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You have reviewed your personal financial situation and have decided that you can afford a monthly mortgage payment of $1,200 if you put down 5% of the home price. After speaking to a mortgage specialist, you are prepared to get a 30-year mortgage at an interest rate of 6%. How much is the home price that you can afford in $s

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The amount of the home price that one can afford is $210,682.11.

Here, we are to calculate the amount of the home price that one can afford using the data provided in the question

Given Information

  • Can afford monthly mortgage payment of $1,200
  • Down 5% of the home price
  • 30-year mortgage at an interest rate of 6%

Let P represent the price of house.

Principal of loan = P * (1 - 5%)

Principal of loan = 0.95*P

  • Now, we will use the formula of present value of annuity:

Given Information

Monthly payment = $1,200

PV of Annuity factor (6%/12, 30*12) => (0.5%, 360) = 166.79

Present value of the loan = Monthly payment * Annuity factor

Present value of the loan = $1,200 * 166.79

Present value of the loan = $200,148

Total value of the house = P = $200,148 / 0.95

Total value of the house = $200,148 / 0.95

Total value of the house = $210,682.11

Therefore, the amount of the home price that one can afford is $210,682.11.

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