You wish to qualify for a $200,000 mortgage. Your monthly payment (principal and
ID: 2714145 • Letter: Y
Question
You wish to qualify for a $200,000 mortgage. Your monthly payment (principal and interest) must not exceed 25% of your monthly income. Your monthly payment plus taxes and insurance must not exceed 28% of your monthly income. Your monthly payment, taxes, and insurance and other debt payments must not exceed 33% of your monthly income. The loan is for 30 years. Interest rates for these loans are 7%. Taxes and Insurance are $250 per month and you have a $300 car loan as your only other debt. Which of the following best describes how high your monthly income needs to be for you to qualify? a) 5,500 b) 5,600 c) 5,650 d) 5,700 e) 5,750
Explanation / Answer
We have to get the qualifying income to go for the mortage loan, which will fulfil the all the conditions. So,
Monthly principal payment = $ 555.56
Monthly interest payment on average = $ 583.34
Condition 1: the monthly payment must not exceed 25% of your monthly income.
=> Income should be= $ (555.56 + 583.34) /25*100 = $ 4555.60
Condition 2: the monthly payment plus taxes and insurance must not exceed 28% of your monthly income
=> Income should be = $ (555.56 + 583.34 + 250) /28*100 = $ 4960.36
Condition 3: the monthly payment, taxes, and insurance and other debt payments must not exceed 33% of your monthly income.
=> Income should be = $ (555.56 + 583.34 + 250 +300) /33*100 = $ 5117.88
So, to qualify for mortage loan of $200000 for 30 years @ 7% interest alongwith the taxes and insurance and other debt payments, the monthly income needs to be as high as $ 5500 i.e. option (a).
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