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# Loan Project

Submitted By prettyjugalette
Words 984
Pages 4
Loan project: Buying a House in Virginia Beach, VA

I decided to choose a house in close vacinity of where I currently reside because my family is in the process of looking for a home. Currently, we live in military housing, and this is an excellent chance to view different homes, areas, schools, and costs that are associated with the buying a home. The informative process will prove to be benefical on both a professional and personal level.

Real Estate Taxes: \$3,277.32 (found at: http://www.vbgov.com Virginia Beach, VA real estate assessor database)

Purchase Price: \$352,400 (The 2013/2014 Assessed Property Value)

Current market Interest Rate (30 Yr. Fixed Rate): 4.047% through Absolute Mortgage Company on www.bankrate.com by zipcode 23464

20% Down Payment: \$352,400(.20) = \$70,480
Amount Financed: \$352,400-\$70,480=\$ 281,920
Monthly Mortgage Payment: \$1358.58

Payment Calculation: * Present value PV = \$281,920 * Annual interest rate r = 0.04047 * Interest compounded m = 12 times per year * Number of payments n = 30 years X 12 months per year= 360 * Interest rate per month i=r/m = 0.04047/12

The monthly mortgage payment PMT is:

PMT=PV * i/1-(1+i)^-n
= \$281,920 * 0.0033725/1-(1+0.0033725)^-360
= \$281,920(0.0048012887)
= \$1353.58

Remark: For accuracy of the payment amount, rounding of two decimal points was not completed until the last step.

Monthly real estate taxes: \$273.11 (\$3,277.32 /12)

Total monthly payment = \$1626.69 (\$1353.58 monthly mortgage payment + \$273.11 monthly taxes)

Minimum Income Requirement:

Total Monthly Payment ≤ 30% X Monthly Income
(Total Monthly payment)/0.30 ≤ Monthly Income

\$1629.69/(0.30)= \$5,432.30 [Monthly income ≥ (total monthly payment/0.30)]

12(\$5,432.30)= \$65,187.60 [Annual income ≥ (monthly income)]

The minimum monthly income to qualify for this home is \$5,432.20 and the minimum annual income to qualify for a loan to purchase this home is \$65,187.60.

Amortization schedule was generated using Excel Loan Amortization Schedule Template. Schedule was used to set up a mortgage to begin on November 2, 2013, with the first payment to start December 2, 2013.

Note: Please see attached Excel document for Amortization Schedule.

If the first payment is scheduled for December 2013, the last payment (360th) will be made in December 2043.

Based on the information contained in the Amortization schedule, payment 156 on November 2, 2026 is the first month that principal (\$674.79) exceeds the amount of interest being paid (\$674.79) for the monthly payment.

If the loan is held for the full 30 years:

Total principal paid: \$281,920 Amount borrowed after down payment
Total interest paid: \$207,168.80 [360(1358.58) – 281,920]

Extra Credit: Smaller Down Payment:
10% Down Payment: \$352,400(.10) = \$35,240
Amount Financed: \$352,400-\$70,480=\$317,160
Monthly Mortgage Payment: \$1522.78

Payment Calculation: * Present value PV = \$281,920 * Annual interest rate r = 0.04047 * Interest compounded m = 12 times per year * Number of payments n = 30 years X 12 months per year= 360 * Interest rate per month i=r/m = 0.04047/12

The monthly mortgage payment PMT is:

PMT=PV * i/1-(1+i)^-n
= \$317,160 * 0.0033725/1-(1+0.0033725)^-360
= \$317,160 (0.0048012887)
= \$1522.78

Shorter Term:
20% Down Payment: \$352,400(.20) = \$70,480
Amount Financed: \$352,400-\$70,480=\$ 281,920
Monthly Mortgage Payment: \$2091.97

Payment Calculation: * Present value PV = \$281,920 * Annual interest rate r = 0.04047 * Interest compounded m = 12 times per year * Number of payments n = 15 years X 12 months per year= 180 * Interest rate per month i=r/m = 0.04047/12

The monthly mortgage payment PMT is:

PMT=PV * i/1-(1+i)^-n
= \$281,920 * 0.0033725/1-(1+0.0033725)^-180
= \$281,920(0.0048012887)
= \$2091.97

Scenario | 20% down, 30 years | 10% Down, 30 years | 20% Down, 15 years | Purchase Price | \$352,400 | \$352,400 | \$352,400 | Down Payment | \$70,480 | \$35,240 | \$70,480 | Amount Financed (PV) | \$281,920 | \$317,160 | \$281,920 | Annual Interest Rate | 4.047% | 4.047% | 4.047% | Number of Payments | 360 | 360 | 180 | Monthly Payment (PMT) | \$1358.58 | \$1522.78 | \$2091.97 | Total Interest Paid | \$207,168.80 | \$230,968.80 | \$94,634.60 |

Conclusion:
A 30-year loan of \$352,400 with an interest rate of 4.047% and a monthly payment of \$1353.58, the borrower would need a minimum annual of income of approximately \$65,000 to qualify for the loan. It will take the borrower about 13 year to reach the point where the principal applied to the loan exceeds the amount of the interest. The interest paid over the life of the loan is \$207,186.80 or 42% of the amount borrowed.

Extra Credit Scenarios:
If the borrower pays makes a 20% down payment instead of a 10% down payment, they can save approximately \$23,800 (230,968.80 - 207,168.80) in interest over the life of the loan. If a burrower only pays 10% they may not have as much room to negotiate if there is a decline in the housing market especially if trying to sell the house farther down the road.

If the borrower makes a 20% down payment and opts for a 15-year loan instead of a 30-year loan they can save approximately \$112,804.20 (207,168.80 - 94,634.60) over the course of the loan. Since the payments are larger with a 15-year loan, the borrower will need a higher monthly and annual income. For this option, the borrower would need an annual income of \$83,679. (2091.79/0.30=6973.23 * 12)

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