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Duane Miller wants to know what price home he can afford. His annual gross income is...

Duane Miller wants to know what price home he can afford. His annual gross income is $49,200. He has no other debt expenses and expects property taxes and insurance to cost $320 per month. He knows he can get a 8.50%, 15 year mortgage so his mortgage payment factor is 9.85. He expects to make a 15% down payment. What is Duane's affordable home purchase price?

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Answer #1

STEPS:

1) Annual Gross Income = 49,200

Monthly Gross Income = 49,200/12 = $4100

As per guidelines, lenders use 33% of monthly gross income PITI (Principal, Interest , Taxes and Insurance) in case of no other debt expenses

2) PITI = Monthly Gross Income - 33% of Monthly Gross Income

= 4100 - (4100*33%)

= $2747

3) PITI - Property Taxes = 2747 - 320 = $2427

4) Dividing the remaining amount by monthly mortgage payment per 1000$ based on current mortgage rates

= 2427/9.85 *1000

= 246,395.94

5) Affordable Home Purchase Price = Affordable Mortgage Amount / (100%-Down payment %)

Affordable Home Purchase Price = 246,395.94 / .85

Affordable Home Purchase Price = 289,877.58

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