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College Math - Affordable Home Purchase Price

by April Dickey
(Ardmore, OK, USA)










































Affordable Home Purchase Price

   • Assume you can afford a down payment equal to 25% of your yearly income.

       1. What is the total purchase price can you afford for a home?

       2. Would this amount allow you to purchase a home in the area where you live?


Using 7% interest rate on a 25 year loan I get:

    7.70x = 560

    x = 181.818

    181.818 * 1000 = $181,818

now we must add in my down payment 25% of my yearly income is:

    .25 * 24,000 = $6,000

    $181,818 + 6,000 = $187,818


Is this right or did I do it wrong?

Comments for College Math - Affordable Home Purchase Price

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Aug 14, 2012
Home Purchase Price
by: Staff


Answer:


The procedures you used are correct.

However, the solution for x in the equation 7.70x = 560 is not correct.


Generally, your monthly mortgage payments should be no more than 28% of your monthly income.

Your annual income is $24,000.

Your monthly income = $24,000 ÷ 12 months = $2,000 per month

Your monthly mortgage payments should be no more than:

.28 * $2,000 = $560 per month


Up to this point the numbers you used are correct.


The following equation is also correct:

7.70x = 560


However, the next step in your calculations is incorrect.

7.70x = 560, OK

x ≠ 181.818, x does not equal 181.818 - ERROR


to solve for x, divide each side of the equation by 7.70

7.70x = 560

7.70x / 7.70 = 560 / 7.70

x * (7.70 / 7.70) = 560 / 7.70

x * (1) = 560 / 7.70

x = 560 / 7.70

x = 72.7273


You can afford a mortgage of

72.7273*1000 = $72,727.30


Your down payment is calculated correctly:

Down payment = .25 * 24,000 = $6,000


Add the down payment of $6,000 to your mortgage

$72,727.30 + $6,000 = $78,727.30


Can purchase a home costing about $78,727





Thanks for writing.

Staff
www.solving-math-problems.com



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