FBuying a home is the biggest single investment or purchase that most individuals make.This project is designed to give you some insight into the home-buying process and the associated costs.Find all the costs associated with buying a home by making a 20% down payment and borrowing 80% of the cost of the home.Decide how much your home will cost (and how much you’ll have to put down and how much to mortgage). Call a realtor to determine the cost of a home in your area (this could be a typical starter home, an average home for the area, or your dream house). Ask the realtor to identify and estimate all the closing costs associated with buying your home. Closing costs include your down payment, attorney’s fees, title fees, and so on.Call at least three different banks to determine mortgage loan rates for 15 years, 25 years, and 30 years and the costs associated with obtaining your loan. These associated costs of a loan are paid at closing and include an application fee, an appraisal fee, points, and so on.For each bank and each different loan duration, develop a summary that containsAn itemization and explanation of all closing costs and the total amount due at closing.The monthly payment.The total amount paid over the life of the loan. The amortization schedule for each loan (use a spreadsheet or financial software package).4) For each duration (15 years, 25 years, and 30 years), identify which bank gives the best loan rate and explain why you think it is best. Be sure to consider what is best for someone who is likely to remain in the home for 7 years or less compared with someone who is likely to stay 20 years or more.Question TwoProfit ReinvestmentT. C. Hardware Store wants to construct a new building at a second location. If construction could begin immediately, the cost would be Ksh.500,000. At this time, however, the owners do not have the required 20% down payment, so they plan to invest Ksh.2,000 per month of their profits until they have the necessary amount. They can invest their money in an annuity account that pays 6%, compounded monthly, but they are concerned about the 3% average inflation rate in the construction industry. They would like you to give them some projections about how 3% inflation will affect the time required to accrue the down payment and the building’s eventual cost. They would also like to know how their projected profits, after the new building is complete, will affect their schedule for paying off the mortgage loan.Specifically, the owners would like you to prepare a report that answers the following questions.If the 3% annual inflation rate is accurate, how long will it take to get the down payment?Hint: Assume inflation is compounded monthly. Then the required down payment will be 20% of , where n is in months.Thus you must find n such that this amount equals the future value of the owners’ annuity. The solution to the resulting equation is difficult to obtain by algebraic methods but can be found with a graphing utility.If the 3% annual inflation rate is accurate (compounded monthly), what will T. C. Hardware’s projected construction costs be (to the nearest hundred shillings) when it has its down payment?If T. C. Hardware borrows 80% of its construction costs and amortizes that amount at 7.8%, compounded monthly, for 15 years, what will its monthly payment be?Finally, the owners believe that 2 years after this new building is begun (that is, after 2 years of payments on the loan), their profits will increase enough so that they’ll be able to make double mortgage payments each month until the loan is paid. Under these assumptions, how long will it take T. C. Hardware to pay off the loan?
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