Develop a spreadsheet model to determine how much a person or a couple can affor

Question

Develop a spreadsheet model to determine how much a person or a couple can afford to spend on a house. Lender guidelines suggest that the allowable monthly housing expenditure should be more more than 28% of monthly gross income. From this, you must subtract total nonmortgage housing expense, which would include insurance and property taxes and any other additional expenses. This defines the affordable monthly mortgage payment. In additional, guidelines also suggest that total affordable monthly debt payments, including housing expenses, should not exceed 36% of gross monthly income. The smaller of the affordable monthly mortgage payment and the total affordable monthly debt payments is the affordable monthly mortgage. To calculate the maximum that can be borrowed, find the monthly payment per $1,000 mortgage based on the current interest rate and duration of the loan. Divide the affordable monthly mortgage amount by this monthly payment to find the affordable mortgage. Assuming a 20% down payment, the maximum price of a house would be the affordable mortgage divided by 0.8. Use the flowwing data to test your model: total monthly gross income = $6,500; nonmortgage housing expense - $350; mothly installment debt = $500; monthly payment per $1,000 ,prtgage = $7.25.

Explanation / Answer

Details Total Affordable monthly debt payment Total Affordable monthly housing expenditure As % of monthly Gross Income 36% 28% Given monthly Gross Income                              6,500.00                          6,500.00 Affordable monthly Amounts                                    2,340                                1,820 Less Monthly Debt Payments                                     (500)                                       -   Less non mortgage Housing expenses                                       (350)                                  (350) Affordable monthlly Mortgage amount                                    1,490                                1,470 Smaller of Affordable monthlly Mortgage amount                                    1,470 Mortgage amount per $1000 Loan= $                                  7.25 Affordable mortgage amount =1470/7.25*1000= $                     202,758.62 Down Payment is 20% So affordable building cost =202758.62/0.8= $                     253,448.28 So Maximum affordable value of a house = $                     253,448.28

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