John and Jane, a couple with a child, live in a rented apartment. After taxes, John earns $38,180 per year and Jane's part-time job brings in $12,750 per year. In the foreseeable future, their earnings probably will just keep pace with inflation. They have accumulated $42,500 in savings. They are presently operating on the monthly budget below.

John and Jane plan to purchase a home in Plano, Texas. The family will purchase the home for $200,000 and pay a down payment of 20%. They have consulted several lenders and found that the interest rate is 4.5% for a 30 year loan. Closing on the house will be in two months and would involve the closing costs listed below. John and Jane have also been told that their annual property tax will be $5,088 and annual homeowner's insurance will be $2,500.

 

      Monthly Budget                                        Down Payment and Closing Costs:

Rent       $1500                                         20% Down payment            $__­­­­_____

Food         600                                          Loan fee (1 point)                      _____

Day Care    1000                                          Appraisal fee                               300

Savings       500                                          Title insurance premium        375

Utilities      120                                          Document and recording fees    70

Clothing      220                                          Prorated property taxes        424

Entertainment 200                                          Prorated insurance premium    125

Miscellaneous                                                 Other                        230

Total            $                                               Total                                  $

 

Answer the following questions for John and Jane. Be sure to label your answers completely.

1. Find their total yearly earnings.
2. Calculate their monthly earnings.
3. Find their total budget
4. Calculate the amount John and Jane have leftover each month for miscellaneous expenses (such as fees at school, oil changes, tires, etc.)
5. Calculate their down payment and loan fee.
6. Find their total closing costs.
7. Find the amount of the mortgage, taking into account a down payment of 20%. Then, use the FINANCE app to find the monthly mortgage payment (principal and interest).
8. Find their monthly payment including taxes and insurance.

 

Compare your results for the financial status of John and Jane.

1. Will John and Jane have enough cash to pay for the down payment and closing costs? If so, will there be any cash left over? If not, what can they do in order to have enough cash at the time of closing? Write your response in complete sentences with proper grammar, appropriate capitalization, and correct spelling.
2. John and Jane expect the new house and yard would require $130 monthly for maintenance and that their utility costs will be triple what they have been at the apartment. Can they meet the monthly expenses of owning the house with their current budget?
3. John and Jane need at least $100 for miscellaneous expenses and are willing to cut their savings by 20%. Their food and day care expenses will remain the same. What other adjustments can they make in order to keep their expenses equal to their monthly earnings? Prepare a new monthly budget for John and Jane. 
4. Should John and Jane purchase the house or should they continue to rent? Justify your answer. Write your response in complete sentences with proper grammar, appropriate capitalization, and correct spelling.