Jenny's First Home
By Anika Rasheed
What Can Jenny Afford?
Jenny is a bank teller and earns $40,000 a year. She has a car payment of $230 per month and student loans worth $20,000 which she must pay off in ten years. To find out what type of home she can afford, first she has to find out her monthly student loan payment. The interest rate is 6.8%. Using the equation featured, she finds her monthly student loan payment to be $230.17.
Now, Jenny must find how much money she has each month in order to figure out how much she can put toward a mortgage payment.
30% of Jenny's income will go toward taxes. This means she has $28,000 left for every other expense.
She has to divide $28,000 by 12 months to find how much money she has per month. She has $2333.33.
Then, she has to subtract her monthly car and student loan payments to find how much she has left for all other expenses, including a house payment. After this, she has $ 1873.16
Monthly Rationale
Jenny has to have enough money for other expenses such as food, shopping, and bills. At most, only 30% of the $1873.16 should go toward her house payment monthly. This means that, at most, she can afford to have a $561.94 monthly house payment.
Total Rationale
For a 30 year home loan with a rate of 4.625% (rate found at Bank of America site) with a maximum $561.94 monthly payment, Jenny can afford a home worth $109,297.18 total.
Jenny's House
5716 Metcalf Court, Overland Park, KS 66202
Subdivision: Metcalf West
Jenny decided to purchase this homy condo in Overland Park, KS for $91,500. It has been updated and has more than enough space for her. It also fits nicely into her price range.
Monthly Payment
Since most banks require a 10% down payment, the present value of the loan becomes $82,350.
Jenny finds her monthly payment for a 30 year fixed rate (4.625%) loan to be $423.34. This would also leave her with $1449.82 for other expenses.
Increased Principle by 15% Comparison
If Jenny increased her monthly payment of $423.34 by 15%, it would become $486.85.
Instead of 30 years to pay off her loan, Jenny would pay it off in 22 years and 11 months. She would shave 7 years and 1 month off her loan time.
With the original monthly payment, Jenny would have ended up paying $152,402.40 total. With an 15% increased principle, she would have ended up paying $133,567.30. She would save $18,835.11 by doing this.
Works Cited
Mortgage: Buy A Home (2014) Retrieved from https://www.bankofamerica.com/home- loans/mortgage/overview.go
5716 Metcalf Court (2013) Retrieved from http://www.reeceandnichols.com/homes-for-sale/KS/Overland-Park/66202/5716-METCALF-Court-102849383