Question

You are planning to buy a house. Assume that you have the cash to pay 20% down payment on any home that your $2,400/month maximum payment can afford including taxes and insurance (no PMI required). A lender offers you a 30 year fixed mortgage for the remaining 80% with 4.5% APR with 1.5 points and $2,000 in fees. Property taxes are $3,600 and Casualty Insurance is $1,200.

How expensive of a home can you purchase today?

What would your total amount due at closing be? (assuming no credits for prepaid property taxes)

Answer 1

PMT = 2400, r = 4.5/12 = 0.375%, N = 360 months, FV = 0

Compute PV = (2400/0.00375)*(1 - 1/1.00375^360) = 473666.78

Let the price of the house be X

80% funded by mortgage

0.8X + 0.015*0.8X + 2000 + 3600 + 1200 = 473,666.78

0.8*1.015 X = 466,866.78

X = 466,866.78 / (0.8*1.015) = 574,959.09