INCOME

Gross Monthly Income

Jake$$s Salary $$5,500$

Cash gifts

Interest $$3$

Total Income $$5,503$

EXPENSES

Monthly Expense

Fixed Expenses

Rent $$1,400$

Utilities $120$

Federal Income Tax withholding $680$

Social Security Tax $($FICA$)$ withholding $410$

Cell Phone $40$

Cable TV and Internet $120$

Groceries $180$

Auto maintenance $($gas$,$ repairs, etc.$)250$

Auto Insurance $65$

Health Insurance Premiums $---$

Credit Card Fees $16$

Visa Minimum Payment $144$

Sport's Authority Minimum Payment $0$

American Express Minimum Payment $36$

Student Loan Payment $447$

Total Fixed Expenses $3,908$

Variable Expenses

Medical$/$dental expenses $25$

Food away from home $200$

Clothing $60$

Personal Care $60$

Entertainment $100$

Travel for Triathlons $350$

Gym Membership $($with CC discount$)45$

Fitness Trainer $120$

Total Variable Expenses $960$

Total Expenses $$4,868$

One of Jake$$s short$-$term goals is to buy a larger house for his family. He has shopped around for home

mortgages and narrowed his choices to the following:

$30-$year Fixed$-$Rate FHA Mortgage

$6\mathrm{.}00\%$ interest

$3\mathrm{.}5\%$ down payment

Jake expects to have to pay the following expenses in addition to his mortgage to own and maintain the house.

$$ PMI of $0\mathrm{.}8\%$ of the original loan balance each year

$$ Property taxes of $1\mathrm{.}31\%$ of the value of the house each year

$$ Homeowner$$s insurance of $1\%$ of the value of the house each year

$$ Maintenance of $0\mathrm{.}5\%$ of the value of the house each year

$$ Utility expenses $($gas$,$ electricity, and water$)$ the same as his apartment

Jake wants to know what kind of house he could reasonably afford to buy.

a$.$ Calculate the maximum price of a house that you feel is reasonable for Jake to buy based on the

budget you created for him. $($Note: the affordability calculation requires you to know the $$other

expenses$$ up front. Use the following estimates for his other expenses for the purposes of this

calculation: PMI $=$ $$100$ per month, Taxes $=$ $$250$ per month, Insurance $=$ $$175$ per month,

maintenance $=$ $$75$ per month$)$

b$.$ Go to www$.$zillow.com and find a home$/$condo in the Charlotte area that Jake can afford, up to$,$

but not exceeding, the price you calculated in #$2$a$.$

c$.$ Present this house to Jake as an example of what kind of home he can afford within the next

year. $($Note: Try to avoid properties listed for auction for this assignment. The final price is

unknown, since it depends on the actual bidding.$)$

d$.$ How much would he need to save each month to accumulate enough for a $3\mathrm{.}5\%$ down payment

on this house in $12$ months?

e$.$ What would his monthly mortgage payment and other home ownership costs for the house you

selected be$?$

You are still considering whether or not he should extend the repayment on his student loans.

a$.$ Calculate the total cost of all of his student loans if he sticks with the $10-$year repayment.

b$.$ Calculate the total cost of all of his student loans if he changes to the $20-$year repayment.

c$.$ Subtract these two numbers to get the total cost of switching.

Incorporate his goals and resources available from the first assignment here and provide Jake a complete

set of updated recommendations.

a$.$ What should Jake do about housing? Buy the expensive house? Buy the cheap house? Keep

renting? Some other strategy of your own? Feel free to get creative but try to be realistic as

well!

b$.$ How does his housing decision affect the remainder of Jake$$s cash management goals? Think in

terms of trade$-$offs: what must he give up in order to implement your recommendations here?

c$.$ Make a recommendation about whether or not he should extend the payment on his student

loans.