4. When you graduate, you will probably start to think about buying a house. Exp
ID: 1885478 • Letter: 4
Question
4. When you graduate, you will probably start to think about buying a house. Experts say your monthly housing costs (mortgage payments + homeowners insurance + property taxes) should be less than 28% of your monthly gross income. Let's assume your gross income will be S5000 per month. Property taxes and insurance in Memphis are approximately 0.2% of the cost of your home each month. If you can obtain a 30-year (360-month) mortgage with an interest rate of 0.4% per month, what is the most you will be able pay for your house?Explanation / Answer
Given:
1. Monthly housing costs include (mortgage +insurance + Property tax)
2. Total monthly payments to be less than 28% of monthly gross income
Monthly gross income is $5,000. Hence total monthly payment to be less than $1,400 (28% of $5,000)
Property & Income tax to be approximately 0.2% of cost & interest rate of 0.4% per month.
Period of mortgage is 30 years (360 month)
Inputting all these data and by interpolation, the total mortgage comes to be equal to $445,000
By iteration of various input mortgage value, We get the payment as follows.
Monthly principal & Interest $1,311.97
Property Tax $37.08
Homeowners Insurance $37.08
Total monthly payment is 1,386.13 which is <1,400
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