Chapter 5.4, Problem 56E

This is an exercise in buying a car. It involves choosing a home and selecting the home’s financing. Write a paper describing all of the following points.

a. You might not be in a position to buy a home now. If that is the case, fantasize about your future. What job do you have? How long have you had that job? What is your salary? If you are marries, does your spouse work? Do you have a family? What needs will your car fulfill? Make your fantasy realistic. Briefly describe what has happened between the present and your future fantasy. (If you are in a position to buy a car now, discuss these points on a more realistic level.)

b. Go shopping for a home. Look at new home, used home, or both. Used homes can easily be visited by going to an “open house,” where the owners are gone and the real estate agent allows interested parties to inspect the home. Open housed are probably listed in your newspaper. Read appropriate newspaper and magazine articles about your choices (see, for example, in the real estate section of your local newspaper). Discuss in detail the home you selected and why did so. How will your selection fulfill your (projected) needs? Why did you select a house or a condominium? Why did you select a new or a used home? Explain your choice of location, house size, and features of the home.

c. Go to the websites of four different banks. Get all of the information you need about a home loan. Perform all appropriate computations yourself-do not have the lenders tell you the payment size, and do not use Web calculators. Summarize the appropriate data in your paper, and discuss which loan you choose. Include in your discussion the down payment, duration of loan, interest rate, payment size, and others terms of the loan.

d. Also discuss the real estate taxes (your instructor will provide you with information on the local tax rate) and the effect of your purchase on your income taxes (interest paid on a home loan is deductible from the borrower’s income taxes.)

e. Most lenders will approve a home loan only if the total of all the borrower’s monthly payments, including the home loan payments, real estate taxes, credit card payment, and car loan payments, is no more than $38\%$ of the borrower’s monthly income. Discuss your ability to qualify for the loan.