HOME BUYING CASE STUDYBy Arthur Espinoza

MICHELLE FOXE NET WORTH

Foxe earns $29,300 annually, plus another $200 in interest. Her $11,000 net worth includes $550 in a checking account, $3,000 in passbook savings, $3,950 in an S&P 500 stock index mutual fund, $2,500 in U.S. savings bonds, a two-year old car worth $7,500, and a $1,000 computer. Her home furnishings from her previous married household, worth $4,500, are presently in a rented storage locker.

MICHELLE FOXE CURRENT EXPENSESFoxe's monthly expenses total $1,550. This includes $150 a month "rent" to her parents, a $250 car loan payment with 36 months remaining, $200 toward credit card debt and the attorney's fees, $100 for tuition, $100 for gas and car expenses, and $500 for items such as food, clothing, auto insurance, entertainment, and the storage locker rental fee. She also saves $250 a month in a stock index fund and U.S. savings bonds.

MICHELLE’S GOALS

to increase her savings to $10,000 pay off her credit cards be able to afford her own apartment

Short Term Goals

Long Term Goals

own a new car Own her own condo or house

HOUSING CHOICES AVAILABLE FOR MICHELLE

Rental option: At this current time Michelle would be wise to rent from her parents house keeping in my mind her short term and long term goals. The rent she is being charged by her parents is a great price and she will be able to achieve her goals much faster is she stays there were the rent is far cheaper than anywhere else.

Condo: One of Michelle’s goals is to own her own property and she is okay with purchasing a condo.

HOUSING CHOICES AVAILABLE FOR MICHELLE CONTINUED Low Price Point: Biased on Michelle current income she is

able to purchase a $66,187.77 house using the worksheet for calculating the maximum mortgage loan in the textbook.

High Price Point: Although the maximum mortgage is $66,187.77, the bank may offer her a loan for $150,000.00. Reasons they may offer her more would be her good credit score of 720, not having any credit card bills by the time she is going to buy, and the down payment she has saved up to buy her house.

PROS AND CONS FOR RENTING

Costs: For Michelle the monthly cost for renting is $150.00. Comparing to purchasing a home with a 30-year mortgage, the cost for renting at her parents for 30 years would be $54,000.00.

Pros: Mobility; can relocate without incurring real estate selling costs Lower monthly payment Ability to put more money into savings No maintenance

Cons: You won’t be able to build equity in your home You may not have control over the fluctuation for your rent You may be limited with decorating or renovations on your home or

apartment.

PROS AND CONS FOR BUYING

Costs: For Michelle the monthly cost for buying at her Maximum Mortgage Loan for $66,187.77, her monthly mortgage payment would be $488.33.

Pros: Building Equity Tax deductions Maintenance choices No chance of rent rising over time

Cons: Less mobility if you needed to relocate for work Additional cost like interest rates, taxes, insurance, and

maintenance

PICK A HOUSE AND SHOW THE PURCHASE PROCESSFor a home with the mortgage of $66,187.77 a 20% down payment would be $13,237.55. Saving $400 a month out of Michelle’s monthly income it would take her 2 years and 9 months.

PICK A HOUSE AND SHOW THE PURCHASE PROCESS CONT.The maximum mortgage Michelle will be approved for with her credit score would be about $150,000.00, however biased on her income she would be able to afford a home around $66,187.77.

Michelle should get a 30 year fixed mortgage.

PAYING OFF THE HOME

Toalt Cost of House $66187.77

Down Payment $13,237.55

Amount of Loan $52950.22

Interest Rate 8.0%

Time 30 years

Monthly Payment 388.53

Total Amount of Loan $139.870.78

Interest Paid $86,920.56

PORTION OF EACH PAYMENT THAT GOES TOWARD THE PRINCIPAL AND INTEREST

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

PrincipalInterest

105 15 20 25 30

BEST CHOICE FOR MICHELLE

The best choice for Michelle would to stay in living with her parents at this time. She is able to save money to achieve her short-term goals. With the money she is saving she will be able to pay off her debt and build her savings to $10,000. She should stay there for at lest 3 to 5 years to help with these short term goals. Her next move after she is able to build her savings is then to look into purchasing a condo or a house.