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Monthly gross income $ 4,700 Down payment to be made (percent of purchase price) 20% Other debt (monthly payment) $ 260 Monthly estimate for property taxes and insurance $ 490 30-year loan

Monthly gross income $ 4,700 Down payment to be made (percent of purchase price) 20% Other debt (monthly payment) $ 260 Monthly estimate for property taxes and insurance $ 490 30-year loan

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Estimate the affordable monthly mortgage payment, the affordable mortgage amount, and the affordable home purchase price for the following situation. (Refer to  the images)

Note: Round time value factor to 2 decimal places, intermediate and final answers to the nearest whole number.

  Mortgage 
Monthly gross income $ 4,700  
Down payment to be made (percent of purchase price) 20%  
Other debt (monthly payment) $ 260  
Monthly estimate for property taxes and insurance $ 490  
30-year loan 8.0%  
 
1.) What is the affordable monthly mortgage payment?
2.) What is the affordable mortgage amount?
3.) What is the affordable house purchase price?
Step 1: Determine your monthly gross income (annual income divided by 12). Step 2: With a down payment of at least 5 percent, lenders use 33 percent of monthly gross income as a guideline for PITI (principal, interest, taxes, and insurance) and 38 percent of monthly gross income as a guideline for PITI plus other debt payments. Step 3: Subtract other debt payments (e.g., payments on an auto loan) and an estimate of the monthly costs of property taxes and homeowner's insurance. (a) Affordable monthly mortgage payment Step 4: Divide this amount by the monthly mortgage payment per $1,000 based on current mortgage rates-an 8 percent, 30-year loan, for example (see Exhibit 9-9)—and multiply by $1,000. (b) Affordable mortgage amount Step 5: Divide your affordable mortgage amount by 1 minus the fractional portion of your down payment (e.g., 1.1 with a 10 percent down payment). (c) Affordable home purchase price Example A Example B $48,000 $48,000 + 12 + 12 $4,000 × .38 = $1,520 -380 -300 $840 $4,000 x .33 = $1,320 + .9 -300 $1,020 ÷ $7.34 + $7.34 × $1,000 × $1,000 $114,441 $138,965 + .9 $127,157 $154,405
Transcribed Image Text:Step 1: Determine your monthly gross income (annual income divided by 12). Step 2: With a down payment of at least 5 percent, lenders use 33 percent of monthly gross income as a guideline for PITI (principal, interest, taxes, and insurance) and 38 percent of monthly gross income as a guideline for PITI plus other debt payments. Step 3: Subtract other debt payments (e.g., payments on an auto loan) and an estimate of the monthly costs of property taxes and homeowner's insurance. (a) Affordable monthly mortgage payment Step 4: Divide this amount by the monthly mortgage payment per $1,000 based on current mortgage rates-an 8 percent, 30-year loan, for example (see Exhibit 9-9)—and multiply by $1,000. (b) Affordable mortgage amount Step 5: Divide your affordable mortgage amount by 1 minus the fractional portion of your down payment (e.g., 1.1 with a 10 percent down payment). (c) Affordable home purchase price Example A Example B $48,000 $48,000 + 12 + 12 $4,000 × .38 = $1,520 -380 -300 $840 $4,000 x .33 = $1,320 + .9 -300 $1,020 ÷ $7.34 + $7.34 × $1,000 × $1,000 $114,441 $138,965 + .9 $127,157 $154,405
Term Rate 3.0% 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 30 years $4.22 4.49 4.77 5.07 5.37 5.68 6.00 6.32 6.65 6.99 7.34 25 years $4.74 5.01 5.28 5.56 5.85 6.14 6.44 6.75 7.07 7.39 7.72 20 years $5.55 5.80 6.06 6.33 6.60 6.88 7.16 7.46 7.75 8.06 8.36 15 years $6.91 7.15 7.40 7.65 7.91 8.17 8.44 8.71 8.99 9.27 9.56
Transcribed Image Text:Term Rate 3.0% 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 30 years $4.22 4.49 4.77 5.07 5.37 5.68 6.00 6.32 6.65 6.99 7.34 25 years $4.74 5.01 5.28 5.56 5.85 6.14 6.44 6.75 7.07 7.39 7.72 20 years $5.55 5.80 6.06 6.33 6.60 6.88 7.16 7.46 7.75 8.06 8.36 15 years $6.91 7.15 7.40 7.65 7.91 8.17 8.44 8.71 8.99 9.27 9.56
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