Question

Andre Wheeler wants to know what home price he can afford. His annual gross income is $66,000. He has no other debt expenses and expects property taxes and insurance to cost $300 per month. He knows he can get a 9.00 percent, 15 -yeor mortgage so his mortgoge payment factor is 10.14. He expects to make a 15 percent down payment. What is Andre's affordable home purchase price? Note: Do not round intermediate calculations and round your final answer to the nearest $100. Multiple Choice $226,100 5175,800 $196,700 $155,200 $124,900

Answer 1

The nearest $100 of Andre's affordable home purchase price is $1,700.

Step-by-step explanation:

To calculate the home price that Andre Wheeler can afford, we will follow these steps:

1. Determine Andre's annual mortgoge payment by subtracting the annual property taxes and insurance from the annual income deemed affordable for housing. Property taxes and insurance cost $300 per month, so $300 x 12 = $3,600 per year. Andre's affordable annual housing cost = $66,000 (Annual gross income) x 28% (standard recommended housing cost percentage) - $3,600 = $14,880.
2. Calculate the maximum loan amount using the payment factor. Maximum loan = Affordable annual payment / Payment factor. Maximum loan = $14,880 / 10.14 = approximately $1,467.46 (rounded)
3. Calculate the purchase price, considering the 15% down payment. Purchase price = Maximum loan amount / (1 - Down payment percentage). Purchase price = $1,467.46 / (1 - 0.15) = approximately $1,726.42.