You are planning to buy a house. Assume that you have the cash to pay 20% down p
ID: 2651434 • Letter: Y
Question
You are planning to buy a house. Assume that you have the cash to pay 20% down payment on any home that your $1,400/month maximum payment can afford including taxes and insurance (no PMI required). A lender offers you a 30 year fixed mortgage for the remaining 80% with 5% APR with 2 points and $2,000 in fees. Property taxes are $3,600 and Casualty Insurance is $1,200 annually (Assume these amounts are not dependent on the price of the house you buy).
How expensive of a home can you purchase today?________________
What would your TOTAL amount due at closing be?________________
Explanation / Answer
Monthly Payment can afford for Loan excluding taxes and insurance = 1400 - 3600/12 - 1200/12
Monthly Payment can afford for Loan excluding taxes and insurance = $ 1000
Loan Amount = pv(rate,nper,pmt,fv)
rate = 5%/12
nper = 30*12 = 360
pmt = 1000
fv = 0
Loan Amount = pv(5%/12,360,1000,0)
Loan Amount = $ 186,281.62
Total Charges = 2000 + 186281.62*2% = $ 5725.63
Down Payment = 186281.62/80% * 20% - Total Charges
Down Payment = 186281.62/80% * 20% - 5725.63
Down Payment = $ 40,844.78
Total expensive of a home you can purchase today = Loan Amount + Down Payment
Total expensive of a home you can purchase today = 186281.62 + 40844.78
Total expensive of a home you can purchase today = $ 227,126.40
TOTAL amount due at closing be at the end of year1 = pv(rate,nper,pmt,fv)
rate = 5%/12
nper = 29*12 = 348
pmt = 1000
fv = 0
TOTAL amount due at closing be at the end of year1 = pv(5%/12,348,1000,0)
TOTAL amount due at closing be at the end of year1 = $ 183,533.28
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