Question

They plan to use their $40,000 is savings to cover the closing costs the bank will charge them, which are 1% of the amount they borrow from the bank. The rest of the savings will be used as a down payment. For example, if they borrow $330,000 using $20,000 for a down payment, the closing costs will be $3,300, which still leaves them some savings. Determine the largest amount they can use for a down payment and still pay the closing costs

Answer 1

Answer:

$3,131

Explanation:

The largest amount of down payment can occur in a situation where all the $40,000 is spend for the down payment and closing costs.

Let assume

X is the amount of closing cost While Y is the Amount of down payment

X + Y = $40,000 equation (1)

Purchase price = $330,000 + $20,000

= $350,000

X = ($350,000 - Y) x 1% equation (2)

Let Substitute (2) to (1):

($350,000 - Y) x 1% + Y = $40,000

Y = $36,869

Hence:

X = $40,000 - $36,869 = $3,131

Therefore largest amount they can use for a down payment and still pay the closing costs will be $3,131