Michelle Duncan wants to know what price home she can afford. Her annual gross income is $43,200. She owes $670 per month on other debts and expects her property taxes and homeowners insurance to cost $240 per month. She knows she can get an 6.00%, 30-year mortgage so her mortgage payment factor is 6.00. She expects to make a 20% down payment. What is Michelle's affordable home purchase price?
Answer : 95417
Calculation :
First calculate monthly gross income (annual income / 12).
$43,200/12 = $3600
With a down payment of at least 3.5 percent, lenders use 38 percent of monthly gross income as a guideline for PITI plus other debt payments.
3600 * 0.38 = $1,368
Deduct other debt payments and monthly costs of property taxes and homeowner’s insurance.
$1,368 - 670 - 240 = $458
Divide this amount by the monthly mortgage payment per $1,000 based on current mortgage rates
($458/6.00) x $1,000 = $76,333
Divide affordable mortgage amount by 1 less portion of the down payment
$76333/(1 - 0.2) = $95417
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