Michelle Duncan wants to know what price home she can afford. Her annual gross income is $52,200. She owes $760 per month on other debts and expects her property taxes and homeowners insurance to cost $250 per month. She knows she can get an 6.00%, 30-year mortgage so her mortgage payment factor is 6.00. She expects to make a 20% down payment. What is Michelle's affordable home purchase price?

Affordable home purchase price of Michelle Duncan is $133,958.

Explanation:

Determine the monthly gross income (annual income  divided by 12).

$52,200/12 = $4,350

With a down payment of at least 3.5 percent, lenders use 33 percent

of monthly gross income as a guideline for PITI (principal, interest,

taxes, and insurance) and 38 percent of monthly gross income as a

guideline for PITI plus other debt payments.

4350 * 0.38 = $1,653

Subtract other debt payments and monthly costs of property taxes and homeowner’s insurance.

$1,653 - 760 - 250 = $643

Divide this amount by the monthly mortgage payment per $1,000  based on current mortgage rates

($643/6.00) x $1,000 = $107,166

Divide your affordable mortgage amount by 1 minus the fractional  portion of the down payment

$107,166/(1 - 0.2) = $133,958

Affordable home purchase price of Michelle Duncan is $133,958.

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