1. Estimate the affordable mortgage and the affordable purchase price for the Bergholts.
2. Suppose they do qualify. What other factors might they consider before purchasing and taking out a home mortgage?
3. What future changes might present problems for the Bergholts?
Kim and Dan Bergholt are government workers. They are considering purchasing a home in the Washington, D.C., area for about $280,000. They estimate monthly expenses for utilities at $220, maintenance at $100, property taxes at $380, and home insurance payments at $50. Their only debt consists of car loans requiring a monthly payment of $350. Kim’s gross income is $55,000 per year and Dan’s is $38,000 per year. They have saved about $60,000 in a money market fund on which they earned $5,840 last year. They plan to use most of this for a 20 percent down payment and closing costs. A lender is offering 30-year variable rate loans with an initial interest rate of 8 percent given a 20 percent down payment and closing costs equal to $1,000 plus three points.
Before making a purchase offer and applying for this loan, they would like to have some idea whether they might qualify.