I need to estimate the affordable mortgage and the affordable purchase price for the Bergholts. Please show all work and give an explanantion of how you got it. Here is their information:
Kim and Dan Bergholt are both government workers. They are considering purchasing a home in the Washington D.C. area for about $280,000. They estimate monthly expenses for utilities at $220, maintenance at $100, property taxes at $380, and home insurance payments at $50. Their only debt consists of car loans requiring a monthly payment of $350.
Kim's gross income is $50,000/year and Dan's is $35,000/year. They have saved about $60,000 in a money market fund on which they earned $5,840 last year (included in the $60,000). They plan to use most of this for a 20% down payment and closing costs. A lender is offering 30-year variable rate loans with an initial interest rate of 7% given a 20% down payment and closing costs equal to $5,400.
Given that the Bergholt couple will purchase the house, below is their expected monthly expenses excluding the mortgage payment.
Expense Item Amount
Property taxes 380
Home insurance 50
Total home related expenses 750
Car loan payment 350
The solution is comprised of a detailed explanation of how to determine the affordable mortgage and affordable purchase price.