Question

You are looking to buy your first house. The cost of the house is $325,000. The bank has agreed to make a loan to you for 30 years at 3.15% if you can make a down payment of 7.00%, and the loan payments do not exceed 36% of your gross monthly income.

Based upon this information:

What is the amount of the mortgage loan that the bank will lend to you?

What will be the amount of your monthly payments?

What must your annual salary be in order to be approved for this loan?

Answer 1

A)

Cost of house = $325,000
Down payment = 7%
ie. Down payment = 325,000 * 7% =  $22,750

Therefore, mortgage loan amount = $325,000 - $22,750 =  $302,250

B)

To find the monthly payments we can use the present value of annuity formula:

Where,
PVA = Present Value of Annuity
A = Annuity or Payment
i = rate of interest
n = number of years
a = number of payments per year
na = total number of payments

Substituting the values in the formula, we get:

Therefore, the monthly payment = $1,298.88

B)

The questions says that the loan payments should not exceed 36% of the gross monthly income.

That means minimum salary must be = $1,298.88 / 36% = $3,608.00 per month.

Minimum Annual salary must be equal to $3,608.00 * 12 = $43,296.00 per annum.