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As an individual who earns $125,000 annual income. What is the recommended budget when purchasing a...

As an individual who earns $125,000 annual income. What is the recommended budget when purchasing a new home

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Answer #1

Assuming a take home pay of 70%

=125000*0.7=87500

Monthly take home = 87500/12=7291.66

Applying 1/3 rule of income as motgage payment = 7291.66/3= 2430

Considering mortgage of 20 years with 5% interest rate

Loan amount :

PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)]
C = Cash flow per period
i = interest rate
n = number of payments
PV= 2430*((1-(1+ 5/1200)^(-20*12))/(5/1200))
PV = 368206.51

Adding 10% as down payment

Budget = motgage amount/(1-down%) = 368206.51/(1-0.1)= 409118.34

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