Question

In: Finance

1. Assume you are interested in purchasing a $350,000 house with the following characteristics: - 80%...

1. Assume you are interested in purchasing a $350,000 house with the following characteristics:

- 80% Loan to Value Loan @ 4% interest (30yr, fully amortized)

- Property taxes = 1.2% of purchase price per year

- Homeowners Insurance = $1,000/yr

Homeowners Association Dues = $200/mo

Payment to Income Ratio = 28%

Total Obligations to Income Ratio = 35%

Questions:

A. How much do you have to earn to afford this house (assuming zero consumer debt)

B. Will you still be able to afford the house if you have $300/mo in student debt payments and a $200/mo car payment?

Solutions

Expert Solution

Loan Amount = 3,50,000 * 80 / 100

= $2,80,000

Interest on loan = 2,80,000 * 4 / 100 = 11,200

Computation on Total Payment ($)

- Property Tax @ 1.2% = 4200

- Homeowner Insurance = 1000

- Dues ($200 * 12) = 2400

- Interest on Loan = 11200

Total = 18,800

Payment to income Ratio= 28%

= 28% * 18800 / x

x = 67,142

(A) Earning = 67,142

(B) No, i am ot able to afford house in this situation. because my i expend maximum $ 23,499 but obligation comes $ 24,800.

Notes:-

Total Payment calculated above = 18,800

- Add:- Student Debt pay (300 * 12) = 3600

- Add:- Car Payment (200 *12) = 2400

Total = 24,800

Total Obligation to income ration = 35%

35% = x / 67,142

x = 23,499


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