Mathematics homework help

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Mathematics homework help.

Milestone 1 Worksheet

 
In this milestone, you will learn how to make wise financial decisions. Whether you are a recent college graduate or a seasoned professional, you’ll be equipped with the knowledge necessary to purchase big ticket items (or share this information with a family member!). Bear in mind that you are not required to submit any personal financial information if you are uncomfortable doing so. You are certainly welcome to fabricate this information if you wish. It may be more interesting to you though if you use accurate information.
 
Part 1a: Your Gross Income
 
Imagine that you’ve just finished your Bachelors with NLU and that you’ve landed your desired job. You may also currently (or wish to in the future) have a spouse/significant other with whom you might like to purchase the house. Please identify the following:
 
Your desired salary (for your dream job):
Your spouse/significant other’s desired salary (you can also write N/A):
Total Gross Income:
Monthly Gross Income:
 
Part 1b: What Can You Afford?
 
Debt-To-Income is a measure of your overall debt to how much you make. It is normally written as a percentage and is calculated by the following formula:
 
 
Lenders will not allow you to take out a loan if the debt-to-income percentage is greater than 28%, as you won’t be able to afford your home. Explain how to find your maximum DTI ratios below:
 
Assuming a 28% DTI ratio, what is the maximum monthly mortgage payment (e.g. monthly debt) you would be able to take on in order to be approved for a loan (given you meet other underwriting requirements)?
 
 
 
Lenders also look at a back-end DTI ratio. This is calculated by adding your mortgage payment and all other monthly debt expenses (car payment, credit card debt, student loans, personal loans) into one combined Monthly Debt value. Your back-end DTI must be less than 43% to be approved. What is the maximum amount you are able to spend on debt to be approved?
 
 
 
 
 
Part 2: Your Dream Home
Use trulia.com, or some other housing website, to find a home that you would be able to afford (30 yr.). Your monthly payment needs to be less than your 28% DTI percentage from Part B. Assume a 20% down payment and an interest rate of 3.5%. Use the housing calculator they provide to assist you. See an example below of what Trulia shows you:
 
Please submit information about your dream home below
 

Price of Home:
Principal and Interest  
Property Taxes:
Home Insurance
Mortgage Insurance:
HOA dues (only if buying a condo)
Square Feet
Price Per Square Foot  
Link of Your Dream House:

 
 
 
 
Part 3a: What should be my down payment?
 
In Part 2, we assumed that you would pay a 20% down payment. This isn’t necessarily reasonable for everyone, though. These days, you can definitely get by on a 5% down payment (or even 3.5% for FHA). Please answer the following questions.
 
How much would you need to put down for a 5% down payment? Explain how to calculate this by hand.
 
 
In Trulia, input your new down payment as 5%… observe what happened:
 

  1. What is your new monthly payment?

 

  1. Did any of the individual expenses increase?

 

  1. What is your new DTI %? Would you still be approved for the loan?

 
Part 3b: How much do I pay in interest?
 
The Total Interest Percentage (TIP) tells you how much interest you will pay over the life of the loan and is calculated in the following way.
 
 
Use the Amortization Worksheet to find the total amount paid over the life of the loan, the interest paid over the life of the loan, and the TIP for both a 5% down payment and a 20% down payment.
 

For 5% down payment   For 20% down payment  
Total Paid Over Loan   Total Paid Over Loan  
Interest Charged   Interest Charged  
Amount Financed   Amount Financed  
TIP %   TIP %  

 
Why was the interest charge higher for the 20% down payment than the 5% down payment?
 
 
 
 
 
 
 
 
Part 4a: Financing your Life
 
Next let’s see how much income you have to spend on necessities. To do this find your backend limit (43%) of income and subtract your mortgage payment (assume 20% down payment).
Monthly income left for expenses: _______________
 
This amount represents how much you have available to spend on other long-term debt, such as: personal loans, student loans, car payments, credit card payments (only minimum payment is counted, which is normally $25-45). Think about your future—will you need to take out any additional loans? If so, estimate your payments to see if you fall within your budget below.
 
For personal loans, think about big purchases you might need to make (greater than $10,000 or so). Often the monthly payments are around $100-200. You may research this, or make a guess. If you don’t anticipate a personal loan, you can put 0 for the expense. Feel free to add more rows if needed.
 

Debt category monthly expense
car payment $
student loan payment $
Personal loan $
Credit card 1 $
Credit card 2 $
   
   
   
Total monthly expenses $

 
What is your final debt-to-income percentage? Is it below 43%?
 
Part 4b: The cost of short-term financing
 
For the final part of our project, let’s assume you are not a wise shopper and decide to finance your home furnishings with a credit card that has a 23.99% interest rate. Input up to eight items below

Furnishing Cost
  $
  $
  $
  $

 

Furnishing Cost
  $
  $
  $
  $

Total Cost for All Items: $ ____________
 
Now many people only pay the minimum payment for their credit cards, which is a huge mistake. Let’s assume your minimum payment is 3% of your total cost of items for each month. Given the balance that you just accrued above, let’s find the following by using the Major Purchase Finance Worksheet (insert hyperlink?):
 

  • How long did it take you to pay off your debt?

 

  • How much did you have to end up paying in total?

 

  • What was your interest charge?

 

  • What was your TIP %?

 
Part 5: Reflection
 
Please write at least one-full paragraph (4-6 complete sentences) for every question:
 

  • Why might it be a better idea to wait until you can put a 20% down payment on a house? What might be some of the drawbacks?

 
 
 
 
 
 

  • Some lenders allow you to make additional payments to your mortgage over time. What if you paid an additional $100 per month towards your mortgage? How might that impact your TIP % during the life of the loan? How does compound interest factor into this consideration?

 
 
 
 
 
 
 

  • Should you finance purchases with credit cards? In what ways do you think credit cards can be useful and how should they be used to prevent hefty interest charges? Is there a correct way to use credit cards?

 
 
 
 
 

Mathematics homework help