Final answer:
Without specific details on Erica's debt-to-income ratio or other financial obligations, we cannot accurately determine the maximum loan she can take out on a house. The determination would involve her monthly expenses, the interest rate, and the loan duration using formulas or loan calculators.
Step-by-step explanation:
The maximum loan Erica can take out for a house largely depends on her monthly income, existing debts, and the terms of the loan, including interest rate and loan duration. To determine the maximum loan amount, we should consider the fact that lending institutions often use a debt-to-income ratio to ensure that the monthly loan payment does not exceed a certain percentage of the borrower's income. For example, if we assume a 30-year fixed loan with an annual interest rate of 4.2%, and with the notion that Erica can afford similar terms as Joanna, such as the 12,000 a year ($1,000 a month) for a house loan, then we would use a present value formula or a loan calculator to determine the total amount she could borrow. However, without the exact percentage that Erica can dedicate to a house loan or additional information on her debts or other expenses, we cannot calculate a precise figure.
For illustration, we look at Joanna, who can afford a 12,000 annual payment for her house loan at an annual interest rate of 4.2% over 30 years. Using a finance calculator or the present value of an annuity formula would reveal the maximum loan she could afford. Keeping in mind the cost savings by paying more than the minimum payment, as seen with the example that reduced the total number of payments to 294.5 months (about 24.5 years) and saved a significant amount over the life of the loan.
It is crucial to assess one's monthly expenses and debts before determining the affordable housing cost which then dictates the maximum loan amount and to plan for the total cost over the entire term of the loan.