If you were buying a home valued at $215,000, what is the minimum down payment y
ID: 2789016 • Letter: I
Question
If you were buying a home valued at $215,000, what is the minimum down payment you would need in order to avoid paying private mortgage insurance (PMI)? PMI is requested to protect the lender from potential default loss when there is insufficient equity in a home.
Debt payments-to-income ratios will likely be considered as you apply for a mortgage. The Focus on Personal Finance text suggests keeping this ratio below 20%. A mortgage lender will have their own ratio for all debt payments, including mortgage-to-income ratio, before they will consider approval. Using this information, answer the questions and show your calculations in the table below:
Net monthly income: $4,000
Expected full mortgage payment (PITI): $1,000
Student loan payment: $250
Car payment: $300
Enter your calculation and response in this column.
What is this person’s debt payments-to-income ratio?
What is this person’s debt payments-to-income ratio when the full mortgage payment is included?
If the mortgage lender required total payment to income ratio below 40%, would this person meet that standard?
If the mortgage lender required total payment to income ratio below 45%, what is the maximum monthly payments this person could have to meet the standard?
Enter your calculation and response in this column.
What is this person’s debt payments-to-income ratio?
What is this person’s debt payments-to-income ratio when the full mortgage payment is included?
If the mortgage lender required total payment to income ratio below 40%, would this person meet that standard?
If the mortgage lender required total payment to income ratio below 45%, what is the maximum monthly payments this person could have to meet the standard?
Explanation / Answer
1. 550/4000=0.1375
2. 1550/4000=0.3875
3. Yes
4. Total Payments<=45%*4000
Total Payments<=1800
Mortgage Payments<=1800-300-250
Mortgage Payments<=1250
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