Question

Michelle Duncan wants to know what price home she can afford. Her annual gross income is $54,000. She owes $810 per month on other debts and expects her property taxes and homeowners insurance to cost $170 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 15% down payment. What is Michelle's affordable home purchase price?a. $52.940.b. $950.c. $128,560.d. $126100.e. $960.

Answer 1

Answer:

$143137.25

Explanation:

Given that:

The annual gross income = $54000

The monthly gross income = $54000/12

= $4500

Using the PITI guideline, a mandatory expense of 38% of monthly income is applied.

So;

Expense = $4500 × 38% = $1710

Additional Monthly debt =  $810

Cost of Prop. Taxes and H.O insurance = $170

Monthly Balance left = $1710 - $(810 + 170) = $730

Mortgage payment factor = 6.00

Monthly mortgage payment = $\dfrac{monthly \ balance \ left }{ Mortgage \ payment \ factor }\times 1000$

$=\ (\dfrac{730}{6.00 })\times 1000$

= $121666.67

Affordable home purchase price = $\dfrac{monthly \ mortgage \ payment }{1 - percentage \ of \ down \ payment}$

$= \dfrac{ \ 121666.67}{1- 0.15}$

$= \dfrac{\ 121666.67}{0.85}$

= $143137.25