Exam 8: The Home and Automobile Decision

Abigail is financing her first home. She is borrowing $125,000. Her bank is loaning her the money for 15 years at an APR of 5.7%. What will Abigail's monthly mortgage payment be?

Rob Roy is toying with the idea of buying a used car every three years instead of leasing or buying a new one. Assuming he can find a one-owner with low miles in good condition, what advantages might he enjoy?

The rate cap on an ARM protects the borrower.

What questions should you answer before deciding to purchase a house?

You are planning on starting your own business in 18 months and you intend to purchase a new home. You have looked carefully at your budget and have determined that you can afford a PITI of $900 per month. Your banker has told you that you can easily qualify for a PITI of $1,150 per month. Which of the following is the most reasonable explanation for this discrepancy?

You have been having significant problems with your new car. Every time you turn around something is breaking or not working properly. Fortunately, the "lemon laws" are there to help. Which of the following is not one of the criteria for application of the lemon laws?

Which should you consider when house hunting?

Hector a Maria have been married for almost one year now and are thinking about buying a house. Maria is an executive for a large, multi-national corporation with offices around the world. She has been told by her company that she will be transferred to a new location every three years. Hector is a car salesman and he is willing to move to wherever Maria gets transferred. Together they make $8,000 in gross monthly income and pay 40% in taxes and withholdings every month. Between them they have monthly payment of $400 in student loans and $700 in car loans, and their credit cards payments average $450 per month. They currently lease a luxury condo for $1,400 per month. They travel to Cancun every Christmas. Since they both work a lot of hours, they eat out at restaurants for most meals. They currently have nothing in savings but Hector's grandparents have said they will give them a 20% downpayment for the new home. -Based on their incomes, how large of a PITI can they comfortably afford to pay?

Bridgette Rojeau has found a beautiful late model used car on a dealer's lot. It is just what she has always wanted. Give her seven tips on buying this dream car.

PITI is a one-time, initial cost of home ownership.

A title search fee is paid to an attorney or title company for searching ownership records to make sure the person selling you the property really owns it.

You currently have an ARM that is charging you 7% with an index rate of 4%, a margin of 3%, and a periodic annual cap of 3.0%. Assume that rates have now increased by 2% during the last seven months. What rate will your ARM be adjusted to?

A mortgage with an APR higher than normal is a subprime mortgage.

You have an annual gross income of $36,000. Using the 28/36 rule for maximum mortgage payment (PITI) estimation, what is your maximum PITI payment using your monthly gross income as a guide (28%)?

Salvadore Dobraseri is a military veteran and has been told by a friend to check out a VA or FHA loan for the purchase of the home he and his wife are interested in. Why should he?

Which of the following is not a recurring housing cost?

For most cars, the manufacturer's warranty extends through the first seven years of ownership or the first 70,000 miles, whichever comes first.

Give at least six tips on smart buying.

The first step at the car dealership is to negotiate the best price that you can on the car that you need.

Give the major financial advantages of home ownership.