Financial Planning Project: Analyzing Car and Home Loans - MAT 110

This project requires students to apply financial concepts to real-world scenarios, focusing on purchasing a car and a house. The assignment begins with calculating the maximum affordable car price based on a given family income and then selecting a car from KBB.com. Students then use an amortization calculator to determine loan payments, considering a down payment and interest rate. The project further explores homeownership, requiring students to find a suitable house within a price range derived from their income. They use the Zillow mortgage calculator to determine monthly mortgage payments, including property taxes, insurance, and PMI, and analyze the payment breakdown. The assignment also covers closing costs, escrow accounts, and the calculation of a monthly budget, including car and home expenses. Finally, students calculate their debt-to-income ratio and reflect on the financial rules and lessons learned throughout the project, which will help them understand financial planning and loan management. The assignment utilizes web resources for calculations and requires the inclusion of screen captures to support the responses.

MAT 110
Math for Liberal Arts
Financial Web Resources Project
Your Name Here
Complete this project using Microsoft Word by typing your responses in the space after each question.
As part of this assignment you will be required to screen capture and paste images into this document.
For this project assume that you are married and have a combined family income of $60,636 (the median
Iowan family household income in 2015, http://www.deptofnumbers.com/income/iowa/ ).
1. You are going to buy a vehicle. It is a good rule that your vehicle should cost no more than 20%
your yearly family gross income (10% for an individual). Here is a good article that talks about
this“rule.” http://www.financialsamurai.com/2012/10/06/the-110th-rule-for-car-buying-everyone-
must-follow/
a. What is 20% of your family income?
Answer to the question is $60636* 20% i.e. $12,127.
b. Go to the website www.kbb.com and select a car of your choice that meets your financial
limitation from (a). State the Year, Make, and Model of the car and screen capture and
paste the results from the website below. Be sure that the price is included within the
screen capture.
After research & negotiating with dealer Honda Car is found worth $11000.

c. Use the website http://bretwhissel.net/cgi-bin/amortize to calculate your loan payments if
you expect to pay 10% down on your car and get a four year loan at a rate of 6% for the
remaining amount. You will have to scroll down on the page to see the summary of your
loan. Screen capture and paste the summary results below. PLEASE crop your image to
show only the summary. To learn how to do this watch the video in Blackboard on screen
capturing.
Down payment of car comes to $1100. Loan balance remaining after the installment is
$9,900 that means that there will be monthly re- payment of $232.50.
Source: (bretwhissel, 2019).
d. You should also consider the cost of maintenance. Yes, you saved money by buying a used
car with the 20% rule but you are more likely to have maintenance costs. It is often
advised to budget monthly 10% of your monthly car payment to cover maintenance costs.
What is 10% of your monthly payment amount in part (c)?
$23.25 would be the 10% of monthly payment.
e. You also need to pay car insurance. According to the website http://www.insure.com/car-
insurance/car-insurance-rates.html the average car insurance rate in Iowa in 2018 was
approximately $1,025/year. State what this is monthly. You will need this value later.
$45 is the monthly insurance payment of the car.
2. You are going to buy a house. It is a good rule that your house should cost no more than 2 ½ to 3
times your yearly gross family income.
a. What is 2 ½ to 3 times your family gross income (the given median family income)?
Answer to the question is $1, 51,590 to $1, 81,908.
b. Go to any real estate website of your choice (Iowa Realty, Century 21, Remax, Coldwell
Banker, etc.) and find a house you like in the Des Moines Metro that meets your financial
limitation from part (a). State the details of the house (number of bedrooms, year built, square
feet, levels, property tax, etc.) And screen capture and paste the results from the website

below, including the price within the screen capture. Again, please crop the pasted image to
only include the necessary details.
After Research a house in Ankeny for $179,900 is found. It has 3 bedrooms, 1 bathrooms, 1,116-
8,172 square feet, and was built in 1950.
c. Use the website http://www.zillow.com/mortgage-calculator/ to calculate your true monthly
mortgage payment. The calculator is on the left hand side and click the advanced button to
expand the calculator and input the following values (make sure to include Taxes/Ins, and Include
PMI are checked).
Home Price Use the price you found in part (b)
Down Payment $10,000
Program 30 year fixed
Interest Rate 4.5%
Property Tax This should have been given on the realtor
website. If it says Gross and Net, use Gross
Taxes.
Homeowners Insurance $1040/yr.

