Question

Sue is planning to buy a house. She has been advised by her financial planner that her monthly house
payment (which includes property taxes and insurance) should not exceed 30% of her take-home pay.
Currently, her take-home pay is $2000 per month. Her monthly property taxes will be approximately
$100 and her monthly homeowners insurance will be approximately $50. If Sue’s take-home pay is $2000
per month, and the mortgage is at 0.5% per month for 30 years, what is the maximum amount she can
borrow to buy her house?

Answer 1

Monthly Income of Sue is $2000 and she should not exceed more than 30% for her monthly house payments

therefore she should not be paying more than 2000*0.3=600

Now she would be paying 100 for proerty tax , 50 for homeowners insurance then she is left with $450 sso that is her ideal EMI as exceeding is not allowed beyond $450

hence with the given EMI of 450 , r=0.5% and T=30*12=360 months

450/(1.005)+...+450/(1.005)^360=450*166.67=75000

Hence she can afford to buy a house worth $75,000 for given terms