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26 December, 20:41

Michelle Duncan wants to know what price home she can afford. Her annual gross income is $52,200. She owes $760 per month on other debts and expects her property taxes and homeowners insurance to cost $250 per month. She knows she can get an 6.00%, 30-year mortgage so her mortgage payment factor is 6.00. She expects to make a 20% down payment. What is Michelle's affordable home purchase price?

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  1. 27 December, 00:16
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    Affordable home purchase price of Michelle Duncan is $133,958.

    Explanation:

    Determine the monthly gross income (annual income divided by 12).

    $52,200/12 = $4,350

    With a down payment of at least 3.5 percent, lenders use 33 percent

    of monthly gross income as a guideline for PITI (principal, interest,

    taxes, and insurance) and 38 percent of monthly gross income as a

    guideline for PITI plus other debt payments.

    4350 * 0.38 = $1,653

    Subtract other debt payments and monthly costs of property taxes and homeowner's insurance.

    $1,653 - 760 - 250 = $643

    Divide this amount by the monthly mortgage payment per $1,000 based on current mortgage rates

    ($643/6.00) x $1,000 = $107,166

    Divide your affordable mortgage amount by 1 minus the fractional portion of the down payment

    $107,166 / (1 - 0.2) = $133,958

    Affordable home purchase price of Michelle Duncan is $133,958.
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