Finding Home Sweet Home
Marina Berkley, Hour 5 Precalc, Mrs. Stein
Meet Jenny
Scenario 3:
Jenny works as a bank teller earning a salary of $40,000 a year. She went to college for 2 years, resulting in $20,000 in student loans. Jenny also has a car payment of $230 per month.
Monthly Affordability
After Taxes...
About 30% of her $40,000 goes to taxes (such as local, state, and federal).
What's left of her salary, $28,000, is divided by 12 to discover her net monthly income.
Jenny's net monthly income is $2,333.33.
After Monthly Car Payment...
After Monthly Student Loan Payment...
R= $230.16
Jenny pays monthly payments of $230.16 to pay off her student loans of $20,000.
After Monthly Living Expenses...
Groceries: $160
Clothing: $100
Gas: $140
Entertainment/Misc.: $50
Jenny's Total Monthly Expenses are $450
Total Monthly Payments
Adding together the monthly student loan payment and car payment gives the total amount of debt payments Jenny pays per month.
Monthly Allowance
After taxes and monthly payments, Jenny has a monthly allowance of $1,873.17
She forms her budget off of this.
Monthly Budget
House Payment Affordability
Rule of Thumb
Total debt payments including monthly housing costs and long term debts should be 36% or less of monthly gross income (before taxes).
Theoretical Monthly Total Debt Payments
Of her $3,333.33 gross monthly income, she can afford to spend $1200.00 in her housing and long term debt payments.
Theoretical Monthly House Payment
Monthly Amount Affordable
The maximum monthly amount of mortgage payment she can afford is $739.84.
An Interest Rate From Bank of America for a 30 Year Fixed Rate Loan is 4.625%
The following are figures from online mortgage calculators
This online calculator from CNN Money predicts her monthly mortgage payment to be $739.84 and the maximum house price she can afford to be $143,898.68.
Total amount Jenny can afford to borrow
Dream House
- Price: $119,900
- Address: 1009 W Wabash St. Olathe, KS. 66061
Minimum Monthly Payment
Saving Time & Money
Increased Principle
Time: About 7 years & 1 month
Money: $27,451.07
15%
Increase by 15%
Total Time
Plug in the new 15% increased payment, $708.92, for the rate in a PV formula, the total loan amount of the cost of the house, the interest rate, and leave time as a variable. The variable N stands for the amount of payments Jenny would pay for a certain amount of months. By dividing the product by 12 (months), we find that Jenny would pay her monthly payment for 22.86 years for the loan to be payed off with the increased rate.