elwood wishes to purchase a home. she has saved up $ 13200 for a down payment. b

Question

elwood wishes to purchase a home. she has saved up $ 13200 for a down payment. based on her earnings, she qualifies for a thirty-year mortgage with level monthly payments of $820 including escrow and nominal interest rate convertible monthly of 5.85%. her payments are due at end of each month. from each payment, $240 will be put aside in an escrow account for the payment of taxes and homeowners insurance. what is the most expensive house Elwood can buy if her aunt has promised to give her the money needed for loan applications, incspections, and all other required buyer's closing costs?

Explanation / Answer

This is an annuity problem ... just a matter of setting it up properly:

The price of the home will equal $13200 down payment plus the present value of the "net" monthly payments equal to $820 - $240 = $580. So here is the annuity formula:

$13200 + $580[ 1 - (1+.0585/12)^ - (30*12) ] /(.0585/12) = $111,514.93

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