduce their total debt to income ratio. Should they do that? Why?

Fin\t331 Homework\tAssignment\t1 Due\tNov.\t5,\t2015 Consider the listing at 4815 Catoctin San Diego, CA 92115 Price $475,000 Bob & Betty Homebuyers want to make an offer on this property at the list price. Bob earns $48,000 per year and Betty earns $54,000 per year. They have very good credit. Their monthly payments are $200 for student loans, $350 for their car payment and minimum credit card payment of $50. They have savings of $125,000. The balance of their student loans is $40,000. Insurance on this house will cost them $900 per year. Property taxes are calculated at 1.25% of the purchase price per year. Monthly mortgage insurance is required if the down payment is less than 20%. In addition to prepaid finance charges, they will have other closing costs of $3,000. You are to evaluate 4 financing scenarios for them. You must determine if they qualify for each of them. They can get loan approval if their housing ratio is less than 32% and their total debt to income ratio is less than 43%. 1. Loan A - Fixed 30 year loan at 3.25% for 80% of the purchase price. Prepaid finance charges will be $1,500 plus 1.60 points on the loan. 2. Loan B - Fixed 30 year loan at 3.625% for 80% of the purchase price. Prepaid finance charges will be $0 plus 0.00 points on the loan. Higher rate, no closing costs. 3. Loan C - Fixed 30 year loan at 3.50% for 90% of the purchase price. Mortgage insurance will cost 0.44% of the loan amount per year. Prepaid finance charges will include the mortgage insurance (included in calculation of APR), plus $1,500 plus 0.25 points on the loan. 4. Loan D - Intermediate adjustable rate mortgage that has a fixed interest rate for the first 5 years at 2.875% for 80% of the purchase price. Prepaid finance charges include 1 point of the loan amount plus $1,500. This loan has an initial interest rate change cap of 5%, subsequent change caps of 2%/year and a life cap of 5%. The lender will use an interest rate of 3.50% to calculate the loan payment to determine their debt to income ratio since there may be payment shock when the rate changes after 5 years. Name: Use the Excel Workbook provided with this assignment to complete your analysis. 20% of your grade will be determined by the use of Excel to complete your analysis with formulas in your Excel workbook. You can enter the calculated values manually, but your score will be reduced to a total of 8 out of 10 points IF all of your answers are correct. Submit you assignment with your Excel Spreadsheet. Name your file \"HW2 - Last Name, First Name\" Which loan would you recommend and why? What is the highest possible payment on the ARM (Loan D) when the interest rate adjusts at the end of 5 years? Loan C - This option for the Homebuyers is to put down 10%. They could use their remaining savings to pay off their student loans. If they pay off their student loans, they will no longer have the monthly payment on their student loans. For this option, assume that they pay off their student loans and will qualify without the payment on their student loans. This will reduce their total debt to income ratio. Should they do that? Why? Spreadsheet Page http://paragonmls.sandicor.com/ParagonLS/Reports/Report.mvc?listingI... MLS Client View Detached MLS # 160058142 Price $475,000 Full Address 4815 Catoctin City San Diego State CA Zip 92115 Status ACTIVE Estimated Square Feet 1,004 Bedrooms Baths Full Baths Half Year Built Community Neighborhood Cross Street(s) Complex/Park EstOwnrOcc 2 1 0 1941 TALMADGE Acacia Park 63rd Additional Photos Virtual Tour Link General Property Information: Short Sale Sales Restrictions Age Restrictions Jurisdiction Water District Architectural Style Attached Style Pets No N/K N/K Approximate Living Space Stories 1 Story Stories in Building Interior Walls Approx # of Acres Lot Size 4,000-7,499 SF Entry Level Unit Entry Level Building Guest House Est. SqFt Entry: 3+ Steps to Entry Exclusive Use Yard Fireplaces(s) Parking Garage Spaces Parking Garage Parkng Non-Garaged Spaces Parking Non-Garage Home Owner Fees Home Owner Fee Reflects Other Fees Other Fees Reflect CFD/Mello-Roos Fee CFD/Mello-Roos Fee Reflct 1 Detached 2 Driveway 0.00 0.00 Master Bedroom Dimensions Bedroom 2 Dimensions Bedroom 4 Dimensions Bedroom 3 Dimensions Bedroom 5 Dimensions Family Room Dimensions Dining Room Dimensions Living Room Dimensions Extra Room 1 Dimensions Extra Room 2 Dimensions Extra Room 3 Dimensions Searchable Rooms MandRem 12x14 