Selma and Rodney Jackson 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 Jacksons 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 Jacksons can afford.
Based upon the Worksheet 5.3 below, the maximum purchase the Jacksons can afford is $120,600. This amount can be increased by accumulating additional amount for down payment.