Question

9. Can I afford this home? - Part 1 Can Alden and Jesse Afford This Home Using the Monthly Income Loan Criterion? Next week, your friends Alden and Jesse want to apply to the Fourth Global Bank for a mortgage loan. They are considering the purchase of a home that is expected to cost $155,000. Given your knowledge of personal finance, they've asked for your help in completing the Home Affordability Worksheet that follows. (Note: When completing the form, round each dollar amount to the nearest whole dollar.) To assist in the preparation of the worksheet, Alden and Jesse also collected the following information . Their financial records report a combined gross before-tax annual income of $145,000 and current (premortgage) installment loan, credit card, and car loan debt of $2,115 per month . Their property taxes and homeowner's Insurance policy are expected to cost $1,550 per year. • Their best estimate of the interest rate on their mortgage is 7.5%, and they are interested in obtaining a 15-year loan. . They have accumulated savings of $38,500 that can be used to satisfy the home's down payment and closing costs. • The Lender requires a minimum 20% down payment, and an affordability ratio that ranges from a minimum of 25% to a maximum of 30%. A table of monthly payments (necessary to repay a $10,000 loan) follows: Interest Rate(%) 5.0 6.0 Loan Maturity 10 Years 15 Years 20 Years 106.0655 79.0794 65.9956 108.5263 81.7083 68.7887 111.0205 84,3857 71.6431 113.5480 87.1107 74.5573 116.1085 19.6828 77.5299 118.7018 92.7012 80.5593 121.3276 95.5652 83.6440 25 Years 58.4590 61.4087 64.4301 67.5207 70.6779 73.8991 77.1816 30 Years 53.6822 56.7789 59.955: 63.2068 65.5302 69.9215 73.3765

Answer 1

Summary

1. If the income-affordable ratio is 30%, Aiden and Jesse qualify for the mortgage.

2. If the income-affordable ratio is 25%, Aiden and Jesse Not qualify for the mortgage.

	Home Affordability Worksheet (Based on Monthly Income)
	Particulars	Working	High value	Low value	Amount
1	Annual Income				1,45,000.00
2	Monthly Income	145000/12			12,083.33
3	Lender's monthly income affordable ratio		30%	25%
4	Maximum monthly Mortgage payment	(12083.33*30%,12083.33*25%)	3,625.00	3,021.00
5	Estimated monthly property tax and insurance				129.17
6	Maximum monthly Loan payment (P and I only)	(Given)	2,115.00	2,115.00
7	Expected Interest rate				7.50%
8	Planned loan maturity (years)				15.00
9	Mortgage payment factor per $10000				92.7012
10	Maximum loan based on monthly income	(4)-(6)	1,510.00	906.00
11	Funds available for down payment and closing costs				38,500.00
12	Required downpayment(20%)	155000*20%			31,000.00
13	Maximum purchase price based on monthly income		1,510.00	906.00
14	Amount to be paid as per mortgage payment factor	155000/10000*92.7012			1,437.00