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Financial Modeling for Home Purchase

Sarah is considering purchasing a townhome in Charlotte after renting an apartment for several years. She fell in love with a model townhome listed at $274,900 in the popular NoDa neighborhood, which has amenities like a dog park that would be good for her new puppy George. Using an 80% loan at a 3.75% interest rate and accounting for taxes, insurance, HOA fees, and closing costs, Sarah needs to determine if she can afford the monthly payments and come up with the required cash down payment. She will create a mortgage amortization schedule and consider additional factors beyond affordability in making her decision.

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Wilson Tjandra
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Topics covered

  • Home equity,
  • Budgeting for home,
  • Closing costs,
  • Monthly payments,
  • Loan-to-value ratio,
  • Housing demand,
  • Mortgage calculations,
  • Debt-to-income ratio,
  • HOA fees,
  • Pet-friendly housing
73 views3 pages

Financial Modeling for Home Purchase

Sarah is considering purchasing a townhome in Charlotte after renting an apartment for several years. She fell in love with a model townhome listed at $274,900 in the popular NoDa neighborhood, which has amenities like a dog park that would be good for her new puppy George. Using an 80% loan at a 3.75% interest rate and accounting for taxes, insurance, HOA fees, and closing costs, Sarah needs to determine if she can afford the monthly payments and come up with the required cash down payment. She will create a mortgage amortization schedule and consider additional factors beyond affordability in making her decision.

Uploaded by

Wilson Tjandra
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Topics covered

  • Home equity,
  • Budgeting for home,
  • Closing costs,
  • Monthly payments,
  • Loan-to-value ratio,
  • Housing demand,
  • Mortgage calculations,
  • Debt-to-income ratio,
  • HOA fees,
  • Pet-friendly housing

Financial Modeling Introduction:

Sarah and George


Introduction
Sarah moved to Charlotte in 2012 after completing a master’s degree in accounting at UNC Chapel
Hill. Sarah has worked hard and currently makes $65,000 annually in her position at a well-respected
accounting firm located in Uptown Charlotte.
Preferring to be close to work and all of the urban action, Sarah has been renting a nice 1-bedroom
apartment in Uptown Charlotte since she moved to the area. However, she’s becoming tired of living
in a cramped apartment for $1,500/month and is looking for a larger space that can better
accommodate her new golden retriever puppy named George.

NoDa
Sarah was having dinner at Cabo Fish Taco in NoDa, a popular arts district and neighborhood only a
few miles east of Uptown Charlotte, and heard about a new townhome development nearby. Sarah
toured a model townhome in the development the following day and fell in love with the large, open
floorplan, contemporary styling, and 2-car garage. The neighborhood even has a dog park for George,
so that he can run off-leash and make new friends.
Townhome Cost and Financing Assumptions
The listing price is $274,900 and the seller’s broker indicates the price is firm, due to high
demand for housing in the area. After consulting with a mortgage broker, Sarah received the
following cost estimates and financing assumptions:
Annual taxes - $2,315
Monthly HOA fee - $179
Annual homeowner’s insurance - $600/year
Loan rate – 3.75%
Max loan-to-value ratio (LTV) – 80.0%
Sarah’s other monthly debt payments - $0.0
Sarah’s cash savings - $60,000
Max front-end debt-to-income ratio – 28.0%
Closing costs - $4,300

Tasks

1. Using the Excel template provided, use the PMT, PPMT, and IPMT formulas to calculate
the monthly cost of the townhome and to construct a mortgage amortization schedule.
Graph the outstanding loan balance for each year over the life of the loan.
2. How much cash will Sarah need to make the purchase?
3. Can she afford the townhome? What other factors should she consider aside from
affordability?

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