Home Buying Assignment

1. Assume it has been two years since you graduated. Determine how much money you will be making 2 years after you graduate. You need to document this information. You can interview someone in your field, ask a professor, use the Internet or library for career statistics, etc., but you can't make it up off the top of your head. If you are currently serious about buying a home, you may use your current income and debt information. If you currently own a home, you may look for a new home or see if you would still qualify for the same home.  If you aren't married or engaged, assume that you won't be married two years after you graduate (i.e., you won't have income from a spouse to include in your figures). Please give both monthly and yearly income figures.  (2 points)

2. Determine what debts you will have. Be as accurate as possible. Will you have student loans? Car loans? Credit card debts? List the amount you will be paying on the loans each month.  (Remember that rent, food, insurance, etc. are NOT debts.)  (1 point)

3. Pre-qualify yourself using 29/41 ratios.  These are on the “Calculating Your Maximum Mortgage” Amount form
   1. Start by determining your Housing Expense Ratio (Front-end). This is number 1. (1 point)

2. What is your Total Debt Ratio (Back-end)? This is number 2 on the worksheet. (1 point)

3. What is your Maximum Allowable for Mortgage Payment (PITI)? This is step 3 on the worksheet. (1 point)

4. What is your Maximum Allowable for P & I? This is step 4 on the worksheet. (1 point)

5. Using the table below, determine your maximum loan amount at 6%, 8.5%, and 10% interest. Using your maximum allowable for P&I (principal and interest) divide that amount by the factor for a 6%, 8.5%, and 10% interest rate. (You'll need to divide your P&I amount by three different factors and you will have three different loan amounts.)  (3 points)

4. Determine your needs and wants for a home. These should include the neighborhood, location, physical layout/size of the home, yard or land, age of the home, etc. For example, does it need two or three bedrooms, one or two bathrooms, a large or small yard, etc. Identify and list at least 10 needs and 5 wants.  (5 points)

5. Write a paragraph or two discussing whether or not you think you'll be able to afford the home you need/want two years after graduation. (If you are using your current information, discuss whether or not you can afford as much as you thought.) Will your income be sufficient for your needs and wants or just your needs? What changes can you make to help you in purchasing a home? Is a home purchase a realistic goal for you within two years? Is this even something you want at all?  (5 points)

6. Write a paragraph or two discussing the differences in the loan amounts you qualify for using the three different interest rates. Was there a sizable difference? Did it surprise you? What are interest rates currently and how do they compare with these three rates? Will the interest rate make a difference in the house you can afford to buy? (5 points)

The paper you turn in should include the form “Calculating Your Maximum Mortgage Amount” (item 3) as well as your discussion of items 1, 2, 4, 5, and 6.