Buying First Home & Student Debt • John & Jane Martin

CASE STUDY

CASE PROFILE

Family Details: 

• Married, filing joint tax returns

• John Income: $125,000/yr
  (partner at engineering firm)

• Jane Income: $80,000/yr
  (veterinarian for local practice)

• 2 kids—Tom (age 2) and Mary (age 4)
   

Total Assets = $159,000

• Savings = $85,000

• Investments = $74,000

• 401(k) contributions = 3%

• IRA Contributions = $6,000/year each

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Monthly Debt Payments = $3,130

• John’s Federal Student Debt

  • Balance = $25,000

  • Income Based Repayment = $290

• Jane’s Federal Student Debt

  • Balance = $125,000

  • Income Based Repayment = $1,500

• Credit Cards = $15,000

  • Interest Rate = 19%

  • Min PMT = $450

• Car Payments = $890

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Estimated Monthly Spending = $12,000

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Both John and Jane are advancing within their careers and are finally hitting their stride from an income

standpoint. In addition, they recently inherited $80,000 from Jane’s grandfather that passed away. So

much of what is sitting in savings is a financial windfall. 

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That being said, the Martin’s are hoping to use their inheritance towards purchasing their first home.

However, they are somewhat reluctant about taking on a mortgage. The Martin’s initial hesitance to buy

a house stems from one of Jane’s biggest fears, which is being “house poor.” Jane doesn’t want to live

paycheck to paycheck like her parents. It’s important to her that she provides a better life for her kids.

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The Martin’s are seeking answers to their primary concerns, which are:

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• What’s their ideal target price range? What kind of monthly payment can they afford?

• How much money should go towards the down payment? 5%, 10%, or 20%?

• How much cash should they keep in savings after the down payment is made?

• Should they wait to payoff their credit cards until after they buy their house?

Throughout our conversation, a few other financial considerations were discussed, namely:
 

• How much should the Martin’s be saving for their kid’s college?

• What is the Martin’s life and disability insurance coverage needs?

• Should John or Jane refinance their student loans?

• Are John and Jane saving enough towards retirement?

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Given everything that is weighing on their minds, John and Jane believe that a comprehensive financial

analysis will allow them to make better-informed decision both now and in the future.

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