Question

ou are ready to buy a house, and you have $40,000 for a down payment and closing costs. Closing costs are estimated to be 6% of the loan value. You have an annual salary of $60,000, and the bank is willing to allow your monthly mortgage payment to be equal to 28% of your monthly income. The interest rate on the loan is 4% per year with monthly compounding for a 15-year fixed rate loan. What is the down payment for the house? (Choose the nearest value)

Answer 1

Answer:

$21,524.06

Explanation:

For computing the down payment for the house we need to do the following calculations

Monthly income is

= Annual salary ÷ total number of months in a year

= $60,000 ÷ 12 months

= $5,000

Now the maximum payment is

= 28% ×  $5,000

= $1,400

And, the present value is

= Maximum payment × {1 - 1 ÷ (1 + 0.003)^360} ÷ 0.003

= $307,932.33

The 4% is annual rate and monthly rate is 0.003 and we assume the total number of days in a year is 360 days

Now the closing cost is

= $307, 932.33 × 6%

= $18,475.94

Finally the down payment for the house is

= $40,000 - $18,475.94

= $21,524.06