Theresa is buying a condo that costs $127,500. She has $8,300 in savings and earns $3,200 a month. Theresa would like to spend no more than 20% of her income on her mortgage payment. Which loan option would you recommend to Theresa?

Twenty percent of Theresa’s $3,200 monthly income is $640, so her mortgage payment should be no more than that. Option A requires a down payment of 6.5% × $127,500 = $8,287.50, which fits within her $8,300 savings, and its 30-year loan at 5% has a monthly principal-and-interest payment of about $640. The other options have higher monthly payments, and option D also requires more savings than she has.

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