Pre-Calc Finance Project

Marcus Motley -Stein Hour 5

Scenario 3

Jenny went to college for two years, and then dropped out. Unfortunately, by the time she dropped out of college, she had $20,000 in student loans. She has been working as a bank teller for the last three years. Her salary is $40,000. She also has a car payment of $230 per month. She is excited to buy her first home.


Living Expenses

After Jenny's 30% income taxes, she is left with about $28,000 to live on annually, which translated to $2333.33 per month. After paying her $230 monthly car payment and approximately the same towards paying off her school loans ($230.16), she is left with $1873.17. If she plans to save $500 of her actual income for the future, she is left with $1373.17 to put toward her house payment and to buy food, clothing, and any other necessities she may need. If necessities are around $700 monthly, she will have a maximum $673.17 monthly for a mortgage payment. The maximum value of a house she could buy with this monthly payment is $129,046.95.


Buying The House

Jenny's maximum payment of $673.17 monthly is not much but assuming Jenny has been saving for a down payment for the three years she has been a teller at the bank, she should be able to put down a reasonably sized down payment on her house. If she has been saving $200 monthly since she began her job, she would have $7,200 for a down payment. Jenny speaks with a realtor and finds a house in Overland Park with an asking price of $59,900 and finds 30 year fixed rate mortgage with an APR of 4.750% with Bank of America. She agrees on $59,100 for the house and after her down payment, she is paying $274.91monthly for her house and living comfortably.


Another Payment Option

If Jenny was able to increase her monthly payment by 15%, her new monthly payment would be $316.15. If this were the case, she could pay off her mortgage in just under 23 years instead of 30. She also would be spending a total of $86,308.95 instead of $98,967.60. Which saves her a total of $12,658.65 and 7.25 years.


References

(2013, December 31). Bank of America: Home Loans: Mortgage Retrieved from https://www.bankofamerica.com/home-loans/mortgage/overview.go

(2014, January 1). Reece & Nichols Retrieved from
http://www.reeceandnichols.com/homes-for-sale/KS/Overland-Park/66212/8600-Kessler-Street-99387566

(2013, December 30). [Monograph] Retrieved from
http://www.reeceandnichols.com/homes-for-sale/KS/Overland-Park/66212/8600-Kessler-Street-99387566