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)

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

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

Please include all the processes and forms

Explanation / Answer

The price that can afford to buy today is the Present vaiue of the EMI + 20% as down payment

= 2400PVIFA(4.5%/12, 30×12)

= 473667

This represents 80%

So total value of house that can be bought is 473667/80% = 592083

The amount due at end of year = EMi + property fees + taxes+ insurance

=2400+2000+3600+1200 =9200

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