Alyx Ede - 570847 The Problem My problem is quite simple, I want to purchase a home, but I do not know where to start looking. I know I want to live in a suburb of a big city. Kind of like the Dike to Cedar Falls or the West Branch to Iowa City. I picked these two towns because of there size. They both have less than 2,500 people in their towns. The next reason these towns will be perfect is because of the job market. Both towns are within a 20-minute radius of Cedar Falls and Iowa City, two college towns that bring many jobs to the state. Within the house, I think it is important to have three bedrooms and at least one bath, if not two. One bedroom for my wife and I, a guest room, and one room for future children. After more than one child is born, we can discuss moving to a newer and bigger house. I also think it is important for us to have a fenced in backyard because we like dogs a lot. I would prefer to have a finished basement, but it is not a necessity at this point in time. A garage that is either attached or unattached would be great as well. The Constraints As a financial advisor, the worst 25% in the country make an estimated $60,000 a year. We will just go with that number to start my career; however, it will definitely increase throughout my career. I do not plan on buying a house until at least two years out of school due to my girlfriend going to graduate school. After two years of saving, we should be able to save $60,000 while living in an apartment for two years. That is what we will use as a down payment on a home. The location of our home is not a top priority right away. With my job, I can work remote and not have to worry about being close to an office. My girlfriend on the other hand, she is going to be an athletic trainer. This will cause her to need to be close to a school that she works at. The only other obligation we have is $500 a month of student loan debt. The Alternatives This first home is an absolute beauty. The home is located in Parkersburg, IA, which is located approximately 25 minutes away from Cedar Falls. Like I mentioned in the first part of the project, this is the distance I would like to be from a larger populated city. This home is 3 bedroom 4 bath that sits on a 10,000 sq ft. lot. This home comes with a deck that leads to a huge backyard and is plenty big to play with our future children in. The home was built in 2016 and costs approximately $259,000. With a $60,000 down payment, the monthly payment on a 30-year fixed loan would be about $1,350 per month. This would be affordable since I am bringing in about $5,000 per month. After my house payment, student loan payment and other obligations, I would have approximately $1,500 left of disposable income. The second home I chose was a smaller size lot and home than the first one. This home is also 3 bedrooms, but only has 1 bath. The home is located in Cedar Falls. I chose this one because I thought it would be the perfect starter home because of the size, location, and price. The price is $141,500 which is substantially less than the first home. This would allow my wife and I to get a 15-year fixed loan option. I would prefer this payment because I would be able to pay off the house much faster than the first one. After my $60,000 down payment, the monthly payment would be about $850. This is $500 less than the first home. With that extra money, I would be able to throw more at my student loans and get them paid off faster as well. The third home I chose is located in Altoona, IA. Altoona is a much bigger town that the previous two, however, the job market is Des Moines is very nice and would not be a problem finding work. This home is a 3 bed and 1 bath. The home is much newer than the one is Cedar Falls but is not as big as the first home. The price is pretty affordable as well. With the home costing $185,000, I decided to look into an FHA loan, or a first-time home buyers’ loan. With an FHA, I am not required to put as big of a down payment down. For this loan, I put 10 percent down, which comes out to be about $20,000. The loan is for 30 years, and the interest rate was calculated to be about 4.4%. I think this home would be great if we decided to live closer to a bigger city. The Recommendation After carefully analyzing the three properties, I decided to go with the second option. This house is relatively small, and we will be able to live there for a few years before our family gets bigger. The home is in Cedar Falls, which is a little bit bigger than I would have liked, but Cedar Falls is an amazing town. The house was the cheapest out of the three which I prefer as I do not like a lot of debt. According to Zillow, the interest rate would be approximately 4.3% on a 15-year fixed loan. After we would put down our $60,000 down payment, our monthly payment would be just over $800. We chose to go the less year amount on the loan, as we plan on upgrading after five years of being in this house. I think this is the perfect starter home. Property Sale Price Rooms & Baths Age Distance to UNI Fence SQ Footage of Home My property $141,500 3 Br 1 Ba 1957 0.4 miles Yes 1,248 Comp 1 $190,000 3 Br 1 Ba 1963 1.8 miles No 1,662 Comp 2 $161,000 3 Br 1 Ba 1954 2.4 miles No 1,004 Comp 3 $121,000 3 Br 1 Ba 1954 4.8 miles No 1,024 The first comparable was an outlier to the rest of these, but that is because of the size of the home. It also happened to be the newest. The second comparable was also more expensive due to recent renovation inside the home. The last comparable was in pretty bad shape. It was also in North Cedar, which is pretty far away from the main town. My home that I chose was the only one with a fenced in a back yard, which is important as we plan on getting on getting a few dogs. For the front-end ratio is the PITI/GMI. The PITI and GMI is as follows: - Principal and Interest: 623 - Taxes: 180 - Insurance: 50 - Gross Monthly Income: 5,000 623+180+50 = 853/5000 = .1706 * 100 = 17.06% For the back-end ratio, it is calculated by adding together your Long-term obligations to your PITI and the dividing that by your gross monthly income: - PITI: 853 - LTO: 500 (student loan) - Gross Monthly Income: 5,000 (853+500)/5000 = .2706 * 100 = 27.06% After calculating both ratios, we will qualify for the loan we are applying for. We can also afford to take on more debt in other areas if we wish to begin to invest in more real estate. Plan of Action I am excited to say that I get to stay in the Cedar Valley after graduation. Cedar Falls/Waterloo has given me many opportunities that I am excited for moving forward. As for my home, it is a 3-bedroom home with 1 bathroom. This home will give me a chance to live with my wife for a few years and then after we begin to have children, we are going to move into a bigger and more fitting home. The loan I have decided to go with is a 15-year fixed rate loan. I chose this because I will not be in the house for more than 30-years, so I will not have the need to have that long of a loan term. I am going to continue to work as my financial representative role with Northwestern Mutual to accumulate my down payment. After my last year of my internship, I will begin to be able to do full-time activity and therefore, I can produce more, making more money. I need to start to develop the discipline now to save money, so when I am making more later, I do not have lifestyle inflation where I am spending more because I am making more. I think if I can have $10,000 saved up after college, that will put me in a great position to be able to afford my down payment.
