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Calculation Of Down Payment For Housing Loan

Question

Michelle and Ken Dunn, both in their mid-20s, have been married for 4 years and have two preschool-age children.  Ken has an accounting degree and is employed as a cost accountant at an annual salary of $62,000.  They’re now renting a duplex but wish to buy a home in the suburbs of their rapidly developing city.  They’ve decided they can afford a $215,000 house and hope to find one with the features they desire in a good neighborhood.

The insurance costs on such a home are expected to be $800 per year, taxes are expected to be $2,500 per year, and annual utility bills are estimated at $1,440—an increase of $500 over those they pay in the duplex.  The Dunns are considering financing their home with a fixed-rate, 30-year, 6% mortgage.  The lender charges 2 points on mortgages with 20% down and 3 points if less than 20% is put down (the commercial bank the Dunns will deal with requires a minimum of 10% down).

Other closing costs are estimated at 5% of the home’s purchase price.  Because of their excellent credit record, the bank will probably be willing to let the Dunns’ monthly mortgage payments (principal and interest portions) equal as much as 28% of their monthly gross income.  Since getting married, the Dunns have been saving for the purchase of a home and now have $44,000 in their savings account.

How much would the Dunns have to put down if the lender required a minimum 20% down payment? Could they afford it?

Summary

The question belongs to Finance and it discusses about a scenario where a couple wants to buy a house with loan from bank. The bank requires a down payment of 20% of the total cost of the house. Calculation of whether or not the couple can afford the down payment has been given in the solution.

Total Word Count 31

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    Giuseppe

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