Your parents are buying a house for $187,500. They have a good credit rating, are making a 20% down payment, and expect to pay $1,575 a month. The interest rate for the mortgage is 4.65%. What must their realized income be before each month?

Answer 1

To determine the realized income necessary for your parents to afford a mortgage payment of $1,575 per month, we can use the 28% rule, which suggests that homeowners should not spend more than 28% of their gross monthly income on housing expenses.

First, let's find the required gross monthly income using the 28% rule:

\[ \text{Monthly Income} = \frac{\text{Monthly Payment}}{0.28} \]

Substituting the values:

\[ \text{Monthly Income} = \frac{1575}{0.28} \approx 5625 \]

Thus, their required gross monthly income would be approximately $5,625.

To find the annual income:

\[ \text{Annual Income} = \text{Monthly Income} \times 12 = 5625 \times 12 = 67,500 \]

Therefore, your parents’ realized income must be approximately $67,500 per year before tax in order to afford a monthly mortgage payment of $1,575 under the 28% rule.