You are planning to buy a house. Assume that you have the cash to pay 20% down p

Question

You are planning to buy a house. Assume that you have the cash to pay 20% down payment on any home that your $2,400/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 4.5% APR with 1.5 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)

1How expensive of a home can you purchase today?________________

2What would your TOTAL amount due at closing be?________________

Explanation / Answer

Let the total value of house be "x"
the loan required is fpr 0.8X and it is there is 1.5% and 2000 in fee
the total loan given is= (0.8x)-[(0.8*1.5%*x)+2000]
use pmt formuale in excel to find the amount of monthly payment has to be made every month and using solver fix this amount as 2400 and find the principal value "x"
2400=pmt(rate,nper,pv,fv,type)
2400=pmt(4.5%/12,30*12,(0.8x)-[(0.8*1.5%*x)+2000],,0)
we get x as $603,639

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