# Finding Home Sweet Home

## 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.

## After Taxes...

Jenny's annual salary of \$40,000 does not account for 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...

Jenny pays \$230 each month for her car payment

## After Monthly Student Loan Payment...

After her two years of college, Jenny had \$20,000 in student loans. She pays off her student loans with a payment each month in order to get the loan paid back in 10 years.

R= \$230.16

Jenny pays monthly payments of \$230.16 to pay off her student loans of \$20,000.

## After Monthly Living Expenses...

Jenny has expenses other than her monthly payments such as expenses of daily living. Her budget is tight, so she focuses her budget on needs and is unable to spend a lot of money on wants.

Groceries: \$160

Clothing: \$100

Gas: \$140

Entertainment/Misc.: \$50

Jenny's Total Monthly Expenses are \$450

## Rule of Thumb

Mortgage payments should be between 25%-30% of monthly gross income (before taxes). Some people say 28% is good and others say the goal is to keep it as near to 25% as possible.

Total debt payments including monthly housing costs and long term debts should be 36% or less of monthly gross income (before taxes).

## 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

With monthly payments of \$739.84 in a 30 year fixed mortgage rate of 4.625%, Jenny can afford to borrow a maximum of \$143,898.68.

## Dream House

After much house searching, Jenny came upon the house of her dreams. It has everything she needs for a great price. Here are the house details:
• Price: \$119,900
• Address: 1009 W Wabash St. Olathe, KS. 66061

## Minimum Monthly Payment

Using the PV formula with the price of the house and interest rate, Jenny figures out that she needs to pay a minimum monthly mortgage payment of \$616.45 once the mortgage has been approved.

## Increased Principle

If Jenny increases her minimum monthly payment of \$616.45 by 15% then she would save much time and money in the long run.

Time: About 7 years & 1 month

Money: \$27,451.07

## Time Saved

Jenny saves 7.14 years (a little less than 7 years and 2 months) if she increases her minimum monthly payments by 15%.