Maelyn Hecox

Alex Kollar
Max Schaafsma
11/9/16
MATH 107
Writing Project 1: Prompt #2

The Jacksons First Home-Buying Experience

We are Maelex, an up-and-coming real estate company dedicated to assisting first-time

homebuyers with finding their dream property. Removing the stress and hassle of house hunting

is our goal, and we strive to exceed client expectations by deeply understanding our clients

background and needs, and providing elaborate analyses of potential properties. In order to

clarify our calculations, we have provided detailed explanations of our formulas and breakdowns

of the costs included in each equation.

Equations

The upfront payment (UP) is calculated by adding the down payment (D) (we assume a

down payment of 20%), the inspection cost (IC), the title fees (TF), the appraisal (A), and the

closing cost (CC), which varies between 3%-5% of the propertys listing price.

Formula 1

The Jacksons monthly payment (MP) will be determined by the monthly property taxes

(PT), the monthly home insurance rate (HI), the home owner association fees (HOA), and the

mortgage rate (M). Maelex has estimated the value of property taxes and potential insurance

rates for each property, which we have retrieved from a partnering insurance company.

Formula 2
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Determining the numerical value of each mortgage rate depends on the duration of the

mortgage and the interest rate (i) of each bank. To calculate this number we use the Present Value

Formula.

Formula 3

The Present Value Formula calculates how much money R is needed to reach a certain

annuity P. i is given by the quotient of the interest rate (APR or r) by the number of conversions

periods in a month (m). n represents the amount of times the R is compounded to reach the value

of the annuity P.

In the case of the Jackson family, Maelex will determine how much money (i.e. mortgage

M) they need to pay each month to pay off the value of the annuity (i.e. total cost of the house).

To do this, we must invert the Present Value Formula and isolate the R.

Formula 4

In this specific scenario, we replace R with the mortgage rate M, and the value of P is

determined by the total value of the house (V) minus the down payment (DP).

Formula 5
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Thus, the value of the mortgage M that the Jackson family will have to pay over n months

will be:

Formula 6

The Jackson family will be paying a sum of money that will be greater than the value of

the house. This is due to the interest accrued on the annuity. Therefore, the total amount of out of

pocket money paid over by n months (180 months/15 years or 360 months/30 years) will be:

Formula 7

After consulting three local banks, Chase Bank, Bank of America, and 5/3 Bank, we have

determined current interest rates for 15-year fixed and 30-year fixed mortgages from each bank,

as of 11/8/2016. Results are listed in Table 1a.

Table 1a

Chase Bank Bank of America 5/3 Bank

15-Year Rate 2.875% 3.25% 2.75%

30-Year Rate 3.5% 3.75% 3.55%

Client Profile

2011 was a thrilling year for Jeff and Kate Jackson. After surviving four years of

Wheaton Colleges academic rigor and walking across the graduation stage in May, the couple

said, I do! six months later in a beautiful New Years Eve wedding. During their time as

Wheaton College students, Jeff and Kate fell in love with the northwest suburbs and agreed to
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someday purchase their first home either in Wheaton or a neighboring city. The Jacksons moved

into Jeffs parents basement right after the wedding to save up a 20% down payment to put on

their dream home, and after five years of bolstering their bank accounts and binge-watching

HGTV episodes, they are ready to make their biggest purchase yet. The couple has expressed a

desire to find a property that is large enough to accommodate up to two children, situated in a

safe neighborhood with strong school systems, and priced to comfortably fit within their annual

household income of $114,000.

Green Gables Estate

Maelex has selected three potential properties for the Jacksons to consider. The first,

located at 716 S Gables Blvd. in Wheaton, IL, features a 1,500 square foot single-family home

with four bedrooms and three bathrooms. Due to the houses striking green shutters against its

bright white siding, we decided to nickname this property the Green Gables Estate. Just when

things couldnt get dreamier, the house is nestled in a safe neighborhood with outstanding local

schools. Priced at $365,000, Jeff and Kate should expect to put $73,000 down in order to meet

their down payment goal and avoid paying for mortgage insurance.

