Homebuying Analysis

By Olga Pedroza
Personal Finance
Personal finance is the financial management which an individual or a family unit is required to do to
obtain, budget, save, and spend monetary resources over time, taking into account various financial
risks and future life events.
I learned in planning personal finances one individual would consider the suitability to his or
her needs of a range of banking products such as checking, savings accounts. credit cards and consumer
loans or investment as stock market, bonds, mutual funds and insurance as life insurance, health
insurance, disability insurance; products or participation and monitoring of individual- or employer-
sponsored retirement plans, social security benefits, and income tax management.
In this class, we have to analysis one of seven scenarios of Homebuying.

Lets start with Michelle Homebuying case study:
Michelle
Her goal is to get on her life both emotionally and financially
She was married for 3 years, now
she lives with her parents. She got
divorced.
She wants to pay off debts as soon as
possible
Her ex-husband just lost his job, so he
wont. Then she want to build up her
savings again and start investing .
She hope to be remarried with kids
and earning good salary with money
in the bank.
Her father is register certified financial
planner that recommended her to
invest in mutual fund for long-term
growth.


She would like have money to do fun
things and not become a bag lady.
She is working, but employer name
wasnt provided. Before her wedding,
Foxe had $8,000 in the bank. Foxe
earns $29,300 annually, and expense
$1,550 monthly.
She has group term life insurance 2.5
of her salary.
Her employer paid health insurance
with $1 million lifetime limit.
Her car has 100/300/50 liability
coverage and collision, and a $100
deductible.
She is planning advanced in her career
and is taking advanced computer
courses at a local college.

Getting to Know Our
Client



Clients Needs/Wants:

Needs:
Safety
Privacy
Wants:
Condo or House
Be able to afford her own apartment

Comments:
This will be Michelle first home buying experience, she is
divorced/single and would like remarried with kids. She actually rent
with her parents. She keep in mind the possibility remarried with kids ,
so she would like to be able her own apartment. We may recommend
her start planning and saving for retired because she doesnt have IRA.
We also suggest contributes for 401 (K) plan. Her employer contributes
up to 6% of workers salary. This money can help for a house down
payment.
Client Analysis:

Agi:28
DOB: 8/7/1986
Sex: Female
Salary: $29,300 plus $200 Interest.
Credit Score: 702
Savings: $6,450
Monthly Cost: $1550
Liability:
Credit Car
Car Loan
Attorney.

Michelle Net Worth
Assets
Checking Account $ 550
Passbook Savings $3,000
S&P 500 Stock IMF $3,950
U.S. Savings Bonds $2,500
Car (2yrs old) $7,500
Computer $1,000
Furnishing $4,500
(Previous Married /Rent Storage Locker) _______________
Total Assets $23,000
Liabilities/Net Worth
Car Loan $ 9,000
Credit Cards $ 2,000
Attorney $ 1,000
_________________
Total Liabilities $ 12,000

Net Worth $ 11,000

Total L & NW $23,000
Income Statement
(Monthly)
Income
Salary $ 2,442
Interest $ 17
__________________

Total income $ 2,459
Expenses
Rent $ 150
Car payment $ 250
Credit card payment $ 200
Tuition $ 100
Gas & car expenses $ 100
Items & food $ 500
(food, clothing, auto insurance, entertainment) ______________
Total Expenses $ 1,300
_______
Net Income $ 1,159
=======


Current budget
Michelle has some money saved for
down payment. If she doesnt have
money saved, the best suggestion is to
rent for 18-24 months before buying
her first house, because she needs to
have a least 2 years of salary.


Property Analysis
Suppose she has to
choose between buy or
rent following property.
Eaglewood Lofts
325 S. Orchard Drive Salt Lake City, UT 84051.

Rent w/Util.: $ 950/mos.
Sq. Ft.643
2 Beth rooms
Wash and dryer
Interior:
granite counter tops
Private patio
Complex Amenities
Pool & spa, fitness center




Property Analysis
Pros
No commitment
No maintenance cost
Fits her current budget
Desired location
Utilities included

Cons
Rent increased. Actually she
paid only $150
No Long-term equity
No personal yard
No pets
Non-traditional housing
Duplex
Rent 900/month
3 Bedrooms
1 Bathroom
Sq. FT:1211
Pros: Rent Income, private
yard, long-term investment,
built equity, duo unit.
Cons: High maintenance,
dealing with tenants, no
flexibility.
Condo
Cost:$116,900
Sq. Ft. 844
2 Bedroom
1 Bathroom
Pros: Low maintenance, low
price fits financial range, build
equity, desired location.
Cons: Neighbors, HOA fees,
property tax.

Non-traditional housing

Duplex
High cost
Waste of space
Deal with renters
High maintenance cost
Pay high cost of bills
No saving money

Condo
This condo would be great
for our client presently.
Location and price are
affordable.
It offers space for a family.
Low price affordable for her
packet.

Traditional Housing
Modest Home
Cost: $116,500
3 Bedroom
1 Bathroom
Partially fenced yard
Fruit trees
Pros:
Has a Yard
Build equity
Affordable
Room to grow
Cons:
No desire style
Maintenance fees
Empty rooms

Higher Expense Home
Cost: $150,000
4 Bedroom
1 Bathroom
Fully fenced yard
Hardwood floors
Pros:
Newer
Build equity
Has yard
Bigger lot
Nice style
Cons:
More expensive
No flexibility
Maintenance fees
Estimate initial cost
on the buying home
Modest Home $116,500

Down payment(20%) $ 29,300
Points 1,750
Loan origination fee 872
Loan Appraisal fee 300
Appraisal fee 300
Title search fee 200
Title Insurance 500
Attorneys fee 400
Recording fee 20
Credit report 50
Termite and Radon Ins. fee 150
Notary fee 50
Total Initial Cost $ 33,892


This property would be
ideal for Michelle. Because its
affordable price. This home is
cheaper and would be expanded
for a family.
Lets analysis cost or
estimation. The down payment ,
points and closing cost on the
purchase od a $116,500 house,
borrowing $87,200, with 20%
Down at the rate of 8% with 2
Points.

Maximum Monthly Mortgage
Payment
Mortgage Payment
Monthly income $ 2,458
Time 0.28 (PITI) 688
Less: Estimate mo. 100
real state tax
Equals: Monthly 588
mortgage payment
Rate interest 8%, 30yrs,73.38

Michelle will pay her loan in
30 years in monthly
payment s of $588.