Problem
Your client wants to know how much they will be able to spend on a house. They have an annual income of $120,000, and they have saved up $30,000, the remainder of which they will spend on the house purchase after covering closing costs. The local bank is offering a 30-year fixed rate mortgage at an annual interest rate of 6.9%. Closing costs will be 5% of the loan amount, and the bank will not give them a loan in which the monthly payments exceed 28% of their monthly income. What is the maximum amount they can afford to pay for the house?