ERIE COMMUNITY COLLEGE
TITLE III GRANT
PURCHASING AND FINANCING A HOME
Interdisciplinary Course Materials
Business Administration
COURSE: MT 001/MT 006
COURSE OUTLINE TOPICS:
· Perform basic computations with rational numbers.
· Apply the rules for rounding.
· Use set formulas.
· Present organized written work.
· Read critically and think logically when solving application problems.
PROJECT TITLE: Purchasing and Financing a Home.
PROJECT DESCRIPTION:
In this project, the student will analyze the cost of purchasing a home in the WNY area. The student will:
1) Determine the type of home that they would like to purchase. For example, 2 story or ranch (1 story), how many bedrooms and bathrooms, location of the home, etc.
2) Review newspaper advertisements or use the internet to select a home that ‘fits their needs’ and is in their price range. The selected home and all of the home details must be submitted.
3) Financing: the student will determine the principal amount that will be financed based on assuming 20% down and closing costs of 3 points (or 3%). The closing costs account for the credit reports, recording costs, document preparation, flood certification, pest and other inspections, mortgage broker fee, lawyer’s fees, points, and title search. The closing costs are based on the mortgage amount and are allowed to be financed into the price of the home after the down payment.
4) The student will calculate the monthly payments based upon two scenarios: 30 year fixed rate mortgage and 20 year fixed rate mortgage. They will then calculate the total amount financed (principal plus interest) based upon each scenario.
5) The student must find their property of interest in the public records that are on-line and determine the taxes on this property. This will need to be printed and presented within this project.
6) Once the student determines their monthly payments, they will calculate their monthly taxes that will be added to their monthly payments to determine the full month’s mortgage payment (principal, interest and taxes). Each component will be entered in a table format, their principal, interest, and monthly property taxes for the total monthly cost.
AUTHOR: Deborah Doucette, Mathematics
CURRICULUM EXPERT: Richard Rich, Business Administration
SEMESTER CREATED: Fall, 2009
A. ESSENTIAL QUESTION:
Most people want to purchase a home some time in their life. This project is based on the student choosing a home to satisfy their current needs or their ‘dream home’. The student will then analyze the costs associated with the purchase of a home as well as the mortgage payments associated with home ownership.
B. INTRODUCTION:
In order to begin this project, the student needs to seriously consider what type of home they would like to purchase. This home purchase could be based upon any time frame. For example, they could choose to purchase a home that satisfies their needs now or they can choose their ‘dream home’ that is something that they can’t afford now but perhaps sometime in the future. To help the student, they are asked to fill in the following table that helps their selection criteria. They should have fun with the project and seriously think about their needs. They should not randomly pick a house, but should select one in an area where they would like to live.
First, the student will have to research the homes available now in the area based upon their selection criteria. To find their home, they can use the internet or newspaper advertisements. They should make sure the home they’ve selected shows the address and township. Upon final selection, they must either print out or cut out this advertisement.
To help with the mortgage calculations, mortgage information is listed in a table below. It is current based upon 2009 data.
C. THINGS TO LEARN BEFORE STARTING THE PROJECT:
Before starting this project, the student must be able to do basic arithmetic, multiply using percents, and use tables. The student will also need access to newspapers and the internet.
D. BASIC DIRECTIONS:
Before you even begin looking at homes, you need to determine the following:
Where do you want to live, (i.e. Amherst, Williamsville, Cheektowaga, Depew, Buffalo, etc.)? / How many bedrooms (i.e. 2, 3, or 4 bedrooms) do you want: / How many bathrooms do you want (i.e. 1, 1 ½, 2, etc). A ½ bathroom is one that doesn’t have a shower or bathtub) / How many floors do you want, for example do you want a ranch (1 floor) or a 2 story home? If you’re not sure, then leave this blank.E. PROJECT ASSIGNMENT:
v Select your home based upon the selection requirements above:
· Look through the Saturday home advertisements or go on-line and choose a home in the location desired above. Make sure the home that you’re interested in has the price listed as well as its address. Print or cut this advertisement out. Either staple or glue this information to a sheet and attach it to this assignment.
v Calculate your mortgage:
· The mortgage company that will finance your purchase is currently offering rates of 5.75% for a 30 year fixed and 5.50% for a 20 year fixed rate mortgage. This is offered with 20% down and closing costs that are based on 3% of the purchase price. Closing costs are allowed to be financed.
