11. Can I afford this home? Part 1 Aa Aa Can Ryan and Sophia Afford This Home Us
ID: 1171265 • Letter: 1
Question
11. Can I afford this home? Part 1 Aa Aa Can Ryan and Sophia Afford This Home Using the Monthly Income Loan Criterion? Next week, your friends Ryan and Sophia want to apply to the Tenth National Bank for a mortgage loan. They are considering the purchase of a home that is expected to cost $245,000. 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, Ryan and Sophia also collected the following information: Their financial records report a combined gross before-tax annual income of $85,000 and current (premortgage) installment loan, credit card, and car loan debt of $1,240 per month. Their property taxes and homeowner's insurance policy are expected to cost $3,675 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 $56,500 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 or 25% to a maximum of 30%. A table of monthly payments (necessary to repay a $10,000 loan) follows: Interest Rate (%) 1O Years 106.0655 108.5263 111.0205 113.5480 6.1085 118.7018 121.3276 123.9857 25 Years 58.4590 61.4087 64,4301 67,5207 70.6779 3.8991 77.1816 80.5227 83.9196 87.3697 90.8701 30 Years 53.6822 56.7789 59.9551 63.2068 66.5302 69.9215 73.3765 76.8913 80.4623 84.0854 87.7572 15 Years 9.0794 81.7083 84.3857 89.8828 92.7012 95.5652 98.4740 126.6758 101.4267 29.3976 104.4225 132.1507 07.4605 20 Years 65.9956 68.7887 71.6431 7.1107 74.5573 77.5299 80.5593 83.6440 86.7823 89.9726 93.2131 96.5022 10.0 Note: Unless labeled differently, all of the following values represent dollar amounts. Also, some values calculated or used in the upper section of the table may also be used in the lower section. Home Affordability Worksheet Based on Monthly Income 1. Annual income 2. Monthly income 3. Lender's monthly income affordability ratio 4 Maximum monthly mortgage payment (PITI) S. Estimated monthly property tax and insurance payment 6. Maximum monthly loan payment (P and I only) 7. Expected interest rate 8. Planned loan maturity (years) 9. Mortgage payment factor per $10,000 (from the Loan Maturity table) 10, Maximum loan based on monthly income 11. Funds Available for a Down Payment and Closing Costs 12. Required(20%) Down Payment 13, Maximum Purchase Price Based on Monthly Income High Value Low Value Amount 85,000 30% 25% 15 Given these results, which statement regarding Ryan and Sophia's mortgage qualification process and their purchase of their $245,000 target home is true? Ryan and Sophia do not qualify to purchase their $245,000 target home according to the Monthly Income Affordability Worksheet criterion. O Ryan and Sophia qualify to purchase their $245,000 target home according to the Monthly Income Affordability Worksheet criterion.Explanation / Answer
High value Low value Amount 1 Annual Income 85000 2 Monthly Income 7083 3 Lender's mothly income affordability ratio 30% 25% 4 Maximum monthly mortgage payment(PITI) 4900 4083 5 Estimated monthly property tax and insurance payment 306.25 6 Maximum monthly loan payment( P AND I only) 1816.9435 1225 7 Expected interest rate 7.50% 8 Planned loan maturity 15 9 Mortgage Payment factor per $10000(from the loan maturity table) 92.7012 10 Maximum loan based on monthly income 189102 157585 11 Funds available for a down payment and closing costs 56500 12 Required 20% down payment 49000 13 Maximum purchase price based on monthly income 236377 196981 Thus the 1st statement is true Ryan & sophia do not qualify to purchase their $245000 target home according to monthly income and aaffordability worksheet criteria
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