You are planning to buy a house Assume that you have the cas

You are planning to buy a house. Assume that you have the cash to pay 20% down payment on any home that your $2,400/month maximum payment can afford including taxes and insurance (no PMI required). A lender offers you a 30 year fixed mortgage for the remaining 80% with 4.5% APR with 1.5 points and $2,000 in fees. Property taxes are $3,600 and Casualty Insurance is $1,200.

How expensive of a home can you purchase today?

What would your total amount due at closing be? (assuming no credits for prepaid property taxes)

Please help with homework and show work prior to answer for better understanding thanks. Will rate if correct thanks a lot everyone.

Solution

PMT = 2400, r = 4.5/12 = 0.375%, N = 360 months, FV = 0

Compute PV = (2400/0.00375)*(1 - 1/1.00375^360) = 473666.78

Let the price of the house be X

80% funded by mortgage

0.8X + 0.015*0.8X + 2000 + 3600 + 1200 = 473,666.78

0.8*1.015 X = 466,866.78

X = 466,866.78 / (0.8*1.015) = 574,959.09