Home Insurance: The homeowner’s insurance amount of $1040/yr. I gave you was a rough
estimate. Insurance rates can vary dramatically based on the age of a home, the type of updates, and
the amount of the deductibles you choose. So while the number I gave should be a good estimate, do
understand the there is some flexibility in this amount.
Private Mortgage Insurance: Now because you paid only 10% down for your home mortgage, you
are by law deemed risky and must pay for home mortgage insurance (this is different than home
insurance). This is a payment that gets tacked on top of your monthly payment from part (c). On
the Zillow calculator, this is the value given as Private Mortgage Insurance.
Screen capture and paste the summary results below. Be sure to include the inputs, the breakdown
and the payment schedule graph in your screen capture. To make things fit well in this document,
you may want to paste multiple screen shots.
Mortgage repayment would be $1,335.
Source: (zilow, 2019).
d. Look at your payment breakdown on the Zillow calculator. How much more than Principal and
Interest (P&I) are you paying each month? State that amount below. Note that this amount is often
forgotten about when potential homebuyers try to budget and estimate their purchasing power.
The amount more than Principal and interest is $474.
e. To lessen risks by making sure you are meeting your obligations banks require that your
insurance and property tax get lumped into your home loan (mortgage) and that you pay the bank
that total amount, and then they pay the insurance and taxes for you. They don't want to leave it up

to you, because if you don't pay the taxes, the state can take your house, making it hard for the
lender to get paid back. This is why all these amounts are lumped together on the Zillow calculator.
The Statement is “true” monthly mortgage of the house is $1,335.
Further, the day you sign the paperwork to buy your home is called the closing day. On this day
you need to pay what is called closing costs. This covers the cost of the lender to process the
paperwork, the attorney fees, a home inspection, and much more. This cost varies from lender to
lender and can be from 2-5% of the purchase price of the home. Let’s just keep things simple and
say your closing costs were $3000.
Another surprise is that since the bank pays your taxes and insurance for you, as mentioned
above, they do this with what they call an escrow account. To ensure that the bank has money to
do so immediately they often require that you pay 2 months (or more) of taxes and home
insurance. This is separate from closing cost. What would 2 months’ worth of taxes and home
insurance be for your scenario? State this amount below.
Two months of insurance and taxes is going to be $87(2) +$280(2) =$734.
3. A.OK, we’ve covered the big purchases and all their glory. Let’s recap what we ended up with.
Let’s suppose you bought the house and the car you found within a five year period. To do this
you needed enough cash on hand for your immediate costs. These costs are the amounts in 1(c)
(the 10%), $10,000 from part 2(c), closing cost of $3000, and the escrow cost in 2(e). Add these
amounts up. This is the total cash you would have to have available in that five year span just to
be able to make these two purchases. State this amount below.
Total of All these ($1100+$10000+$3000+$1335) comes to $15435.
B. Let’s break this down into a monthly budget. I have a rather bare-bones budget sheet below.
Fill in the indicated amounts, to help you it says which question the amount should come from.
Monthly Budget Calculations
Description Amount Cell
Net Monthly Income
(Approximate after tax income.) $4,500.00
Car Payment $1,100.00 1(c)
Car Maintenance Savings $23.25 1(d)

Description Amount Cell
Car Insurance $45 1(e)
Mortgage (including taxes, ins, PMI) $1,335 2(c)
Amount Left
(Take $4,500 and subtract the above amounts) $1996.75
A way to think of this “amount left” is that after paying your taxes, car, and home
obligations, this is what is left to pay off all your other bills (utilities, groceries, student
loans, cell bill, cable, grooming, entertainment, dining, gifts, etc).
4. Your debt-to-income ratio can be a valuable number—some say as important as your credit
score. It's exactly what it sounds like: the amount of debt you have as compared to your overall
income. Lenders look at this ratio when they are trying to decide whether to lend you money and
in determining the interest rate on loans—they also consider your credit score. A low DTI shows
you have a good balance between debt and income. As you might guess, lenders like this number
to be low—generally you'll want to keep it below 36%, but the lower it is, the greater the chance
you will be able to get the loans or credit you seek. For your scenario, add your mortgage from
part 2(c), your car payment 1(c) and insurance 1(e). Also, let’s assume you pay $200 a month for
student loans. Add these amounts and divide it by $4561.33 (1/12 your family gross income. Fill in
the amounts in the equation below and state your DTI. [Note, the ratio you get is slightly
misleading because this only assumes you have these three debts, which most people also have
other debts.]
( $ 1,335+ $ 1,100+$ 45+ $ 200)
4561.33 =0.5875=58.75 %
5. After using these web resources and reflecting on the amount left in 3(b) and your DTI from 4,
think upon the two purchasing “rules” (20% for cars and 2 ½ to 3 times for homes), and give a
reflection about what you learned in this project.
In this Project I have learned how EMI of a loan is calculated, how debt to value ratio is
calculated and what impact it has on future loans, how housing and Car loans are financed based
on gross salary, how one person can prepare his monthly Income and Expenditure budget, how
one can find house of its choice based on his income with the help of Loan.

References
bretwhissel. (2019). Mortage Loan calculator with amortisation Schdule. Retrieved October 25, 2019, from
http://bretwhissel.net: http://bretwhissel.net/cgi-bin/amortize
zilow. (2019). Mortagage calculator Advance Report. Retrieved October 25, 2019, from zilow.com:
https://www.zillow.com/mortgage/calculator/payment/ModernPaymentCalculatorAdvancedReportPage.htm?
{%22homePrice%22:179900,%22downPayment%22:10000,%22rate%22:4.5,%22term%22:%22Fixed30Year
%22,%22propertyTaxRate%22:1.86881600889383,%22includeTaxesInsurance%22