Nick found his dream home that has a purchase price of $192,000. Nick earns $3,325 a month and wants to spend no more than 30% of his income on his mortgage payment. He has saved up $35,000 for a down payment. Nick is considering the following loan option: 20% down, 30 year at a fixed rate of 6.25%. What modification can be made to this loan to make it a viable option, given Nick’s situation?

A 20% down payment would be $38,400, which is more than Nick’s $35,000 in savings. Reducing the down payment to 18% makes it $34,560, which he can afford. The resulting loan is $157,440, with an estimated monthly payment of about $969 at 6.25% for 30 years. That is below Nick’s limit of 30% of $3,325, or $997.50, so changing the down payment to 18% makes the loan viable.

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