4. Alternatively you decide the most you can afford in a monthly payment for a home is $750. You plan on taking out a 30 year loan for 4%. How much can you borrow? What is the total amount of home you can afford? (assume the $20000 down payment listed above)

Answer 1

750/mo. * 360mo. = $270,000 = Total cost,
P = (Po*r*t)/(1-(1+r)-t) = 270,000,
r = 0.04/12 = 0.000328/mo.
a. (Po*0.000328*360)/(1-1.000328^-360) = 270,000,
(Po*0.1180)/(0.1114) = 270,000,
1.059Po = 270,000,
Po = $254,898.31 = Max. amount that can be borrowed.

b. 254,898.31 + 20,000 = $274,898.31 = Max. amt. of home that I can afford.