Kim and Dan Bergholt are both government workers. They are considering purchasing a home in the Washington D.C. area for about $280,000. They estimate monthly expenses for utilities at $220, maintenance at $100, property taxes at $380, and home insurance payments at $50. Their only debt consists of car loans requiring a monthly payment of $350.
Kim's gross income is $50,000/year and Dan's is $35,000/year. They have saved about $60,000 in a money market fund on which they earned $5,840 last year (included in the $60,000). They plan to use most of this for a 20% down payment and closing costs. A lender is offering 30-year variable rate loans with an initial interest rate of 7% given a 20% down payment and closing costs equal to $5,400.
Before making a purchase offer and applying for this loan, they would like to have some idea whether they might qualify.
- Estimate the affordable mortgage and the affordable purchase price for the Bergholts.