finance

Kim and Dan Bergholt are both government workers. They are considering purchasing a home in the Washington D.C. area for about $280,000. They estimate monthly expenses for utilities at $220, maintenance at $100, property taxes at $380, and home insurance payments at $50. Their only debt consists of car loans requiring a monthly payment of $350.

Kim's gross income is $50,000/year and Dan's is $35,000/year. They have saved about $60,000 in a money market fund on which they earned $5,840 last year (included in the $60,000). They plan to use most of this for a 20% down payment and closing costs. A lender is offering 30-year variable rate loans with an initial interest rate of 7% given a 20% down payment and closing costs equal to $5,400.

Before making a purchase offer and applying for this loan, they would like to have some idea whether they might qualify.

Estimate the affordable mortgage and the affordable purchase price for the Bergholts.
Suppose they do qualify; what other factors might they consider before purchasing and taking out a home mortgage?
What future changes might present problems for the Bergholts?
The real estate agent tells the Bergholts that if they don't care to purchase, they might consider renting. The rental option would cost $1,400/month plus utilities estimated at $220 and renter's insurance of $25/month. The Bergholts believe that neither of them is likely to be transferred to another location within the next five years. After that, Dan perceives that he might move out of government service into the private sector. Assuming they remain in the same place for the next five years, the Bergholts would like to know if it is better to buy or rent the home. They expect that the price of housing and rents will rise at an annual rate of 3% over the next five years. They expect to earn an annual rate of 4% on the money market fund. After federal, state, and local taxes, they get to keep only 55% of a marginal dollar of earnings.

Estimate whether it is financially more attractive for the Bergholts to rent or to purchase the home over a five-year holding period. (Assuming the contract interest rate of 8%, monthly interest payments over the five-year period would total $87,574.)
Suppose it turns out that they have to relocate after one year. Which is the preferred alternative after one year? (Interest payments over the first year would equal $17,852.)
Show all work for each assignment and explain each step carefully

  1. 0
  2. 0
  3. 7
asked by mee

Respond to this Question

First Name

Your Response

Similar Questions

  1. personal finance

    kim and dan bergholt are both government workers they are considering purchasing a home for $280,000 utilities are $220 maintenance at $100 property at $380 utilities 220.00 maintenence 100. property taxes 380. insurance 50. there

    asked by loraina on July 31, 2008
  2. business

    Complete the following exercise in your groups: Kim and Dan Bergholt are both government workers. They are considering purchasing a home in the Washington D.C. area for about $280,000. They estimate monthly expenses for utilities

    asked by Sugar on September 22, 2008
  3. Finances

    Kim and Dan Bergholt are both government workers considering purchasing a condo for 280,000. Kims gross incoem is 55,000 and Dans is 38,000 they have 60,000 in a money market fund which earned 5,840 last year. they plan to use

    asked by Loraina on August 2, 2008
  4. Long term planning

    Kim and Dan Bergholt are both government workers. They are considering purchasing a home in the Washington D.C. area for about $280,000. They estimate monthly expenses for utilities at $220, maintenance at $100, property taxes at

    asked by candy on August 9, 2006
  5. math

    marcie, kim and yvonne are on the same softball team. (A). During the last season . Marcie hit 3 less than twice the number of home runs that kim hit let h represent the number of home runs that kim hit . write an expression that

    asked by john on April 8, 2012
  6. Georgia State History

    Which of the following is a use of credit? A)buying groceries with cash B)purchasing home by taking out a mortgage C)purchasing something in exchange for a service D)paying with a personal check***

    asked by Anonymous on May 20, 2017
  7. English

    1. Dr. Kim's office is between the library and the bank. (What is "Dr. Kim's office"? In this sentence does office mean 'clinic'? Or is 'office' a room where people work, usually sitting at desks?) 2. He is Dr. Kim. (In this

    asked by rfvv on May 28, 2011
  8. Microeconomics

    taxes may cause deadweight losses because________. a. they transfer purchasing power from buyers to the government. b. they lower the surplus in the market. c. they increase consumer surplus at the expense of producer surplus d.

    asked by Juan on June 24, 2015
  9. Microeconomics

    Suppose that the market labor supply and labor demand equations are given by Qs = 5W and Qd = 30 - 5W. The government has passed a law that subsidizes wages by $1 per hour. The equilibrium wage and quantity of labor with the

    asked by Kathy on May 26, 2009
  10. algebra

    Paula leaves home driving 40 miles/hr. One hour later Dan leaves home driving in the same direction at the rate of 50 miles/hr. How long will it take dan to catch up with Paula?

    asked by lou on January 6, 2010

More Similar Questions