Question

The Williams are buying a house that costs $323,000 and can afford a 10% down payment. If the Williams want the lowest monthly payment, which loan option would you recommend?
a.
15 year fixed, 5% down at a fixed rate of 5.5%
b.
30 year FHA, 3.5% down at a fixed rate of 6.25%
c.
30 year fixed, 20% down at a fixed rate of 5.75%
d.
30 year fixed, 10% down at a fixed rate of 6%

Answer 1

First eliminate any option they can't afford: (c) requires 20% down and they can only make 10%, so (c) is not possible.

Compute loan amounts and monthly payments for the feasible choices:

- (a) 15-yr, 5% down: down = 0.05·323000 = 16,150 → loan = 306,850. Rate 5.5%, 15 years → monthly ≈ $2,508.
- (b) 30-yr FHA, 3.5% down: down = 11,305 → loan = 311,695. Rate 6.25%, 30 years → monthly ≈ $1,918.
- (d) 30-yr, 10% down: down = 32,300 → loan = 290,700. Rate 6.0%, 30 years → monthly ≈ $1,743.

The lowest monthly payment is option (d): the 30-year fixed with 10% down at 6%. Recommend (d).