Estimate the affordable monthly mortgage payment, the affordable mortgage amount, and the affordable home purchase price for the following situation:
Monthly gross income $2,950
Down payment to be made- 15% of purchase price
Other debt(monthly payment) $160
Monthly estimate for property taxes and insurance $210
30 year loan at 8%
** Please see the attached file for the complete solution response **
Because you did not define "affordable," I used the guidelines at the American Banker's Association website (http://www.aba.com/aba/cgi-bin/howbignt.pl). The guidelines listed are:
1. House payments of principal, interest, taxes, and homeowner's insurance (PITI) should not exceed 28% of your gross monthly pay.
2. This monthly housing payment (PITI) plus your current monthly debt payments should not exceed 36% of your gross monthly pay.
Note that each guideline is restrictive; if a monthly mortgage payment ...
Citing sources and using an Excel 97-2003 spreadsheet, this solution describes the Federal guidelines for an "affordable" mortgage and illustrates the steps to computing the amount of that mortgage and the related monthly payment amount.