Please do not use Excel. Please show your work and make sure to label for my und
ID: 2801769 • Letter: P
Question
Please do not use Excel. Please show your work and make sure to label for my understanding. Thanks!
Jack receives the appraisal value of his house of $375,000 from the county appraisers. Considering his wage increases to a level that he can support another mortgage, he wants to invest in housing market by carrying out cash out refinance. The current house mortgage balance is $210,000. He uses conventional mortgage. He wants to use the cash out fund to support a new house. Suppose his new mortgage LTV=80% as well. Before renting the house out, he plans to use $30,000 (including all related fees but down payment) to furnish the new house. What is the highest price of the house that he can buy?
Explanation / Answer
Appraisal value = $375000
Current mortgage balance = $210,000
Home equity = Appraisal value - Current mortgage value = $375,000 - $210,000 = $165,000
Home equity is the value of the house that Jack owns. If he wants a new mortagage, it will have a limit of $165,000
HIghest Price of the house he can buy * LTV = Mortagage limit
HIghest Price of the house he can buy * 80% = $165,000
HIghest Price of the house he can buy = 165,000/0.8 = $206250