You are able to pay $1200 per month in mortgage repayments. You can get a 30 year loan with interest of 8.5% compounded monthly but you must pay 5% of the cost of the house as an initial payment. Assuming that you have saved enough for the initial payment, what is the highest price you can afford to pay for a house?

The 5% part is confusing me a bit.

PV of the loan = $165064.37

Do i simply multiply this by 1.05?

Thanks in advance,