Question

Michelle Duncan wants to know what price home she can afford. Her annual gross income is $43,800. She owes $660 per month on other debts and expects her property taxes and homeowners insurance to cost $250 per month. She knows she can get an 9.00%, 30-year mortgage so her mortgage payment factor is 8.05. She expects to make a 30% down payment. What is Michelle's affordable home purchase price

Answer 1

Annual Gross Income = $ 43,800

So , the monthly Gross income = $ 43,800 / 12 = $ 3650

Now, for a minimum down- payment of 3.5%, according to the Principal, interest , taxes and insurance (PITI)Guideline , a mandatory expense of 38% of monthly income to borrowers is used

So, Expense = $ 3650 * 38% = $ 1387

Additional monthly debt = $ 660

Cost of property taxes and homeowners insurance = $ 250

The balance left with Michelle= $ 1387 - ( 660 + 250) = $ 477

Mortgage payment factor = 8.05

So, the monthly mortgage payment ( mortgage payment will be calculated per $1000) = (Balance left / Mortgage payment factor)* 1000

=$ ( 477/ 8.05)*1000 = $ 59254.66

Affordable home purchase price = monthly mortgage payment / (1- percentage of down payment)

= $ 59254.66 / (1-0.3)

= $ 59254.66 / 0.7

= $ 84649.51 (Answer)