suppose that a is an arithmetic sequence with common difference 2 suppose that a
ID: 2784424 • Letter: S
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suppose that a is an arithmetic sequence with common difference 2 suppose that a is an arithmetic sequence with common difference 2 suppose that a is an arithmetic sequence with common difference 2 suppose that a is an arithmetic sequence with common difference 2 A client has come to you for advice on, given a specific set of circumstances whether a specific purchase works (financially) for them. Following is the information they provide to you Married couple, late 20's, 2 preschool children. Gross annual salary of $62,000 Currently renting but have found a new condominium development where they can purchase a unit for $215,000.00 The yearly insurance would be $800.00, yearly taxes would be $2,500.00 and utilities are estimated at $1440.00 for a year (about $500.00 higher than in the rental). Because of their short credit history and only average credit score they have been pre-qualified for a fixed rate. 30 year loan @ 6%. The lender charges 2 points on mortgages where at least 20% down payment is made but 3 points if less than 20%. No loan is offered if less than 10% down payment is made. Closing costs are estimated at 5% of the homes purchase price The bank is willing to lend if the monthly principal+interest payments are less than or equal to 28% of the monthly gross income OR if the monthly PITI to monthly gross income is less than or equal to 35%. They have $44,000.00 in CD's that have been saved specifically for buying a home. They also have $20,000 in their emergency fund. What are three advantages and three disadvantages you would discuss with the couple about buying a condominium compared to continued renting of a similar size apartment? If the lender decided that they put down 20% could the couple afford to buy? Support your answer with numbers! 11- Ill If they want to only put $25,000.00 down calculate their closing costs. Determine, using a mortgage calculator, their monthly principal+inter payments. Would they qualify for the loan based on one or both ratios? Support your answer with numbers!!! IV- What recommendations would you make regarding lowering their monthly payments? If they asked about an adjustable mortgage with a first year rate of 5% that could go up a maximum of 2% a year with a c of 12% what would you tell them? What other (financial) information would you like to know about this family that would help you in answering the questions raised?Explanation / Answer
Answer:
1. Buying a condominium vs renting an apartment advanatges:
a) Equity: when buying a cono rather going on rent the here lies an opportunity to build your equity investing in condo if the cost of owning a condo EMI is similar to rent which is going to pay over a period of time.
b) Tax advantage: The Second advantage comes from tax deduction which is available for you while taking mortgage loan and making herewith the interest payment which is tax deductible expense. Moreover, as I mentioned earlier the buying a property will also help in creating an asset as compared to renting a property if the rent is similar to mortgage repayments.
c) Investment potential: Investment potential is also one more advantage while buying condo since sometimes the buyer buy the property to take into account the rental income over a period of time. Although the price appreciation in the condo is very slow people can take by renting it out for the longer period then focussing only increase in value.
Disadvantage:
a) Buying cost: when buying a condo the cost owing an asset determines the amount of loan the investor has to take. for instance, if mortgage repayment on the higher side as compared rental expenses and Ad the market is in uptrend mode the cost will impact the financials of the investor in the long run.
b) An adverse change in the market condition: if investor buy the condo as in investment and market loses its growth momentum in the short run, the investor will face a problem as mortgage payment will remain same but return on its investment decline over a period of time.
c) Availability of loan: The buying of condo majorly depends on how is the availability of the funds in the market and at what interest rate. If mortgage price is higher the rented cost, the investor can get into losses over a period of time.
2. Down payment of 20% of the total purchasing cost =215000+800+2500+1440+10987=230727
20% of down payment is =46145
Total income = Annual salary+CD+emergnecy funds=62000+20000+44000=126000
After making a down payment of 46145 they left with 79855
Total loan amount they require is 230727-46145=184582
since there is monthly gross income is(79855*0.20)/12=1863
As compared EMI of 1106 which is being calculated on 184582 for 30 years @ 6% by using excel formula of EMI which is PMT function in the excel. since its less than the monthly gross income formula, they can afford to buy the condo.
3) If they want to put $25000 there cost of EMI would be 1233 on the loan of 205727. yes, they qualify for the law by the ratio of 28% of monthly income which is 2356 as compared to 1233 EMI .
4) The answer cannot be provided as information is cut off in the image.
5) The other information which is required to assess the lending to the couple is what are the liabilities they have on their heads. This will help in assessing the commitment they have an ongoing basis which can impact the repayment of loans.
In addition to it, the monthly expense of household will also throw some light into their monthly commitment and their savings apart from their investments.
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