Personal Financial Planning 13th Edition by Lawrence Gitman,Michael Joehnk,Randy Billingsley

Exercise 31

Use Worksheet 5.3. Jennie and Caleb McDonald need to calculate the amount that they can afford to spend on their first home. They have a combined annual income of $47,500 and have $27,000 available for a down payment and closing costs. The McDonalds estimate that homeowner's insurance and property taxes will be $250 per month. They expect the mortgage lender to use a 30 percent (of monthly gross income) mortgage payment affordability ratio, to lend at an interest rate of 6 percent on a 30-year mortgage, and to require a 15 percent down payment. Based on this information, use the home affordability analysis form in Worksheet 5.3 to determine the highest-priced home that the McDonalds can afford.
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