By Sandy Hopkin, Chad Hunt and Lily Ritvaxay FIN 1050 Home Buying Case Study: Michelle

Step One: Identify four possible housing choices available for the person/people in your case study, including their current living arrangement. Michelle currently lives at home with her parents after her marriage of 3 ½ years ended in divorce. Her major goal is to get on with her life-both emotionally and financially. Michelle’s short term goal for housing would be for her to rent her own apartment. Long Term Goal: Michelle would like to own a condo or home of her own in 3 to 10 years.

Step Two: List the pros and cons of each type of housing including the total price and monthly payment of each. Pros of Renting an Apartment No Maintenance & Repairs Usually lower monthly payments More mobility No “Down Payment” No property taxes Less commitment Some utilities paid Lower Insurance Some units are furnished Cons of Renting an Apartment Building NO Equity-you never own it No tax advantages Cannot change or modify the property Usually less privacy Possible rules and restrictions Rent can increase Usually smaller May have small or no yard

Prices and Monthly Payments Apartment # 1Apartment #2 Living with Parents Rent=$ Pros Low Cost Pay debts include credit card, attorney fees, car, savings ($5,000) Cons Living with parents Rent Apartment Rent=$ (KSL) Pros Fits budget and short term goals Privacy –own place Cons $ more

Step Two (Continued) Pros to Buying Home or Condo Possible value increase Significant tax advantages Can change or modify Building equity Protection against rent increase Usually more privacy No rules or restrictions “Pride of Ownership Usually large yard & more parking Cons to Buying Home or Condo Down payment & closing costs Usually higher monthly payments Higher taxes and insurance All maintenance & repairs are your responsibility Less mobility Equity is tied up More commitment

Prices and Monthly Payments Condo #1Condo #2 Condo 1 Bedroom 1 Bath Cost: $168, ($134,640.00) Cost= 20% down payment ($33,660.00) Monthly (30 4% I)=$ Duplex 2 Bedroom 1 Bath Cost: $165, ($132,000.00) Cost= 20% down payment ($33,000.00) Monthly (30 4% I)=$

Prices and Monthly Payments Home #1Home #2 Single Family Dwelling Rent=$ (KSL) 2 Bedrooms 1 Bath 647 N. Concord Street Salt Lake City, Utah House with Basement Apartment to Rent $160, (TVM) Monthly PMT=$ Bedrooms 2 Baths Salt Lake City, Utah

Step 3: Pick one of the houses and walk through the step of buying a home for this family. Apartment #1: Living with parents. Need Want Paying off debts Privacy Something short term Have her own place Become more financially stable Dream of owning a house Save money Support from family after divorce It wouldn’t be ideal for her to buy a house at this point with her current situation. If she did buy a house Condo #2 would be the best option. It would cost her a down payment of $33, It would take her about 3 years to save up with what she already has in savings plus with she has left over each month we can give her $ to spend. She should get a 30 year mortgage because it gives her more time to pay it off. $ per month for the next 30 years to pay off.

Graph: Purchase of a $165,000 house borrowing $132,000 with a 20% down payment at a rate of 4% with 4 points. Down payment $33, Points 5,280 Loan origination fee $1, Loan application fee $ Appraisal fee $ Title search fee $ Attorneys fees $ Title insurance $ Recording fee $30.00 Credit report $50.00 Termite and radon inspection fee $ Notary fee $50.00 Total initial cost $41,380.00

Step 3.3 Paying it off How long will it take to pay the home off? If she borrows $132,000 at 4%, with payments of $787.75/month and chooses a 30 year mortgage. It will take her approximately just that, 30 years. What is the total amount she will pay in interest? If she pays 4% on the life of her loan, she should be paying around $151,590 in interest all together. How much of this income will go to mortgage? $ will go to her mortgage/month and the other $421.08/month will be going to interest.

Graph: Monthly payments that go toward interest/principle on a 30 year fixed mortgage of with a rate of 4%. Total monthly payment: $ Years- Interest- $25,264.8Principle $22, Years- Interest- $50,529.6Principle- $44, Years- Interest- $75,794.4Principle- $66, Years-Interest- $101,059.2Principle- $88, Years-Interest- $126,324Principle- $110, Years-Interest- $ Principle- $132,001.2

Step 4: What is the best immediate housing choice for this family? How long are they likely to live at that location? What should their next move be? The wisest choice for this particular situation would be for Michelle to continue living at home renting from her parents. She is likely to live there for at least one year. By doing this she can reach her short term goals of: Paying off her credit cards Reaching $10,000 in savings Being able to afford her own apartment Her next move should be to work on her long term goals consisting of: Continuing her education, so she can advance in her career Saving for a car that she wants Saving a down payment for a home Saving for retirement