If you want to purchase a home. You have $10,000 to put down. All you can...

If you want to purchase a home. You have $10,000 to put down. All you can afford is $1000.00 per month and you do not want to finance for more than 15 years @ 5%, (your taxes will be $55.00 per month and insurance $60.00 a month), what is the amount you can pay for the house? (Show all your work)

Expert Solution

Monthly maximum mortgage payment on loan = 1000 - 55 - 60 = 885

Present value of loan payments is equal to loan amount:

a	Present value of annuity=	P* [ [1- (1+r)-n ]/r ]

P=	Periodic payment	885.00
r=	Rate of interest per period
	Annual interest	5.00%
	Number of payments per year	12
	Interest rate per period	0.05/12=
	Interest rate per period	0.417%

n=	number of periods:
	Number of years	15
	Periods per year	12
	number of payments	180

	Present value of annuity=	885* [ (1- (1+0.00417)^-180)/0.00417 ]
	Loan amount	111,912.89
	Plus down payment	10,000.00
	Maximum home purchase	121,912.89

Answer is 121,912.89

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jeff jeffy answered 2 years ago

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