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Chapter 5 Financial Planning Exercise 8 Home affordability analysis

Use Worksheet 5.3. Rachel and Alexander Harrison need to calculate the amount they can afford to spend on their first home. They have a combined annual income of $67,500 and have $37,000 available for a down payment and closing costs. The Harrisons estimate that homeowner's insurance and property taxes will be $200 per month. They expect the mortgage lender to use a 29 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 20 percent down payment. Based on this information, use the home affordability analysis form in Worksheet 5.3 to determine the highest-priced home the Harrisons can afford. Assume that closing costs are one-half of the down payment. Round the answer to the nearest dollar.