The out-of-pocket fees will include an annual insurance payment of $982 and inspection

fees of about $650. They also estimate their appraisal cost to be $475, property taxes to be

around $7,820, and final closing cost $10,9050. Along with the down payment, the Jacksons

estimate to pay $194,477 out-of-pocket for the Green Gables Estate.

We used current interest rates from Chase Bank, Bank of America, and 5/3 Bank to

determine three potential mortgage situations, listed below in Table 1b.

Table 1b

Chase Bank Bank of America 5/3 Bank

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15-year fixed $1,998.90 $2,051.79 $1,981.58

30-year fixed $1,331.21 $1,352.30 $1,319.37

Because Maelex values long-term planning, we have included calculations that determine

how much the Jacksons will actually pay for their property after they finish paying their loan.

These totals utilize Formula 7, and results are listed in Table 2a.

Table 2a

Chase Bank Bank of America 5/3 Bank

15-year fixed $359,802.00 $369,322.20 $356,684.40

30-year fixed $472,035.60 $486,828.00 $474,973.20

Next, we articulate the total monthly payment the Jacksons must make for the Green

Gables Estate using Formula 2, which includes their mortgage payment, HOA fees, homeowners

insurance, and property tax installment. Results are listed in Table 3a.

Table 3a

Chase Bank Bank of America 5/3 Bank

15-year fixed $2,732.40 $2,785.29 $2,715.08

30-year fixed $2,064.71 $2,085.80 $2,052.87

Finally, we determine the upfront costs for the Green Gables Estate by using Formula 1.

The Winsome Winfielder

To diversify their real estate options, Maelex selected a townhouse in Winfield as a

potential choice. Located at 0N071 Preserve Ct., the property consists of nearly 2,000 square
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feet, two bedrooms, and three bathrooms. Because this townhouse offers more space than the

Green Gables Estate at a lower listing price of $279,900, we nicknamed this property The

Winsome Winfielder. After calculating a 20% down payment of $55,980, the Jacksons are able

to stow away more money to pay for those pesky $161/month HOA fees. However, most of the

local schools have lower-than-average ratings.

The Winsome Winfielder will require about $650 for inspections and $2500 for title fees.

They must also consider an annual insurance fee of $876, an appraisal fee of $475, and a closing

fee of $5,598. Coupled with the property taxes ($5,070) and the previously mentioned down

payment and HOA fees, this brings their out-of-pocket payments to $71,258.

Using current interest rates from Chase, Bank of America, and 5/3, we calculate the

Jacksons potential mortgage to determine whether the risks pays off on The Winsome

Winfielder. Results are featured in Table 1c.

Table 1c

Chase Bank Bank of America 5/3 Bank

15-year fixed $1,532.93 $1,573.42 $1,519.57

30-year fixed $1,005.50 $1,037.01 $1,011.76

The following table (Table 2b), breaks down the Jacksons total payments over the lifetime of

their loan. Using Formula 7 to calculate these totals, we have listed our conclusions below.

Table 2b

Chase Bank Bank of America 5/3 Bank

15-year fixed $361,980.00 $373,323.60 $364,233.60

30-year fixed $361,980.00 $373,323.60 $364,233.60

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The Jacksons total monthly payment for The Winsome Winfielder is shown in Table 3b.

Table 3b

Chase Bank Bank of America 5/3 Bank

15-year fixed $2,137.43 $2,177.92 $2,124.07

30-year fixed $1,610.00 $1,641.51 $1,616.26

Finally, we determine the upfront costs for the Winsome Winfielder by using Formula 1.

The Ritzy Retreat

Maelexs final property provides the Jacksons with a more luxurious living situation.

Situated in Winfields Royal Golf Club neighborhood, 26W308 Thorngate Lane earns the

nickname The Ritzy Retreat due to its 3,000 square foot layout with four bedrooms and four

bathrooms. The home is surrounded by highly-rated school systems and incredibly low crime

rates. With a listing price of $538,000, Jeff and Kate need $107,600 for their 20% down

payment. They must also factor in the neighborhoods HOA fees of $17/month.

