Finance assignment

What is your credit score (from Interpreting Your Credit Score assignment)? Why does it matter when buying a home? Example:

· 680; (because my credit score shows that if my credit is good or bad)

2. What is your expected annual salary in 5 years (from the Career Choices and Financial Goals discussion)? What is your monthly gross income (annual salary divided by 12, not deducting taxes)? Example:

· $70,000/year or $5,833/month. ($70,000/12)

3. List all monthly debt payments that you will expect to have 5 years from now and associated amounts. Do not list expenses, such as gas, groceries, utilities, etc.:

· Monthly Car Payment: $442

· Monthly Student Loan Payment: $925

· Monthly Credit Card Minimum on Card #1: $61

· Monthly Store Card Minimum on Card #1: $115

· Total Monthly Debt Payments: $1,243

4. What is your debt-to-income ratio:

Debt-to-Income Equation

Monthly Debt/Monthly Income = Percentage of Debt to Income

Thus: $1,243/$5833= 0.21 or 21% of my current gross income is used to pay debts.

5. Monthly home payments based on the front-end debt-to-income ratios should be around 30-35% of total income (your house payment should be around 30% of your total income. Total household monthly debt payments based on back-end ratios (house payment plus other household debts) cannot really exceed 41% with most lending guidelines, with an ideal range somewhere around 39%. What would those amounts be for you?

· Front end ratio: ($70,000 x .30)/12= $1,750/monthly mortgage payment max

· Back end ratio: ($50,000 x .41)/12= $2,392/monthly household debt max 

6. Whatever your current debt ratio is, please describe the maximum monthly house payment you would be able to qualify for based on front and back end ratios: 

My debt ratio is currently 21%. If I cannot exceed 41% total, this means that I only have 20% of income available to apply to a home mortgage. This amount would be the equivalent of ($70,000 x .20)/12, or a maximum monthly mortgage payment of $1,167. If I didn't have any debt, I could have up to a $1750/month mortgage payment that means I could look at homes with a higher price tag. 

7. Using CreditKarma.com's Home Affordability Calculator

 (Links to an external site.) Input your monthly income and debts, and for down payment, use $0, and for interest rate (regardless of credit score at this point), please use 4%. (note: they cap you at 39% debt-to-income). Please paste the screen shot of your results like this:

8. How much home can you afford? How do you feel about it and why? In what ways does this influence your overall lifetime financial objectives?

· I make $70,000 per year and don't have a ton of credit card debt. I have auto debt because I obviously have to get to work to make that $70,000 and to pay back my student loans. And I can only afford a $55,000 house?! ARE YOU KIDDING ME!? Unless I can pay off my credit card debt auto debt in a hurry, I won't be buying a house any time soon. *Sigh.* Maybe I should marry rich. Or at least someone who doesn't have any debt and a regular paycheck! That's it, I am changing my financial objectives to:

· Make enough to pay my bills until I meet Mr. Moneybags

· Make him fall in love with me and find a way to get him to propose (without faking a pregnancy)

Retire the day after he proposes to plan the wedding

9. Using the same financial tool from CreditKarma.com, what would happen to your home affordability in the following scenarios?

Using 4% Interest:

I think using 4% of interest would higher my income so ill be able to purchase a home especially if I pied all my debts.

Yay! Your credit score improves, so now your interest rate is 3.8% instead of 4%:

Since my interest rate is 3.8 it will offer me more things rather than what I would have if my interest rate were 4%

Uh-oh! You majorly messed up paying your bills like a responsible person, and your credit score drops 100 points, resulting in an interest rate increase from 4% to 5.5%:

It will be a lot different in here; because my interest now is 5.5 I will be more responsible for me. Even if I pied off all my debts I could afford less than what it would be if my rate were 4.

9. Both credit scores and debt levels play a significant role in your ability to purchase a home, especially where purchase price is concerned. Please answer the following questions and provide explanations:

· Is your credit score or your debt-to-income ratio more influential in determining your ability to purchase a home? Why?

· Yes, it will affect my ability to buy a home because I’m responsible to pay the debts so it will take a place on my income.

· If you have a lot of debt, which would you tackle first if you were wanting to buy a home in the near future?

· To get rid of my debts ill set a finish line before I start, and ill tackle the student loan debt. Because student loan debt is preventing some millennial from making home purchases. Also don’t forget to pay the bills on time

· How does this exercise influence your perspective on taking out debt and managing it, now, and going forward?

· Late payments are bad for my credit scores Not only are late payments bad, but they are also assumed to be one of the worst things you could do to your scores. Managing it with having a budget so I can control my debts.

When did differences in interest rates make the biggest difference when working through question #8? Why is that?

· In my opinion 5.5 interest is the hard work would be, because ill be more responsible and I need to control everything carefully. It will not let me purchase a home as easy as if my interest rate was 3.8.