1) A woman is looking to purchase her primary home in the Cleveland Suburbs. She has enough for a 20% down payment and an income of $60,000 per year. Her FICO Score is 750. Therefore the bank has an Interest Rate for 30-year Mortgages at 4%. She has a car payment of $600 per month and a Student Loan Payment of $200 per month. The home she finds has 90 Effective Property Tax Mills and Homeowner's Insurance Costs $50 per month on every $150,000 of Home Value. How much can the woman pay for the home? How large of a mortgage will the bank allow her take out?
2) Another woman is looking to purchase her primary home in the Cleveland Suburbs. She has enough for a 30% down payment and an income of $100,000 per year. Her FICO Score is 750. Therefore the bank has an Interest Rate for 30-year Mortgages at 4.5%. She has a car payment of $600 per month and a Student Loan Payment of $350 per month. The home she finds has 80 Effective Property Tax Mills and Homeowner's Insurance Costs $50 per month on every $150,000 of Home Value. How much can the woman pay for the home? How large of a mortgage will the bank allow her take out?
3) A man is looking to purchase his primary home in the Cleveland Suburbs. He has enough for a 20% down payment and an income of $40,000 per year. His FICO Score is 550. Therefore the bank has an Interest Rate for 30-year Mortgages at 5.5%. He has a car payment of $400 per month and a Student Loan Payment of $200 per month. The home he finds has 70 Effective Property Tax Mills and Homeowner's Insurance Costs $50 per month on every $150,000 of Home Value. How much can the man pay for the home? How large of a mortgage will the bank allow him take out?
4) Another man is looking to purchase his primary home in the Cleveland Suburbs. He has enough for a 25% down payment and an income of $150,000 per year. His FICO Score is 700. Therefore the bank has an Interest Rate for 30-year Mortgages at 4%. He has a car payment of $400 per month and a Student Loan Payment of $200 per month. The home he finds has 70 Effective Property Tax Mills and Homeowner's Insurance Costs $50 per month on every $150,000 of Home Value. How much can the man pay for the home? How large of a mortgage will the bank allow him take out?
Comp #1 Comp #2 Comp #3
Sq Ft = 2800 Sq Ft = 3100 Sq Ft = 3700
Age = 10 years Age = 9 years Age = 8 years
Beds = 4 Beds = 4 Beds = 5
Baths = 2.5 Baths = 2.5 Baths = 3.5
Sale Date = 1/1/2015 Sale Date = 5/1/2015 Sale Date = 10/1/2014
Price = $309,000 Price = $329,000 Price = $409,000
321 Main St 432 Main St 543 Main St
Anywhere, OH Anywhere, OH Anywhere, OH
5) Construction Loan
a. I am looking to invest in building a home. I have purchased a lot for 125,000 and the construction developer has told me that the home I want to build will cost $625,000. The Construction Loan has an Interest Rate of 5.25% and will come with 5 equal draws (one every two months) after which I have a Take-out Loan for the balance of the Mortgage. Calculate the Interest I will have to pay on the Construction Loan.
6) Contract for Deed
a. I have an apartment complex for sale with an asking price of $3.75M. The appraised value of the property is $3.5M. I have not been able to sell the property since listing it on 4/1/2012 and my mortgage payments are really starting to hurt as the remaining balance is $3.1M at 5.375% Interest Only. However, recently I was approached by a buyer looking to enter into a Contract for Deed. The offer price on this contract is $3.6M with a down payment of $400,000 and an Interest Rate of 6.5%. If I enter into this contract it would be for 6 years. What would be my before tax internal rate of return (IRR) and net present value (NPV) and should I do this (justify your answer)?
b. The buyer of the property above is interested in the property and believes they can turn a profit under the right circumstances. Their perceived rental income would be $190,000 in year 1 with an increase in rent by 2% per year after. However, in order to garner the return the buyer believes is possible it will take an upgrade of the interior immediately costing $360,000 followed by small renovation projects of $60,000 per year thereafter. The buyer believes that if they can put forth this effort they will be able to sell the property for $4.75M at the end of the 6th year with a sales commission of 1.5% of sales price that will need to be paid (sales commission is deducted from the sales price). Is this a good investment for the buyer on a before tax basis (calculate the internal rate of return (IRR) and net present value (NPV) and justify your answer)?
7) Write a one page double spaced paper answering the following:
We reviewed several pieces of legislative acts that were passed that effected the housing market in class. We also discussed the importance of the Department of Housing & Urban Development (HUD). Go to the website for HUD or another government agency and choose one of their programs that may have an impact on your future search and purchase of a home. Describe the program and how it may benefit you in your search and purchase of your future home.