Dream Home for Jenny

Scenario 3: Jenny's Situation

Jenny has decided to buy a house, but she will be confronted by several roadblocks on the way to her dream home. Jenny struggled academically in college and had to drop out after only two years. In the period that she did remain in school she amassed \$20,000 dollars in student debt. Despite this disappointment she still managed to acquire a job as a bank teller, earning \$40,000 before taxes. Jenny also has to take into account her car payments of \$230 per month.

Monthly Amount: \$823.17

Jenny's annual salary alone is \$40,000. After taxes are subtracted, she earns \$28,000 annually. This becomes \$2,333.33 monthly. After the expenses below are subtracted she is left with \$823.17 dollars.
• Monthly car payment: \$230
• Monthly Student loan repayment: \$230.16 (Total of \$20,000 paid over 10 years at a rate of 6.8 percent)
• Monthly insurance payment (15%): \$350
• Monthly food cost (10%): \$233.33
• Monthly savings (10%): \$233.33
• Monthly clothing cost (5%): \$116.67
• Monthly entertainment cost (5%): \$116.67

Total Amount That Can Be Borrowed: \$112,104

This number is a reasonable cost of a house that Jenny could afford based on her left over money after all expenses were paid. According to Zillow, the cost of a house that Jenny can afford is \$112,104 based on mortgage payments, car loans, and student debt.

A Good Choice for Jenny

If I were Jenny, I would decide to buy a lovely property at 8116 Walmer St, Overland Park, KS that I found on Zillow. This house is not only a great home, but also inside her price range. This house is listed at \$99,000.

Minimum Monthly Payment: \$593.56

According to a representative at Bank of Blue Valley, they can give Jenny fixed 30 Year Interest rate of 6%. This means that if Jenny pays at least \$593.56 dollars each month, Jenny can pay off the loan in 30 years. 360 payments of \$593.56 will cover the house and the interest, and this number is less than the \$823.17 she had allotted to the house payment. This minimum was found using the present value formula.

How Much Could Jenny Save If She Increased her Payment 15%?

A 15% increase to the minimum payment would mean Jenny would have to pay \$682.59 each month. To cover the loan, Jenny would only have to make 259 payments, taking her 21 years and 7 months. This would save her 8 years and 5 months from the minimum 30 years. If Jenny paid \$682.59 monthly, what she actually paid would be \$176,790.81. This saves her \$36,890 from what the minimum would have been (\$213,681.60). These values were found using the present value formula and then subtracted.