12) You just got a promotion and you are now taking home $75,000 a year before t

Question

12) You just got a promotion and you are now taking home $75,000 a year before taxes. You are thinking about upgrading your home and moving to a nicer neighborhood. You’ve been living for the past six years in a 1,300 square foot, 3 bed/2 bath home, currently valued at $137,000. Thanks to the strong capital appreciation of the past few years, you estimate that after liquidating the mortgage and covering realtor fees, you’ll be able to walk away with $40,000, which you intend to use as down payment on your new home. Your debt payments ratio is only 7% and your credit rating is 700,

so qualifying for a loan won’t be a problem. The best bank rate you’ve found is 5.9% fixed for a 30 year mortgage. a. Ignoring mortgage insurance premiums, homeowner’s insurance premiums, and property tax obligations, how much of a home could you afford? b. Would your mortgage be considered conforming or non-conforming? c. Do you think you’ll be required to obtain private mortgage insurance? Why?  

Explanation / Answer

B . The above loan is conforming loan beacuse of its tenure and bank rate.

C. No private mortage insurance is not required . Because of recent guideline of bank of america and their down payment is less than 20 %

Earning before tax $75,000 Debt payment ratio 7% Earining after debt $69,750.00 Bank rate 5.90% Year of loan 30 Maxium amt of loan can be taken Earning * Annuity Annuity of 30 year at 5.9 % 13.92 Maximum amt of loan $970,920.00 Assumption tax rate is not given so it is ignore

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