Question

Suppose you have saved $14000 for a down payment on a house, and can afford $800 per month in payments. If the current interest rates on a 30-year mortgages are 6% annually, what is the most expensive house you can afford?

Answer 1

To determine the most expensive house you can afford, subtract the down payment from your savings and calculate the maximum loan amount using the monthly payment and interest rate. The most expensive house you can afford is $160,000.

Step-by-step explanation:

To determine the most expensive house you can afford, you need to calculate the loan amount you can afford based on your down payment and monthly payments.

First, find the total amount available for the loan by subtracting the down payment of $14,000 from your savings.

$14,000 - $14,000 = $0

Next, calculate the maximum loan amount using the formula:

Max Loan Amount = Monthly Payment / Monthly Interest Rate

First, convert the annual interest rate to a monthly interest rate by dividing by 12:

Monthly Interest Rate = 6% / 12 = 0.5%

Then, substitute the values into the formula:

Max Loan Amount = $800 / 0.5% = $160,000

Therefore, the most expensive house you can afford is $160,000.