Final answer:
With a $56,400 yearly income, $12,000 in savings, and a credit score of 700, the client could consider a conventional or FHA loan.
USDA loans are for rural areas and subprime are for lower credit scores. The total payment over 30 years at a 4.2% interest rate would be $360,000 for a loan amount of approximately $201,163.
Step-by-step explanation:
Based on the client's income of $56,400 per year, a credit score of 700, and savings of $12,000, conventional loans and FHA loans may be suitable options. Conventional loans usually require a higher down payment and a good credit score, which the client has.
However, FHA loans allow lower down payments, as little as 3.5%, which might be beneficial since the client has saved $12,000, slightly below the 20% guideline for conventional loans. Still, with a credit score of 700, they would likely be able to secure a good interest rate on either mortgage.
USDA Rural Development loans are targeted towards rural homebuyers and might not apply, while subprime loans are generally for those with poor credit history.
Considering the client can afford $12,000 a year for a house loan with a 4.2% annual interest rate and a 30-year loan term, we can use the formula for calculating the maximum loan amount based on the annual payment allowed, the interest rate, and the loan term.
Given these factors, the client could afford a maximum loan of approximately $201,163, calculated using an amortization formula or a financial calculator.
Over the course of 30 years, they would end up paying a total of $360,000 (excluding potential additional costs like mortgage insurance), which includes both the principal loan amount and the interest payments.