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How to Buy a House

Essay by   •  June 29, 2011  •  Case Study  •  1,183 Words (5 Pages)  •  1,858 Views

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The objective of this project is to clearly explain the process of buying a house. There are many steps that need to be taken in order to be effective in doing this. Buying a house is a major goal for some people, in which they save up money their entire life. The methods used to figure out cost include basic concepts of addition, subtraction, multiplication, and division; however, the formulas needed to calculate it can be a bit tricky.

When buying a house, the first thing you need to know is the asking price. Once you know that, you can put a down payment on the home. This is an amount of money, usually paid upfront in the form of cash. To find out how much this is, you will use the lowest interest rate available at the time. Down payments are categorized by a percentage. For instance, say you want to buy a house that costs $478, 900 and you want to pay a 5% down payment. You would multiply the price of the house by the percentage: 478,900 ∗ .05 which equals $23,945. So, if you wanted to pay 20% you would multiply the price of the house by .20. The more money you can put towards a down payment, the better.

Next, you should check the local mortgage rates for the house you are looking to buy. You will then want to find the best monthly payment with the lowest interest rate, but first you should decide the number of years you are willing to make payments for. The average person will make monthly payments for either 15 or 30 years. In this case, the mortgage rate for a fixed 30-year is 5%, and the rate for a fixed 15 year is 4.25%. This payment also depends on what percentage of a down payment you made in the beginning. The formula you need to consider is:

In this formula, let A= the payment amount per period, P= the initial principle (the loan amount), r= the interest rate per period, and n= the total number of payments or periods. Furthermore, in my example, P= $454, 955, r=.004166667 and n=360. If you plug the numbers into the equation you can find out several monthly payments and determine which one is the best. For instance, (1.) A fixed 30-year mortgage with a 5% down payment would cost you $2,442. (2.) A fixed 30-year mortgage with a 20% down payment would cost you $2,056. (3.) A fixed 15 year mortgage with a 5% down payment would cost $3,422 and (4.) a fixed 15 year mortgage with a 20% down payment would cost $2,882, and so on.

To find the amount of money you would pay for the house, depending on the mortgage, you would need to multiply together the amount of the monthly payment by 12, and then multiply that number by the number of years it would take to pay the mortgage. Here are the methods to find each amount:

(1.) $2,442∗12∗30 = $879,120

(2.) $2,056∗12∗30 = $740,160

(3.) $3,422∗12∗15 = $615,960

(4.) $2,882∗12∗15 = $518,760

After completing these calculations, you will find that option number 4 is the mortgage that will cost you the least amount of money.

Now that you have figured out a little bit of what the house is going to cost you, you need to make purchase several items. These items include a bed, a mattress, a washer and dryer, and a refrigerator. These items can be fairly expensive. Here are some numbers to think about:

Bed=

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