Question

Eli is buying a townhouse that costs $276,650. He has $28,000 in savings and earns $4,475 a month. Eli would like to spend no more than 30% of his income on his mortgage payment. Which loan option would you recommend to Eli?
a.
30 year FHA, 3.5% down at a fixed rate of 6.5%
b.
30 year fixed, 5% down at a fixed rate of 6.25%
c.
30 year fixed, 6.5% down at a fixed rate of 5.75%
d.
30 year fixed, 10% down at a fixed rate of 5%


Please select the best answer from the choices provided

A
B
C
D

Answer 1

First find Eli’s monthly budget for a mortgage: 30% of $4,475 = $1,342.50.

Compute each loan’s monthly P&I (30 years = 360 months) and check down payment vs. his $28,000 savings:

a) FHA 3.5% down: down = $9,682.75, loan = $266,967.25, rate 6.50% → payment ≈ $1,687.77 (over budget).

b) 5% down: down = $13,832.50, loan = $262,817.50, rate 6.25% → payment ≈ $1,617.64 (over budget).

c) 6.5% down: down = $17,982.25, loan = $258,667.75, rate 5.75% → payment ≈ $1,509.33 (over budget).

d) 10% down: down = $27,665.00 (≤ $28,000), loan = $248,985.00, rate 5.00% → payment ≈ $1,336.61 (within budget).

Only option D meets Eli’s 30%-of-income limit and he can afford the required down payment, so choose D.