Buying a House
My undergraduate major was Electrical Engineering, with an emphasis in
Communications Engineering. I researched entry-level jobs currently available and
found these:
Company Job Title Salary
National Security Agency Systems Engineer $69,545
Parsons Electrical Designer $83,954
Boeing Test & Eval. Lab Tech. $66,407
The average of these three salaries is $73,300 and I will use this amount as my
expected salary upon graduation for the duration of this project.
I will now consider the purchase of a home. Because of where my girlfriend and I
work, we have decided that the city of Covina would be a nice, central location. We do
not need a large place, so that a 2-bedroom condo looks appealing. Below are three
properties currently on the market in this area:
House for Sale Sale Price
18717 E. Arrow Highway #23 $320,000
4900 N. Grand Avenue #331 $329,900
788 E. San Bernardino Road #5 $335,000
Taking the average of these prices, I will use $328,300 as the price of my new
home. I will first consider the total cost of financing the purchase through a mortgage.
To do that, I will need the monthly payment. I found three banks who publish their 30-
year mortgage rates online:
Bank Interest Rate
Wells Fargo 4.875%
Bank of America 4.875%
LoanLock.com 4.625%
The average of these three rates is 4.8%, so we will use that rate as our
Excellent Credit interest rate. Therefore, our Average Credit interest rate will be 5.8%
and our Poor Credit interest rate is 6.8%.
We now have a total of 9 payment calculations to make, of which the following is
an example:
P = 328,300; APR = 0.048; Y = 30; n = 12; nY = 360;
(Loan Payment Formula)
𝐴𝑃𝑅
𝑃 × ( 𝑛 )
𝑃𝑀𝑇 =
𝐴𝑃𝑅 (−𝑛𝑌)
[1 − (1 + 𝑛 ) ]
0.048
328,300 × ( )
𝑃𝑀𝑇 = 12
0.048 (−360)
[1 − (1 + 12 ) ]
𝑃𝑀𝑇 = $1,722
Monthly
4.8% 5.8% 6.8%
Payments
15 $2,562 $2,735 $2,914
25 $1,881 $2,075 $2,279
30 $1,722 $1,926 $2,140
Every month, for 360 months, I will pay $1,722. Thus, I will pay 𝑆 = 𝑛𝑌𝑥𝑃𝑀𝑇 =
(360)(1722) = $619,920 in total to own this home.
We now have a total of 9 total amount paid calculations to make:
Total Paid 4.8% 5.8% 6.8%
15 $461,178 $492,306 $524,568
25 $564,345 $622,586 $683,592
30 $619,290 $693,472 $770,497
Considering that the loan amount was $328,300, we can see that I will pay between
$132,878 and $442,197 in interest. It is clear that I can save many thousands of dollars
by getting and maintaining a great credit score. Also, if I can somehow afford an
additional $840 (2,562 − 1,722) per month, I could save $158,112 (619,290 − 461,178)
by taking out a 15-year mortgage as opposed to a conventional one. Unfortunately, the
maximum mortgage payment the bank will approve is 30% of my reported monthly
income, or (0.3)(73,300) ÷ 12 = $1,833. Thus, without either increased income, an
employed significant other or a much lower interest rate, I will likely be stuck with a 30-
year loan and will need to have great credit.
