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# Mortgage Calculations: Can Joe afford his future home?

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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

- \$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

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

#### Solution Preview

1. (\$15.00/hr*40 hr/wk*52 wk/yr) = \$31,200 per year

2. (\$31200/yr / 12mo) = \$2,600 per month

3. (\$249 + \$79 + \$49 + \$27 + \$100) = \$504 per month

4. (\$2600 * 74%) = \$1,924

5. (\$575/mo + (\$250/yr ...

#### Solution Summary

The expert determines if Joe can afford his future homes for Mortgage calculations.

\$2.19