Math assignment

AQR Project– Buying a Home Project Directions Name:

Due 11/20

***All responses to the directions below will go on your Buying a Home Project Worksheet.

Part I – Considerations When Buying a Home

Name 5-10 things that you believe are most important when buying a home. The following links may help you to come up with your list.

6 Must-Do’s Before Buying a Home Houston Home Buying Resources First-Time Home Buying Guide

Buying a Home: Buyer’s Guide

Part II – How much home can I afford to buy?

On the Project Worksheet, you will determine your monthly gross income (income before any paycheck deductions, such as taxes, etc.) and what you can afford for a house payment. Use realistic numbers for your salary, or dream a little and come up with a more idealistic scenario.

You’re buying a home in the Houston area. You may use a number that approximates your current salary, or approximate your salary using the following link. Indeed Website Snip this information and paste it into the worksheet (The example there is a guide). If you use the average salary given, use 80% of this amount if this will be your first job in this field. If you can find a better source for salary information, use (and note) that. The goal here is to determine a realistic number for your salary. If you anticipate using two incomes to qualify for a home mortgage, similarly include a salary for the other person. (Make your numbers realistic, or create that perfect significant other to purchase your home with—it’s okay to dream a little.). If a job pays hourly, estimate your monthly and annual salary and show the math for the numbers you use.

Part III – Find Your First Home (or Dream Home)

As a guide, your home price should not exceed 2.5 to 5 times your annual salary. Use the following website to find a home: http://www.zillow.com/ Once you find your home, snip a picture of it, and details about the home, and paste it into your Project Worksheet. Answer all the questions in Part III of the Project Worksheet.

Part IV – Financing Your Home

Determine your monthly mortgage payment, including taxes and insurance, using the Zillow Mortgage Calculator for the home that you chose. Do this for a 15-year loan and a 30-year loan. Note that the mortgage payment estimator on the website will add PMI to your monthly payment automatically if you pay less than 20% down. Begin by clicking on “see current rates.” Choose a credit score range and look for a good APR for 15 or 30 years. Return to the Mortgage Calculator. Choose “Advanced” and click the “include taxes/insurance” box and the PMI box if you are putting less than 20% down. Fill out the form with the information for your home. For each case (15-year and 30-year), snip the information and paste it into the Project Worksheet using the examples as your guide.

Zillow Mortgage Calculator

***Be sure to choose fixed-rate loans, which means that the interest is fixed for the life of the loan. In today’s market of low interest loans, most people use fixed rate loans to finance their homes. Also, make sure that you have chosen a different interest rate for the 15-year loan than the 30-year loan.

Part V – A Closer Look at the Numbers

Complete Part V of the Project Worksheet using the information collected in Part IV.

Part VI – Extra Payments

When you begin making your mortgage payments, most of the payment will go towards interest. As each month passes, less will be applied to interest and more will be applied to reduce your balance. If you look at an amortization table, it details how much is paid towards interest and the balance each month of the loan. Unfortunately, it usually takes many years before you are paying more towards your balance than you are towards interest. For example, if you have an APR of 4%, it will take about 13 years before your payments apply more towards your balance than to interest. Wow!

As a result, some people try to pay extra on their mortgage payments to minimize the amount they pay for interest, particularly for 30-year loans. It is most beneficial to pay extra early in the loan period, since most of your payments go towards interest. The challenge is coming up with extra money after just buying a home. Complete Part VI on the Project Worksheet to determine how much money you can save on interest by paying an extra $100 each month.

Part VII – Closing Costs

The hardest part about getting into a home for most people is coming up with the down payment and money to pay for closing costs. Complete Part VII on the Project Worksheet to determine the closing costs for your home.

Part VIII – Reality Check

Wow! No wonder people often struggle to buy their first home. The up-front costs are expensive. Let’s assume that you don’t have any money saved right now. Complete Part VIII on the Project Worksheet to figure out how much you would have to save to buy a comparable home in 5 years.

Part IX – Closing Thoughts on Buying a Home

There are many things to consider when buying a home. Generally speaking, you don’t want to rush into a home purchase. There are significant advantages over renting (it’s a wonderful feeling to have your own place to call home), but owning a home requires much more responsibility. For example, you will need to set money aside for maintaining your home and making repairs on your home. On the other hand, a good home is an investment that you can enjoy for many years during which it is likely to gain in value. Though it can be difficult to get into a home, there are government programs to help first-time buyers, and sometimes family members will help you come up with money for a down payment and/or closing costs.

Complete Part IX on the Project Worksheet.