Finance Project

Hannah Pinson

Scenario

Brent is a construction foreman who did not attend college. He is 24 years old, and earns an annual salary of $50,000. He has a car payment of $450.00 each month. He wants to buy his first home in the next few months.

Monthly Amount

After dividing Brent's salary by 12, his monthly income is $4,166.67.


$4,166.67-$450.00 (For Car)= $3,716.67


$3,716.67-$100.00 (For Groceries)= $3,616.67


$3,616.67-$200.00 (For Utilities)= $3,416.67


$3,416.67-$8.00 (For Netflix)= $3,408.67


$3,408.67-$45.00 (For Cell Phone)= $3,363.67


$3,363.67-$200 (For Car Insurance)= $3,163.67


$3,163.67-$50 (For Gas)= $3,113.67


Based on my calculations, Brent can afford a monthly house payment of about $2,000 or less.

Total Amount

Brent can afford a house that costs about $423,500. After finding the current interest rate for a 30-year fixed mortgage to be 3.91%, I used the Finance App to calculate an appropriate loan amount. For 360 periods at a rate of 3.91% and a payment that is $2,000 per month, the present value came out to equal $423,500. This means that it would be acceptable for Brent to borrow that amount of money or less to purchase his first house.

Brent's House

This is the house that I have chosen for Brent. It costs $275,000 in total. This house has 4 bedrooms (so it is perfect for the future if Brent chooses to have a family), a garage, a backyard, is located in the Blue Valley District, and is also located in Overland Park.

Increased Principal

If Brent chose to increase his minimum monthly payment by 15%, he would be able to save $46,869.94 and pay back the loan 6.5 years faster. To find this answer, I once again used the Finance App. Keeping the interest rate, I changed the present value to equal $275,000 (the price of the home), the payment to $1,493.46 (1,298.66*1.15). After pressing "Solve", I found that the loan would only take 281.65 months to pay back (or 23.5 years). Then, I multiplied the new payment value ($1,493.46) by 281.65 (months) and found that Brent could potentially save $46,869.94.

References

Average Cost of Insurance: Car, Home, Renters, Health, and Pet (2015). (n.d.). Retrieved March 25, 2015, from http://www.valuepenguin.com/average-cost-of-insuran


Calculate an Amortization Schedule by Hand. (n.d.). Retrieved March 25, 2015, from http://finance.answers.com/loans/calculate-an-amortization-schedule-by-hand


Current Mortgage Interest Rates | Bankrate.com. (n.d.). Retrieved March 25, 2015, from http://www.bankrate.com/finance/mortgages/current-interest-rates.aspx


How to Amortize a Loan. (n.d.). Retrieved March 25, 2015, from http://www.wikihow.com/Amortize-a-Loan


5811 W 157 Place, Overland Park, KS | MLS 1928491 | Listing Information. (n.d.). Retrieved March 25, 2015, from http://www.reecenichols.com/homes-for-sale/5811-W-157-Place-Overland-Park-KS-66223-145425617