According to the banker’s rule, if Johnny makes $90,000 per year running his own auto shop, how much can he afford to borrow on a mortgage for a new house?
To calculate how much Johnny can afford to borrow on a mortgage for a new house according to the banker's rule, we need to consider his annual income and the debt-to-income ratio. The banker's rule generally suggests that a person's monthly mortgage payment should not exceed 28% of their gross monthly income.
First, let's calculate Johnny's monthly income by dividing his annual income by 12:
Monthly income = $90,000 / 12 = $7,500
Next, let's determine the maximum monthly mortgage payment he can afford. Multiply his monthly income by 28%:
Maximum monthly mortgage payment = $7,500 * 28% = $2,100
Now, we need to consider the loan terms, such as the interest rate and the length of the mortgage, to calculate the maximum amount Johnny can borrow. For this explanation, let's assume a standard 30-year mortgage.
To estimate the borrowing amount, we can use the mortgage affordability calculator formula:
Borrowing amount = (Maximum monthly mortgage payment / Monthly payment per $1,000 borrowed) * 1,000
Now, we need to find the monthly payment per $1,000 borrowed. To calculate this, we can use a mortgage payment calculator or refer to mortgage tables that outline the monthly payment for different interest rates and mortgage terms. Assuming an interest rate of 4%:
Monthly payment per $1,000 borrowed = $4.77 (approximate value based on a 30-year mortgage at 4%)
Finally, we can calculate the maximum borrowing amount:
Borrowing amount = ($2,100 / $4.77) * $1,000 ≈ $439,939
Therefore, based on the banker's rule, Johnny can afford to borrow approximately $439,939 on a mortgage for a new house, assuming a 30-year mortgage term and an interest rate of 4%.
check the rule to see the % limit
multiply 90K by that % amount
If you can find a one-bedroom apartment for under $1,300 or two-bedroom apartment for under $1,900 within 5 miles of your work or school, and with the 3 amenities you circled above, show your teacher for two extra points on this Checkpoint.
3. The new apartment you are about to sign a one-year lease on is $1,500 per month. The lease requires you to put up first month’s rent and a $750 security deposit to move in. In addition, keeping your cat will cost an additional $300 for a pet deposit. How much do you need to write a check for to the landlord at the time of move in? (Section 9.4) (1 point)
To move in the apartment payments to be done,
1). First month rent = $1500
2). Security deposit = $750
3). Pet deposit = $300
Total payment to be done = 1500 + 750 + 300
= $2550