Part 1: After you choose a property, determine all the extra monthly payments the buyer will have associated with the particular property. These are items like taxes, insurance, property fees, access fees, etc… You will need to take these into consideration when designing the financing options.
Part 2: Down payments are meant to protect the lender. It should be enough so it covers any costs and losses if there is a foreclosure early on in the term. But it shouldn’t be too high so the buyer can’t afford it. You need to think this through and you must justify any selection you make.
Part 3: There are many financing options available: fixed rate, variable rate, loans with points, balloon loans, just to name a few. The Wikipedia page http://en.wikipedia.org/wiki/Mortgage_loan has a nice description. I would like you to choose two different options and not just two variations of the same type. You should provide a detailed description of the options chosen. For example, you could choose a 30 year fixed mortgage and a 15 year ARM. This part is worth 10 points so make sure you have two different mortgages.
Part 4: Here you lay out the details of the two financing options you selected. Aside from presenting the details of the loans, provide information about the impact of the two options on the buyer. For example, what are the short and long term difference? How will increases in the cost of living effect the buyer? What will happen if the interest rate suddenly increases? Don’t forget, you want your money back plus the interest so think through what crazy things could happen in 15, 20, or 30 years. You must create the spreadsheet yourself. Simply including a spreadsheet you copied off the Internet will not suffice. This part is worth 15 points so please do the work yourself. The equations that you enter in the cells of the spreadsheet can only utilize basic arithmetic and exponent operations. This way you are going to utilize what you learned in class. The way to compute an exponent in Excel is to use the power function. Excel has some very nice financial functions like IPMT and PMT which I suggest you use to check your equations but the spreadsheet you submit should NOT contain any of these.
Part 5: Here you will write an analysis of the two mortgage options. You should discuss in detail how each option will impact the buyer in the short and long term. I would like to see at least a half page of analysis. This part is worth 15 points and I will grade based on the effort you put into it.