In this project, you will purchase a house for your family, and choose a mortgage from the market, and conduct some mortgage analysis. I suggest that you visit at least one (1) open house prior to completing this assignment. The house/condo should be the type that you think you might be interested in purchasing sometime in the future in your real lives. Be sure to pick up and review the “feature sheet” that the realtor will provide. There are also many websites that provide listing and other property information. For example, you can browse www.zillow.com. Assuming that you are the head of a household. You are also an employee of ISU. Since you need to commute to ISU to work, you must keep this in mind when you do your house hunting. Your family income and down payment are based on this rule: your family income will be the last 5 digits of your student id number, plus $50,000. For example, if your chosen student id is 002355531, your family income will be $55,531+$50,000=$105,531 per year. Also assume that your cash on hand is enough to pay a 10% down payment (no matter which house you end up choosing). As a result, you need a 90% loan once you find your dream house. Your project should address the following issues that a typical home buyer is concerned about: 1. Given your annual household income, figure out the range of house prices that you can afford. Go to http://www.zillow.com/mortgage-calculator/house-affordability. Enter the income and down payment – at this point, simply assume down payment of $20,000, property taxes as 1.5%. Make reasonable assumptions on other parameters. After finishing this stage, print out the output. Your final choice must be within the price range you get from here. (5%) 2. Specify your hypothetical family background. For example, you and your spouse + two children, or you and your spouse + your parents, etc. Then provide an analysis of your targeted home and the local property market. Justify why you think it is a good choice. You need to demonstrate that the house you have chosen fits your family demand. (20%) 3. Defend your mortgage choice. In this project, let’s focus on conventional mortgages (i.e., not FHA, VA loans). There are tons of mortgage products that are available on market, how do you make your choice? The best way to answer this part is by applying what we have learned in this class, such as chapter 6. For example, what is the desired loan term? Why do you believe that the loan you pick up in the project is the best among all loans available on market? (20%) Note: when you compare two loans here, you need to make some assumption on your anticipated holding period. . For example, if you assume a 10 year holding period, you need to prepay the loan in 10 years. 4. As you have put 10% down payment, you need private mortgage insurance (PMI). You should find the premium charged by some mortgage insurance company and provide readers with printed evidence. Using excel to analyze cash flow. Also keep in mind that your mortgage insurance premium stops once you accumulate up to 20% equity. (If you cannot find any mortgage insurance premium information, you can simply assume it is 0.5%, as shown as default value in to http://www.mortgagecalculator.org. However, if you choose to proceed this way, you will lose 10% of the total points for this project!) (20%) 5. What have you learned from doing this project? (5%) Overall quality: 30% Notes: 1. You are not graded based on the home or lender you selected. However, you must explain why your choices are good values. 2. You should draft your report in a structured and professional way. All supporting materials shall be in appendix. 3. I only accept hard copy, but please make it double-sided to save paper. There is no page cap/limit, although 3 to 5 pages seem reasonable to me. 4. The above rubric only aims to give you a rough idea about the break downs of the project evaluation.
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