Ms. Bayer comes to your bank, Bank of America (BOA), to ask for advice on a planned house purchase. Her annual salary is $60,000. BOA does not charge a fee (just assume this; it is not true in the real world) on housing loans, and it allows a custom’s monthly mortgage payment to be equal to 30% of the customer’s monthly salary (before-tax). For a 30-year fixed-rate loan with an interest rate of 6%, compounded monthly, 

answer the following two questions:

 (1) how much (the maximum amount) can BOA lend to Ms. Bayer? 

(2) To finance the purchase of a house, BOA requires that the home buyer come up with a 20% down payment. Assume Ms. Bayer can make the 20% down payment. Based on the maximum loan amount, what is the maximum price of a house Ms. Bayer can buy?

Answer rating: 100% (QA)

To calculate the maximum loan amount that Bank of America BOA can lend to Ms Bayer we need to consid... View the full answer