What is known:
The purchase price of the house is $75,000
Joe has $10,000 in savings
Joe makes $15 per hour and works 40 hours per week
30-year mortgage interest rate of 6.25% and a monthly payment of $439.00
15-year mortgage interest rate of 5.25% and a monthly payment of $575.00
Down payment: 5% minimum
Taxes last year were $375
Insurance is $250 per year
Questions:
1. Can Joe afford the monthly payments with taxes and insurance for either a 30 or 15 year mortgage?
2. If Joe buys the house, will he have enough money left over on a monthly basis to live comfortably?
3. Does Joe have enough in savings to pay for the down payment and all of the closing costs?
Solution Plan:
1. Joe figures that with overtime he will average 40 hours a week for 52 weeks a year. If his current wage is $15.00 per hour, how much will he make per year?
2. How much would Joe's wages be in an average month?
3. Joe has a car payment of $249 per month. The average utilities are: electricity $79; Gas $49; Water, Sewer, and Trash $27. In addition, Joe is saving $100 per month. How much of his monthly salary would be committed to utilities and other expenses?
4. If Joe's net income after taxes each month is equal to 74% of his gross wages, how much is his net income?
5. Joe's total monthly payment to the bank will consist of the mortgage interest plus principal amount plus monthly payments for insurance and taxes. What will the total monthly payments be for a 15-year and a 30-year loan including taxes and insurance?
6. After paying for his car, utilities, and a 15-year mortgage payment how much will he have left to cover other living expenses? If he goes with a 30-year mortgage, how much will he have left over to cover living expenses?
7. Make a list of your living expenses and try to estimate monthly expenses. Does Joe have enough left over to live comfortably if he buys the house? Should he go with the 15 or the 30-year mortgage?
8. Complete the Good Faith Estimate to see if Joe has enough money in savings for the down payment and closing costs:
Description of Fee
Amount of Fee
Extended Amount
Down Payment
5% of purchase price
Loan Origination Fee
- No fee at this bank
Points
- No points on this loan
Appraisal Fee
- $400
Credit Report
- $50
Insurance: First Year Premium
- $250
Mortgage insurance
- $45 (One month)
Escrow Account Insurance reserve
- Insurance for two months ($250/12) * 2
Escrow Account Tax reserve
- Property Taxes for two months ($375/12) * 2
Attorney fees
- Buyer's choice. None here.
Title Insurance
- $700
Processing/Underwriting
- $100
Document Preparation and Recording Fees
- $250
Survey
- $125
Tax Service
- $50
Flood Certification
- $20
Title Co. Fee
- $150
Pre-paid Interest
- Depends on closing date: Estimate $150.00
What are your conclusion? Summarize your findings.