As far as out-of-pocket fees, there will be a $650 inspection fee, $2,500 for title fees, and

an annual insurance fee of $1,159. The appraisal fee will be $475, the property taxes will be

about $12,600, and the closing cost will be $26,900, making the final out-of-pocket fee

$150,742.

Table 1d

Chase Bank Bank of America 5/3 Bank

15-year fixed $2,946.46 $3,024.27 $2,920.79

30-year fixed $1,932.69 $1,993.25 $1,944.72

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The total amount of money that the Jacksons will pay once they complete their loans are

computed using Formula 7 with results listed below in Table 2c.

Table 2c

Chase Bank Bank of America 5/3 Bank

15-year fixed $530,362.80 $544,368.60 $525,742.20

30-year fixed $695,768.40 $717,570.00 $700,099.20

Maelex determined the overall monthly payments the Jacksons need to make to afford the

Ritzy Retreat. Our final calculations are listed in Table 2c.

Table 3c

Chase Bank Bank of America 5/3 Bank

15-year fixed $4,110.04 $4,187.85 $4,084.37

30-year fixed $3,096.27 $3,156.83 $3,108.30

Finally, we determined the upfront costs for the Ritzy Retreat by using Formula 1.

Conclusion

After applying these formulas to each property the Jacksons are considering, we are able

to provide a clear picture of the costs that each home will require and how differences in bank

interest rates affect the Jacksons overall financial picture. In all cases, as expected, the 30-year

payment plan requires a smaller payment stretched over a longer period of time, while the 15-

year plan requires a larger amount in a shorter period of time. Choosing between the two options

will ultimately depend on the Jacksons financial and planning preferences. As for the properties

themselves, the Winsome Winfielder is the least expensive, making it an excellent starter home
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for the couple. The Green Gables Estate is also a strong choice given its safe neighborhood,

highly-rated school district, and larger number of bedrooms for starting a family. While the Ritzy

Retreat seems alluring with its golf club neighborhood setting and high-end features, Maelex

recognizes that this fantastic choice for the long-run also possesses more risks for the Jacksons

given its higher listing price. We hope that the elaborate breakdown of these three properties is

useful in helping the Jackson family find their first dream home.

Bibliography

Albanese, Shalimar. "Out of Pocket Costs-What Do I Really Need to Pay When Buying a

Home?" Out of Pocket Costs-What Do I Really Need to Pay When Buying a Home?

Shamrock Financial, 25 Apr. 2013. Web. 11 Nov. 2016.

Christiansen, Andrew. Mortgage Loan Specialist Meeting. 8 Nov. 2016. Bank of America,

Wheaton.

"Open the Door to Your Dream Home." Mortgages and Home Loans from Fifth Third Bank.

N.p., n.d. Web. 8 Nov. 2016.

Weiss, Michael. Mortgage Loan Specialist Meeting. 8 Nov. 2016. Chase Bank, Wheaton.
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Zillow, Inc. "Green Gables Estate." Zillow.com. Zillow, 2016. Web. 9 Nov. 2016.

<http://www.zillow.com/homes/for_sale/Winfield-IL-

60189/4447075_zpid/84434_rid/globalrelevanceex_sort/41.900296,-

88.035164,41.773168,-88.2197_rect/12_zm/

Zillow, Inc. "Ritzy Retreat." Zillow.com. Zillow, 2016. Web. 9 Nov. 2016

<http://www.zillow.com/homedetails/26W308-Thorngate-Ln-Winfield-IL-

60190/4431448_zpid/

Zillow, Inc. "Winsome Winfielder" Zillow.com. Zillow, 2016. Web. 9 Nov. 2016.

<http://www.zillow.com/homedetails/0N071-Preserve-Ct-Winfield-IL-

60190/111937260_zpid/