· The following table can be used to determine the monthly payment (obtained from Western NY Area Mortgage Rates Center dated 11/24/09 found in the Saturday, “Home Finder” insert in the Buffalo News):
30 year - 360 payments @ 5.75% / 20 year - 240 payments @ 5.50%$5.84/$1,000 borrowed / $6.88/$1,000 borrowed
· Go on the internet and find the township/city in which your home is listed. Generally you’ll find the taxes listed in the Assessment listing. This may take a little time to find. Find the most recent taxes assessed (school and town/city) on this home and print out the
page for reference. Either staple or glue this information to the sheet and attach it to this assignment.
Now you’re ready to determine the cost of ownership on this home!
Fill in the following table with all of the details that you have obtained. Don’t forget to use the dollar ($) sign when indicating monetary values:
Use this column to show the work, i.e. 74,000 + $565 = / Use this column to show the value of your answer using your calculatorPurchase Price:
Down Payment: (20% of the Purchase Price). Round to the nearest hundredth. / DP
Closing Costs (3% of the mortgage the amount). Round to the nearest hundredth.
Amount to be financed: / Purchase Price
(from above):
Down Payment
(from above, DP):
Net purchase price (subtract the down payment from the purchase price):
Copy from above the closing costs:
Total Amount to be financed including closing costs (add the net purchase price and the closing costs): / TF
Calculate your monthly principal and interest payment: / Take your total amount to be financed from the box above and divide this by 1000. / A5
Take A5 and multiply it to the 30 year rate ($5.84/$1,000 borrowed). Round to the nearest hundredth. / F30
Take A5 and multiply it to the 20 year rate ($6.88/$1000 borrowed). Round to the nearest hundredth. / F20
Calculate the TOTAL Principal and Interest financed over the course of the loan. / Take F30 and multiply it by 360 (a 30 year loan which means you make 360 monthly payments) / P&I 30 yr
Take F20 and multiply it by 240 (a 20 year loan which means you make 240 monthly payments) / P&I 20 yr
Calculate your monthly costs of home ownership: / Write down the total school taxes in the unshaded cell to the right.
Write down the total town/city taxes in the unshaded cell to the right:
Add the two taxes listed above together: / T1
Divide the total taxes (T1) by 12 month/year for the monthly tax costs: / T12
Add the monthly mortgage costs for a 30 year fixed mortgage from F30 with the monthly tax assessment from T12: / TM30
Add the monthly mortgage costs for a 20 year fixed mortgage from F20 with the monthly tax assessment from T12: / TM20
Now, let’s highlight the important pieces of information for you to determine the cost of home ownership.
1. Write down on this line the purchase price of your home:
$______
2. Write down the required amount of your down payment (DP): $______
3. Write down the required amount of your closing costs: $______
4. The total amount financed for a 30 year fixed loan is (P&I 30 year):
$______
5. The total amount financed for a 20 year fixed loan is (P&I 20 year):
$______
6. Your annual taxes on this property are (T1):
$ ______
7. Your monthly mortgage payment (including taxes) for the 30 year loan is (TM30):
$______
8. Your monthly mortgage payment (including taxes for the 20 year loan is (TM20):
$______
9. Is this home affordable?
10. Which length of term (30 year or 20 year) would you use? Why?
11. What’s the difference between the two lengths of term of financing? (show your work)
F. STUDENT RESOURCES:
Students will need a calculator and access to a newspaper and the internet.
G. FACULTY RESOURCES:
Faculty will need to have covered basic arithmetic and percentages. If mortgage values change much from the printing of this project, the mortgage rates will need to be updated. They were taken from the Buffalo News Homefinder section in the Saturday paper.
H. GRADING RUBRIC:
Each entry is worth 1 point. The free answers are worth 2 points.
Purchase a Home Project ICM Project Page 5