Question

Suppose you take a 15 year mortgage for a house that costs $253,368. Assume the following: The annual interest rate of the mortgage is 4.4%. The bank requires a minimum down payment of 8% of the cost of the house. The annual property tax is 1.9% of the cost of the house. The annual homeowners insurance is $844. The monthly PMI is $55. If you make the minimum down payment, what is the minimum gross monthly salary you must earn in order to satisfy the 28% rule?

Answer 1

The minimum gross monthly salary you must earn in order to satisfy the 28% rule is $10,968.46.

What is the minimum gross monthly salary required?

The down payment:

= 8% of $253,368

= $20,269.44

The loan amount:

= $253,368 - $20,269.44

= $233,098.56

The monthly mortgage payment using the loan amount and interest rate: = $233,098.56 * (0.044/12) / (1 - (1 + 0.044/12)^(-15*12))

= 1771.29836086

= $1,771.29

The annual property tax:

= 1.9% of $253,368

= $4,810.99

The monthly property tax:

= $4,810.99 / 12

= $400.92

The total monthly payment:

= $1,771.65 + $400.92 + $844 + $55

= $3,071.57

The minimum gross monthly salary required to satisfy the 28% rule:

= $3,071.57 / 0.28

= $10,968.46.