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Your annual gross ( pre - tax ) salary is $ 6 7 , 0 0 0 . You can obtain a 3 0 -

Your annual gross (pre-tax) salary is $67,000. You can obtain a 30-year fixed rate mortgage at annual percentage rate (or APR) of 6.0%. You have $5,000 in other annual pre-tax income. You also have to pay $750 per month on an auto loan and student loans. What is the most expensive home you can buy under these circumstances?
Assuming that you are making a 25% down payment in order to avoid private mortgage insurance (or PMI), what is the price of the most expensive house you can afford to buy?
(Hint: You already know the maximum amount you can borrow is $213,643, which is equal 75% of the price of the most expensive house you can afford. In reality, this is an over-estimate of what you can afford because we neglected the effect of property taxes and homeowners insurance which can substantially increase your monthly mortgage payment.)
a. $289,542
b. $296,645
c. $308,267
d. $313,568

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