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Case Study # 3 – Hernandez Family
Juan and Rita Hernandez have been married six (6) years. They have two (2) children and do not plan to have any more. Juan and Rita own two (2) Duds and Suds Laundromats. Their business is doing very well. They purchased their business shortly after they were married and at that time, they were determined to make sure the business was successful before starting a family. After three (3) years in the business, their cash flow was established and they both felt comfortable with having a family. From the beginning of their marriage, they learned to negotiate and compromise for what they wanted. They lived with Juan’s parents form the start of their marriage. This arrangement allowed them to put all of their financial resources into the business. They were both working much of the time and the living arrangement worked very well for them. After having their two children, however, the home of Juan’s parents was feeling cramped and too small. Juan’s father died shortly after their last child was born. Juan is an only child, and his mother is older and not in good health, so he feels very responsible for her care. Rita and Juan decided it may be time for them to purchase a home of their own. They discussed the move with Juan’s mother. Because of her health problem, Juan believes it would be best for them to purchase a home large enough for their family of four (4) with additional space for his mother to live with them. To purchase a home large enough for all of them, the cost of housing will increase. Juan’s parents had their home paid for, so to purchase a new home will have a major impact on the family’s housing costs. Juan’s mother makes it perfectly clear that they should sell her house and use the money from the sale to apply to the purchase of their new home. With that offer, Juan, Rita, and Mom sit down to discuss their family finances to determine how much they could allow in their budget for the increased housing expense. Juan and Rita pay themselves a monthly salary from their business. Their net income is $42,000 per year. Juan’s mother is retired and has a retirement income of $15,000 per year. Mom Hernandez has offered to contribute her retirement to the household budget.
Upon evaluating their net savings, Juan, Rita and Mom decided they would have to make adjustments in their lives if they were going to purchase a new home. They were looking at buying a newly built home, so their initial maintenance would be less than on their current older home. Their utilities would stay about the same, since they were looking at a larger home, even though, it would be more energy efficient, the size would make up the difference. The $520 plus $300 maintenance would allow them a monthly payment of $820. This monthly payment would have to include the hazard insurance and real estate taxes. They also realized how much they were spending in miscellaneous, cash, and entertainment and thought that if they wanted a new home, they could cut down on some of their frivolous spending and have more money to apply to a new house payment. They decided to limit their entertainment spending to $300 per month; out of pocket cash spending to $200 per month; and if they were not spending as much on entertainment, then their monthly child care expense would also automatically decrease. They decided to discipline themselves to not spending more than $350 per month on child care. With these reductions in their spending habits, they could have added flexibility of $350 per month to apply to a house payment or expenses of buying new items for their new house. They now could look at up to $1170 per month in a house payment. They called a realtor to list their house immediately, and began looking at plans and specifications with a builder to get the exact house they wanted. For more information please contact Prime Lend America Mortgage Corporation - Call Toll-Free: 1-877-US-PRIME
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