Real Estate Investment class 6. Jack receives the appraisal value of his house o
ID: 2801027 • Letter: R
Question
Real Estate Investment class
6. Jack receives the appraisal value of his house of $375,000 from the county appraisers. Considering his wage increases to a level that he can support another mortgage, he wants to invest in housing market by carrying out cash out refinance. The current house mortgage balance is $210,000. He uses conventional mortgage. He wants to use the cash out fund to support a new house. Suppose his new mortgage LTV=80% as well. Before renting the house out, he plans to use $30,000 (including all related fees but down payment) to furnish the new house. What is the highest price of the house that he can buy? (
Explanation / Answer
Value that you will be getting from cash out refinance:
(0.80×375,000)-210,000= $ 90,000
Remaining Cash after paying for furnishing the house:
90,000-30,000=$ 60,000
Now we need to figure out the appraised value:
LTV=Loan Amount/Appraised Value
Let Appraised value be x
Let Loan Amount be x-60,000
Therefore,
0.80=x-60,000/x
=0.80x=x-60,000
=0.20x=60,000
=300,000
Therefore, the highest price of the house he can buy is $ 300,000.
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