Brent's Finances- Scenario 1

By: Joanna Blackford

How much can I afford to pay on my monthly house payment?

To determine how much I could afford to pay each month on my house payment, I first took out 30% of my $60,000 income for taxes. This left me with $42,000. I divided $42,000 by 12 for the 12 months in a year. I then spoke with my mom and she believes a single person would spend approximately $400 a month on food, $200 for gas, $300 for entertainment/gifts, $750 on emergency fund/savings, and $400 for utilities. I then added in the car payment I was given which was $450 per month. This left me with $1000 I could afford on a monthly house payment. (I am going to assume since Brent has been out of college for six years, he has saved $50,00 for a 20% down payment on a $250,000 house. He may have lived at home for six years while he worked and saved up money for a down payment.)

How much can I afford to borrow?

To determine how much I could afford to borrow, I plugged my numbers into the present value equation. I used 4.25% as my interest rate. I found the 4.25% on Bankrate.com. It was the rate they suggested for a 30 year fixed rate loan. (A picture of my equation can be found below under the heading "Equations and Home".) I ended up figuring I could afford to borrow $203,276.87 in my present value equation. With the $50,000 down payment, this meant I could afford to buy a house up to $253,276.87.

What is my minimum monthly house payment?

The house which I decided to buy actually cost $239,950 (see picture under "Equations and Home"). I plugged this number into my present value equation and determined that my minimum monthly house payment would be $934.44.

Equations and Home

What if I increased my monthly payment by fifteen percent?

To determine how much time and money I could save if I increased my monthly payment by 15%, I first added 15% to my $1000 monthly payment making it $1150.00. I then set up my present value equation so that I was looking for how many years I could save. (The equation is shown under the heading "Equations and Home".) I found that I could save 6.82 years if I increased my monthly payment by fifteen percent. To find how much money I would save overall, I multiplied $1150.00 * 12 *23.18 which equaled $319,884. I then multiplied $1000 * 12 * 30 which equaled $360,000. This would have me saving $40,116 by just adding $150.00 per month to my house payment.

References

Na. (2013, December 20). Welcome to bankrate. Retrieved from http://www.bankrate.com/


Ramsey, D. (2013, December 30). Real Debt Help. Retrieved from www.daveramsey.com