You are a recent SJU graduate who has been working in the real estate field since graduation three years ago. Your current salary is $75,000 per year. You are up for a promotion later this year. If you get the job, your salary will increase by 10%. Currently, you rent a one-bedroom apartment for $1,500 per month near your office. You’re considering purchasing a home. You’ve been able to save $40,000 to use toward a purchase. You currently don’t have any debt. Last you checked; your credit score was 750. If you buy a place, you want it to be something you can live in for the next 3-5 years then rent out as an investment property. You think you need something a bit larger than your current apartment especially because you are working from home with COVID. You want to make sure that your monthly housing expenses are manageable so you can continue to save money. Your goal is to keep your monthly expenses for mortgage + taxes + insurance at 30% or less of your monthly before-tax income. You are hopeful that whatever property you choose, you can rent it out in the future at a monthly rental rate that will at least cover the expenses.

1. At your current salary, what is the maximum that you can afford monthly for Mortgage + Taxes + Insurance to stay within your housing budget?

75,000/12= 6,250*0.30= $1,875

1. What is the maximum you can afford per month if you receive a promotion?

82,500/12= 6,875*0.30= $2,062.50

2.You find a house you like for $315,000. Assuming closing costs are 2.5% of purchase price, what LTV would you be able to get based on your savings?

1. If you got a 30-year fixed rate loan at 3% interest rate for this house, how much would your monthly mortgage payment be for principal & interest?

2. If your monthly PMI is $65, and your homeowner’s insurance is $1,200 per year, what is the maximum you could afford to pay in annual taxes to stay within your housing budget in Question 1 above?

3.You keep searching online and find a house for $375,000 that you love! It has annual taxes of $4,800. You are assuming homeowners’ insurance will be $1,200 per year and closing costs will be 2.5% of purchase price. If you had to use PMI, it would be $70 per month. Assume you would get a 30-year fixed rate mortgage at 3% interest rate.

1. Can you afford to purchase this home based on the savings you currently have, and your monthly housing budget outlined in Question 1?

2. what would your total monthly costs be in the scenario above?

4.Your grandmother is so impressed that you’ve saved $40,000, she offers to match your housing savings to help you purchase the $315,000 home.

i. With Grandma’s additional funds, based on the scenario outlined in Question 2, what would be your LTV?

ii. What would be your monthly mortgage payment? Assume a 30-year fixed rate loan at 3% interest rate.

5.With or without grandmother’s help, would you consider purchasing a home if you were in this financial position in three years? Why or why not?