You are ready to buy a house and you have $50,000 for a down payment and...

You are ready to buy a house and you have $50,000 for a down payment and closing costs. Closing costs are estimated to be 2.5% of the loan value. You have an annual salary of $200,000. The bank is willing to allow your housing costs – mortgage, property tax and homeowners insurance to be equal to 28% of your monthly income. You have estimated that property tax will be $1,000/month and homeowner’s insurance will be $100/month. The interest rate on the loan is 3.4% per year with monthly compounding for a 30-year fixed rate loan.
1. How much money will the bank loan you?
2. How much can you offer for the house?
3. Create a loan amortization table in Excel and submit the spreadsheet. This should be done with monthly payments.

Solutions

Expert Solution

Maximum permissible monthly payments= $3,566.67 as follows:

Loan given by the Bank= $804,242.98

Amount offered for the house= $834,136.90

Details of calculation and amortization schedule (with initial and closing entries) are given below:

Details of calculation:

Amortization schedule below:

jeff jeffy answered 2 years ago

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