PFIN (with PFIN Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
6th Edition
ISBN: 9781337117005
Author: Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Question
Chapter 5, Problem 4FPE
Summary Introduction
To determine: The cost of each alternative.
Summary Introduction
To discuss: The recommendation of least costly option.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Use Worksheet 5.3. Rachel and Alexander Harrison need to calculate the amount they can afford to spend on their first home. They have a comt
annual income of $67,500 and have $37,000 available for a down payment and closing costs. The Harrisons estimate that homeowner's insurance
property taxes will be $250 per month. They expect the mortgage lender to use a 30 percent (of monthly gross income) mortgage payment afford
ratio, to lend at an interest rate of 6 percent on a 30-year mortgage, and to require a 10 percent down payment. Based on this information, use th
home affordability analysis form in Worksheet 5.3 to determine the highest-priced home the Harrisons can afford. Assume that closing costs are o
of the down payment. Round the answer to the nearest dollar.
help
fill in the blanks using this information:
Theoretical Housing Situation:
Renting:
Monthly Rent: $1,800
Renter’s Insurance: $200 per year
Security Deposit: $2,000
After-tax Savings Rate: 5%
Buying:
Home Price: $250,000
Down Payment: $50,000
Loan Amount: $200,000
Loan Term: 25 years
Interest Rate: 3.5%
Property Taxes: 1.25% of the home price
Homeowner’s Insurance: 0.4% of the home price
Maintenance Costs: 1.5% of the home price
Closing Costs: $5,000
After-tax Rate of Return: 4%
Tax Rate: 25%
Estimated Annual Appreciation: 2%
Now, fill in the worksheet:
A. COST OF RENTING:
Annual Rental Costs (Line A.1):
12×$1,800=$21,60012×$1,800=$21,600
Renter’s Insurance (Line A.2):
$200
Opportunity Cost of Security Deposit (Line A.3):
$2,000×0.05=$100$2,000×0.05=$100
Total Cost of Renting (Line A.1 + Line A.2 + Line A.3):
$21,600+$200+$100=$21,900$21,600+$200+$100=$21,900
B. COST OF BUYING:
Annual Mortgage Payments (Line B.1):
Use a mortgage calculator to find the monthly…
Chapter 5 Solutions
PFIN (with PFIN Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- A young couple has saved up $12,000.00 for a down payment on a home. They are currently paying $1700.00 per month to rent a condo. The couple is pre-approved for a 20-year mortgage at 7.9% and their realtor estimates that they will need to set aside $3500.00 for taxes and other costs at the time of sale. Part: 0/4 Part 1 of 4 (a) What is the price of the most expensive home they can buy without raising their monthly housing payment? The maximum price of a home the couple can afford is $. X 3 Espanol Marrow_forwardfill out the worksheet using the following information: Theoretical Housing Situation: Renting: Monthly Rent: $1,800 Renter’s Insurance: $200 per year Security Deposit: $2,000 After-tax Savings Rate: 5% Buying: Home Price: $250,000 Down Payment: $50,000 Loan Amount: $200,000 Loan Term: 25 years Interest Rate: 3.5% Property Taxes: 1.25% of the home price Homeowner’s Insurance: 0.4% of the home price Maintenance Costs: 1.5% of the home price Closing Costs: $5,000 After-tax Rate of Return: 4% Tax Rate: 25% Estimated Annual Appreciation: 2%arrow_forwardFind the amount of the down payment (rounded to the nearest hundred dollars) necessary for the buyer to afford the monthly payments for the described home. (Use this table to calculate your answer.) Monthly salary of $1,680, with monthly bills of $235; $89,000 home with a 30-year 9% loan Need Help? Read It Watch Itarrow_forward
- Would a person with the following income and expenses qualify for a home based on the front end affordability ratio? Annual gross income = $60,000 Monthly principal and interest payment = $1,000 Monthly home insurance payment = $100 Monthly property tax payment = $100 Monthly credit card payment = $50 Monthly car payment = $250 Monthly student loan payment = $200arrow_forwardMichelle Duncan wants to know what price home she can afford. Her annual gross income is $49,800. She owes $840 per month on other debts and expects her property taxes and homeowners insurance to cost $310 per month. She knows she can get an 9.50%, 30-year mortgage so her mortgage payment factor is 8.41. She expects to make a 25% down payment. What is Michelle's affordable home purchase price? (Round your answer to the nearest dollar amount.)arrow_forwardPlease solve thisarrow_forward
- You want to buy a home. You can borrow 95% of the purchase price. Assuming you can make a down payment of $12,000, what price can you pay for the home?arrow_forwardA couple wants to purchase a new house and feel that they can afford a mortgage payment of $600 a month. They are able to obtain a 30-year 7.4% mortgage (compounded monthly) but must put down 20% of the cost of the house. Assuming that they have enough savings for the down payment, how expensive a house can they afford? The couple can afford a house that costs up to $ ☐ . (Round the final answer to the nearest dollar as needed. Round all intermediate values to six decimal places as needed.)arrow_forwardDevelop a spreadsheet model to determine how much a person or a couple can afford to spend on a house. Lender guidelines suggest that the allowable monthly housing expenditure should be no more than 28% of monthly gross income. From this, you must subtract total nonmortgage housing expenses, which would include insurance and property taxes and any other additional expenses. This defines the affordable monthly mortgage payment. In addition, guidelines also suggest that total affordable monthly debt payments, including housing expenses, should not exceed 36% of gross monthly income. This is calculated by subtracting total nonmortgage housing expenses and any other installment debt, such as car loans, student loans, credit card debt, and so on, from 36% of total monthly gross income. The smaller of the affordable monthly mortgage payment and the total affordable monthly debt payments is the affordable monthly mortgage. To calculate the maximum that can be borrowed, find the monthly…arrow_forward
- Calculate how much money a prospective homeowner would need for closing costs on a house that costs $237 comma 500237,500. Calculate based on a 2121 percent down payment, 1.21.2 discount points on the loan, a 0.60.6 point origination fee, and $1 comma 8301,830 in other fees.arrow_forwardYour friend is currently paying $734 in rent monthly in Fort Wayne and would rather apply the payment toward purchasing a home. If she can get a 30 year mortgage at 4.67% APR using her current payment amount, how much could she borrow? What could you type into Excel to calculate this value?arrow_forwardBhaarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Pfin (with Mindtap, 1 Term Printed Access Card) (...FinanceISBN:9780357033609Author:Randall Billingsley, Lawrence J. Gitman, Michael D. JoehnkPublisher:Cengage Learning
Pfin (with Mindtap, 1 Term Printed Access Card) (...
Finance
ISBN:9780357033609
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Cengage Learning
Mortgages explained UK; Author: Finder - UK;https://www.youtube.com/watch?v=mdmIDvgRRLs;License: Standard Youtube License