10x12 0 0 11x14 N/K None Known 0.00 Public Remarks & Directions Welcome home! This is a perfect starter home ready to move right in! Newer carpet mixed in with some wood flooring, nicely remodeled kitchen with newer modern looking cabinets, upgraded counter tops and beautiful touches and upgrades in the bathroom. Spread out and relax in your a large, private yard with patio. Close to all sorts restaurants, shopping and schools. Property Features Terms Cash, Conventional, FHA, VA Prop Restrictions Known None Known Cooling Other/Remarks Equipment Other/Remarks Exterior Other/Remarks Fencing Other/Remarks Heat Equipment Other/Remarks Heat Source Other/Remarks Laundry Location Laundry Utilities Pool Roof Sewer/Septic Topography Water Other/Remarks Other/Remarks N/K Other/Remarks Sewer Connected Level Meter on Property Mark H Goldman - 858-487-1875 loanguy@markgoldman.com 00706338 Provided By: Mark H Goldman 1 of 1 BRE Lic.#: CA 00706338 Copyright 2001-2016 Sandicor, Inc.-Information is not guaranteed 10/28/2016 06:12 PM 10/28/2016 6:12 PM versionScope=NonSxS#####vkK################c!adp80xx.inflanguagepack_31bf3856ad364e35_6.3.9600.16384_7f0145fb947a3983#####vk"####### #######2#f!adp80xx.inf_loc_fb314ece99160b5fi#o#s#Xnk ##_#####P]##############PoO#X#####################R###amd64_a dp80xx.inf.resources_31bf3856ad364e35_6.3.9600.16384_zhcn_79d9d1e725bc9fa8##K#vk## ###(oO#######2#S256H#a#`#7VSIRVbc 8 J#P#c##oO#hoO#oO#pO#####vk##### pO#######.#identityvkK################c!adp80xx.inflanguagepack_31bf3856ad364e35_6.3.9600.16384_de87b0697b9c1395#####RG %####1d50hbin#0#########################O#######Package_25_for_KB2978122~31 bf3856ad364e35~amd64~~6.3.1.0.297812250_neutral_GDR#####vkS#X###0#########i! 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OL#b:O##NAs#?M3hXOkvp#####+yY9`@3##>wq# B#Mt[q4#-dI#Hz  9MqU0\\ "ivMi99K 9#####PK##-#########!#Y########################[Content_Types].xmlPK###########!#U0####L#####################_rels/.relsPK##-#########! ##J#####################+###xl/_rels/workbook.xml.relsPK##-#########! #H>##docProps/core.xmlPK##-#########! ###:####################@##xl/calcChain.xmlPK##-#########! ##c####################A##xl/ctrlProps/ctrlProp2.xmlPK##-#########! #2)### ##'#############B##xl/printerSettings/printerSettings1.binPK##########.###uD### # Fin 331 Homework 2 Name: Type Your Name Here Loan Description Offer Price Rate Qual Rate Annual MI Rate Points Other Prepaid Finance Charges LTV Calculate Monthy Income Total other monthy Payments Down Payment Loan Amount Monthly Principal & Interest Monthly Mortgage Insurance Payment Property Taxes/month Insurance/Month Total House Payment Loan Payment used to qualify to ARM House Payment used to qualify for ARM Housing Ratio Total Debt to Income Ratio $ A B 80% LTV Lower Rate $475,000 3.250% 3.250% 0% 1.60 80% LTV Higher Rate $475,000 3.625% 3.625% 0% 0.00 1,500.00 $ 80% C 90% LTV Fixed 30 $475,000 3.500% 3.500% 0% 0.25 - 80% D $ 1,500.00 $ 90% 80% LTV 5-Year ARM $475,000 2.875% 3.500% 0.00% 1.00 1,500.00 80% Total Prepaid Finance Charges APR for the Loan Do they qualify for this loan? Down Payment Closing Costs Prepaid Finance Charges Total Cash to Close on the House Analysis of Your Calculations Calculate the difference in the cash required to close and the total monthly payment for the 30 year loan with the higher rate and the 90% loan with mortgage insurance. Additional Monthly Additional Cash to Close Pmt [Loan B Less [Loan B Less Loan C] Loan C] Should these buyers take the 90% loan and use the reduced cash to close to pay off their student loans? Explain you recommendation. Check YES 120.0% Check NO Rate on Difference of payment compared to down payment for loans B and C. Calculate the rate of return on the difference of Cash to Close here: Use this space to explain why they should or should NOT put down 10% Consider the ARM loan. What is the balance after 5 years? What is the maximum possible principal and interest payment on that loan in year 6, when the rate adjusts? \fFin 331 Homework 2 Name: Loan Type Your Name Here A B 80% LTV Lower Rate $475,000 3.250% 3.250% 0% 1.60 80% LTV Higher Rate $475,000 3.625% 3.625% 0% 0.00 $1,500.00 C D $475,000 3.500% 3.500% 0% 0.25 80% LTV 5-Year ARM $475,000 2.875% 3.500% 0.00% 1.00 $0.00 $1,500.00 $1,500.00 80% 80% 90% 80% Calculate Monthy Income $8,500.00 $8,500.00 $8,500.00 $8,500.00 Total other monthy Payments $600.00 $600.00 $600.00 $600.00 Down Payment $95,000.00 $95,000.00 $47,500.00 $95,000.00 Loan Amount $380,000.00 $380,000.00 $427,500.00 $380,000.00 Monthly Principal & Interest $1,653.78 $1,732.99 $1,919.67 $1,706.37 Monthly Mortgage Insurance Payment $0.00 $0.00 $156.75 $0.00 Property Taxes/month $494.79 $494.79 $494.79 $494.79 Insurance/Month $75.00 $75.00 $75.00 $75.00 Total House Payment $2,223.58 $2,302.79 $2,646.21 $2,276.16 Description Offer Price Rate Qual Rate Annual MI Rate Points Other Prepaid Finance Charges LTV 90% LTV Fixed 30 Loan Payment used to qualify to ARM $2,039.92 House Payment used to qualify for ARM $2,276.16 Housing Ratio 26.2% 27.1% 31.1% 26.8% Total Debt to Income Ratio 33.2% 34.2% 38.2% 33.8% Total Prepaid Finance Charges $10,580.00 $0.00 $5,568.75 $8,300.00 APR for the Loan 3.475% 3.625% 3.606% 3.679% Do they qualify for this loan? YES YES YES YES Down Payment $95,000.00 $95,000.00 $47,500.00 $95,000.00 Closing Costs $3,000.00 $0.00 $3,000.00 $3,000.00 Prepaid Finance Charges $7,580.00 $0.00 $4,449.75 $5,300.00 Total Cash to Close on the House $105,580.00 $95,000.00 $54,949.75 $103,300.00 Analysis of Your Calculations Calculate the difference in the cash required to close and the total monthly payment for the 30 year loan with the higher rate and the 90% loan with mortgage insurance. Additional Monthly Additional Cash to Close Pmt [Loan B Less [Loan B Less Loan C] Loan C] $ 40,050 -$343.42 Should these buyers take the 90% loan and use the reduced cash to close to pay off their student loans? Explain you recommendation. Check YES Err:523 NO Check Rate on Difference of payment compared to down payment for loans B and C. Calculate the rate of return on the difference of Cash to Close here: 42.2% Use this space to explain why they should or should NOT put down 10% They should put down 10% as APR of Loan C is less than that of Loan B/ Also Rate of return on difference of Cash to close is 42.2%. Consider the ARM loan. What is the balance after 5 years? What is the maximum possible principal and interest payment on that loan in year 6, when the rate adjusts? $337,069.08 $2,573.70 \fFin 331 Homework 2 Name: Loan Type Your Name Here A B 80% LTV Lower Rate $475,000 3.250% 3.250% 0% 1.60 80% LTV Higher Rate $475,000 3.625% 3.625% 0% 0.00 $1,500.00 C D $475,000 3.500% 3.500% 0% 0.25 80% LTV 5-Year ARM $475,000 2.875% 3.500% 0.00% 1.00 $0.00 $1,500.00 $1,500.00 80% 80% 90% 80% Calculate Monthy Income $8,500.00 $8,500.00 $8,500.00 $8,500.00 Total other monthy Payments $600.00 $600.00 $600.00 $600.00 Down Payment $95,000.00 $95,000.00 $47,500.00 $95,000.00 Loan Amount $380,000.00 $380,000.00 $427,500.00 $380,000.00 Monthly Principal & Interest $1,653.78 $1,732.99 $1,919.67 $1,706.37 Monthly Mortgage Insurance Payment $0.00 $0.00 $156.75 $0.00 Property Taxes/month $494.79 $494.79 $494.79 $494.79 Insurance/Month $75.00 $75.00 $75.00 $75.00 Total House Payment $2,223.58 $2,302.79 $2,646.21 $2,276.16 Description Offer Price Rate Qual Rate Annual MI Rate Points Other Prepaid Finance Charges LTV 90% LTV Fixed 30 Loan Payment used to qualify to ARM $2,039.92 House Payment used to qualify for ARM $2,276.16 Housing Ratio 26.2% 27.1% 31.1% 26.8% Total Debt to Income Ratio 33.2% 34.2% 38.2% 33.8% Total Prepaid Finance Charges $10,580.00 $0.00 $5,568.75 $8,300.00 APR for the Loan 3.475% 3.625% 3.606% 3.679% Do they qualify for this loan? YES YES YES YES Down Payment $95,000.00 $95,000.00 $47,500.00 $95,000.00 Closing Costs $3,000.00 $0.00 $3,000.00 $3,000.00 Prepaid Finance Charges $7,580.00 $0.00 $4,449.75 $5,300.00 Total Cash to Close on the House $105,580.00 $95,000.00 $54,949.75 $103,300.00 Analysis of Your Calculations Calculate the difference in the cash required to close and the total monthly payment for the 30 year loan with the higher rate and the 90% loan with mortgage insurance. Additional Monthly Additional Cash to Close Pmt [Loan B Less [Loan B Less Loan C] Loan C] $ 40,050 -$343.42 Should these buyers take the 90% loan and use the reduced cash to close to pay off their student loans? Explain you recommendation. Check YES Err:523 NO Check Rate on Difference of payment compared to down payment for loans B and C. Calculate the rate of return on the difference of Cash to Close here: 42.2% Use this space to explain why they should or should NOT put down 10% They should put down 10% as APR of Loan C is less than that of Loan B/ Also Rate of return on difference of Cash to close is 42.2%. Consider the ARM loan. What is the balance after 5 years? What is the maximum possible principal and interest payment on that loan in year 6, when the rate adjusts? $337,069.08 $2,573.70 \f